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International Business Exam 2 Review

The reasons a government may nationalize a firm include:
A. to extract more money from the firm.
B. to increase the firm’s profitability.
C. to preserve jobs.
D. all of the above.
Privately owned companies sometimes complain that government-owned companies have the following unfair advantages:
C. access to government contracts.
Nationalization and privatization are:
B. opposing trends.
Government stability is understood to refer to a government’s:
A. policies—their ability to endure over time.
B. ability to keep itself in power.
C. two of A, B, and D.
D. ability to adjust to sudden changes by making radical policy changes.
E. all of A, B, and D.
C. two of A, B, and D.
Zimbabwe is an example of:
A. a richly endowed country that has suffered because of government instability.
B. a government that expropriated private property, that is, nationalized it, and then redistributed it.
C. a country whose leadership stole the 2008 election.
D. all of the above.
Government stability is a characteristic of a government that:
maintains predictability in fiscal, monetary and political policies.
International business can be a powerful political force, in part because:
about half the world’s 100 largest economic units are firms.
The trend for firms in regard to country risk assessment (CRA) is to:
B. concentrate much more on CRA in making decisions about foreign activities.
The national defense argument for trade restrictions has been used in the United States to argue for restriction on imports of:
C. shoes.
An argument against using trade restrictions to punish an offending nation is that:
A. sanctions seldom achieve their goal of forcing change in the offending country.
Dumping is:
B. selling a product abroad for less than the market price in the export nation.
An example of environmental dumping can be found in the:
A. maquiladora plants of Mexico, located near the U.S. border and operating at lower environmental standards than would be required in the United States.
B. nuclear waste shipments to developing nations.
C. garbage shipments from New Jersey to developing nations.
D. all of the above.
New types of dumping include:
A. cultural, social, financial services, and tax dumping.
The primary motivation of tariffs is to:
B. raise the price of imports, to protect domestic goods.
Official prices ensure that:
A. imported goods will be sold at minimum prices, to avoid dumping.
C. low-priced invoices to avoid tariffs will not be successful.
D. two of the above.
Nuisance tariffs:
A. annoy the importers with red tape and administrative paperwork.
Quotas are a quantitative barrier that sets:
A. limits, established by the importer.
Unlike quotas, voluntary export restraints (VERs) are imposed by the:
B. exporting country’s government.
Non-quantitative nontariff barriers:
A. are seen by many to be the most significant nontariff barrier.B. often involve government participation in trade, especially in customs and other administrative procedures.
C. often involve standards.

D. all of the above.
Customs procedures in many countries often:
B. discriminate against imports and favor exports.
Standards are a way to establish nontariff barriers, and examples are:
B. Japan’s refusal to import light mayonnaise.
C. Canada’s categorization of orange juice with added calcium as a drug and subject to special requirements.
D. the prohibition of imported drugs at the consumer level in the United States.
A. all of B, C, and D.
Anyone studying legal forces affecting international business soon realizes that:
C. the variety of these forces complicates the task of understanding the laws.
The existence of the rule of law in a foreign market suggests that:
E. foreign investors can assume that their interests will be protected.
Laws governing transactions of individuals and companies that cross international borders are:
B. private international law.
The main source(s) of international law is(are):
C. bilateral and multilateral treaties, along with customary law.
Extraterritoriality is:
A. a nation’s attempt to enforce its law beyond its borders.
If two English multinational companies had a dispute arising in New York City, and there were no choice-of-law or choice-of-forum clauses in their contract, it is likely that:
B. they would bring their dispute to an English court.
Where litigation in international disputes should occur is:
C. often complex, so contracts should include choice-of-law and choice-of-forum clauses.
Arbitration is a private solution that is:
A. often preferred by foreign litigants because it is perceived as fairer, faster, cheaper, and more confidential than are the courts.
Usually, it is reasonable to assume that foreign law:
B. will differ from U.S. law and must be understood.
Intellectual property:
D. includes anything that is the result of things created using someone’s intellect.
Patents are government grants that give the owner:
A. exclusive rights to use, sell, manufacture, or exploit the invention or process.
WIPO and TRIPS represent:
D. UN and WTO agencies or programs that focus on IP.
Trademarks can be:
A. a color.
B. a sound.
C. a design.
E. all of A, B, and C.
Antitrust law is intended to:
B. prevent large concentrations of economic power, such as monopolies.
U.S. antitrust law is applied:
B. to all firms, including extraterritorially.
The U.S. antitrust law contains both civil and criminal penalties:
B. and the criminal penalties apply to foreign companies even if the conspiracy took place outside the United States.
Trade obstacles are considered to be legal forces because:
A. they often are based on legislation.
B. their compliance is costly to the firm and the consumer.
C. they are imposed by a formal institution and noncompliance can carry punishment.
D. two of the above.
E. all of A, B, and C.
D. two of the above.
The end result of legal trade obstacles is often:
C. higher costs to consumers.
In the U.S. court system, tort claims may result in:
A. exceedingly large awards.
Punitive damages in product liability cases can be awarded in:
D. the United States
The Foreign Corrupt Practices Act has:
A. carried the discussion of transparency and corruption out into the open.
Historically, gold has been used as a way for people to store value because of its:
A. purity and scarcity.
Sir Isaac Newton put England on the gold standard when he:
C. established a fixed equivalency between gold and the British currency.
The present floating exchange rate system was:
D. established after several trials in which central bankers set rates incorrectly and speculators corrected them in the markets, and it was formalized after the fact in the IMF’s Jamaica Agreement.
Financial forces such as inflation and taxation are considered uncontrollable because:
B. they are external forces beyond the influence of the firm, around which a manager can manage.
The present floating exchange rate system is not a totally free float because:
C. some central banks from time to time intervene in the market to buy or sell large amounts of currency to affect the supply and demand of a particular currency.
The forward currency market:
A. allows purchasers to lock in purchases of currencies at known rates.
If the Japanese yen is strengthening against the U.S. dollar, and the Japanese government wanted to boost exports, the central bank of Japan might well:
C. sell massive amounts of Japanese yen in the FX markets.
Arbitrage functions to:
B. exploit price differences between markets, so as to profit with no risk.
When the law of one price is applied to interest rates, it suggests that:
D. varying interest rates take into account anticipated differences in inflation rates.
The international Fisher effect says that the interest rate differentials in any two currencies reflect:
D. the expected change in their exchange rates.
Purchasing power parity is a way to compare:
A. the purchasing power of several currencies.
The three main approaches to exchange rate forecasting are:
A. the efficient market approach, the fundamental approach, and the technical approach.
Foreign reserves are used to:
C. cover foreign debt, import purchases, and other demands for foreign currency that banks might encounter.
Taxation is a financial force in that:
A. if the firm can achieve a lower tax burden than its competitors, it can generate higher revenues and then lower its prices or pay higher wages and dividends.
The inflation rate determines:
B. the real price of borrowing in capital markets.
The balance-of-payments account is a record of:
B. a country’s transactions with the rest of the world.
Most significantly for the international manager, the balance of payments reveals:
D. demand for a country’s currency and potential changes in its economic environment.
A vehicle currency is a currency:
D. used for international trade or investment.
Monetary and fiscal policies:
B. influence interest rates and taxation, and so may influence exchange rates.
The law of one price is that:
A. only one price can be charged for an item in a contract deal.
B. in an efficient market, one price only is the permissible price.
C. in an efficient market, like goods will have like prices.
D. even in international markets, bait and switch is illegal.
C. in an efficient market, like goods will have like prices.
The Eonomist’s Big Mac index (May 2010) suggests that against the dollar, the Chinese yuan is:
A. trading fairly, since the Big Mac prices are similar.
B. quite undervalued, since the Chinese Big Mac is almost 50 percent less expensive than the U.S.-dollar Big Mac.
C. is overvalued, since the Big Mac sells for almost 50 percent less in Chinese currency than in U.S. dollars.
D. trading at a historical premium.
B. quite undervalued, since the Chinese Big Mac is almost 50 percent less expensive than the U.S.-dollar Big Mac.
Fixed-rate relationships among currencies could not stay fixed, according to Obstfeld and Rogoff, because:
A. the volume of global transactions started to exceed most countries’ foreign exchange reserves, so governments couldn’t intervene to sustain the value of their currency.
In general, with regard to exchange controls, developed countries:
A. rarely use them.
B. use them only to discourage foreign investment.
C. use them when needed to implement monetary policy.
D. use them secretly.
A. rarely use them.
The three major taxes governments use to generate revenue are:
A. VAT, income tax, and withholding tax.
A value-added tax is actually a sales tax that is:
B. paid in stages along the process from raw materials to consumer and then credited after final sale.
Withholding tax is:
D. an indirect tax levied on passive income.
The inflation rate determines:
C. the real cost of borrowing in capital markets.
Balance-of-payments data:
C. reveal demand for a country’s currency.
The current account on the BOP has three subaccounts:
D. merchandise, services, and unilateral transfers.
A purchase of foreign goods from the United States (requiring importing) will:
B. be recorded in the BOP as a debit in the current account.
The Triffin paradox suggests that:
B. eventually, reserve currencies will run deficits, which will lead to lack of confidence in the currency.
Who took the United States off the gold system?
D. President Nixon

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