Business Essentials 8th Canadian Edition By Ronald J. Ebert - Test Bank

Business Essentials 8th Canadian Edition By Ronald J. Ebert – Test Bank

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Sample Questions Are Posted Below

Chapter 5 The Global Context of Business

5.1 Multiple-Choice Questions

1) Imports are

A) services that are created in Canada and sold abroad.
B) products that are made or grown abroad and sold in Canada; services cannot be imported.
C) goods and services that are made or grown in Canada and sold abroad.
D) products that are made or grown in Canada and sold abroad; services cannot be imported.
E) goods and services that are made or grown abroad and sold in Canada.

Answer: E

Diff: 2 Type: MC Page Ref: 99

Skill: Comprehension

Objective: 5.1

2) Exports are

A) services that are created in Canada and sold abroad.
B) goods and services that are made or grown abroad and sold in Canada.
C) products that are made or grown in Canada and sold abroad; services cannot be exported.
D) goods and services that are made or grown in Canada and sold abroad.
E) products that are made or grown abroad and sold in Canada; services cannot be exported.

Answer: D

Diff: 2 Type: MC Page Ref: 99

Skill: Comprehension

Objective: 5.1

3) Susie lives in Vancouver and has noticed that there seems to be a rising interest in goods from the Chinese culture. To take advantage of this she should explore

A) subsidies.
B) exporting.
C) a trade deficit.
D) foreign exchange.
E) importing.

Answer: E

Diff: 1 Type: MC Page Ref: 99

Skill: Comprehension

Objective: 5.1

4) Which of the following constitutes the best evidence for globalization?

A) Diamonds that are mined in Country X are sold on the diamond market in Country Y and the money is used to fund a rebel group trying to overthrow the government in Country X.
B) A flood in country X causes factories to shut down temporarily and they cannot deliver computer chips to foreign buyers. Company Y (in another country) has to reduce its output, and it also raises the price of its products.
C) Farmers in Country X lose most of their wheat crops because of a drought. The price of wheat triples and the government of country X reimburses farmers for some of their losses.
D) Country X has almost exhausted all of its available natural energy sources. The government has been investing in alternative energy research for many years and has developed an efficient synthetic energy source.
E) Country X has raised the tax on gasoline and, as a result, more of its citizens are taking public transportation and cutting back on car travel.

Answer: B

Diff: 3 Type: MC Page Ref: 99

Skill: Analysis

Objective: 5.1

5) Your television set, your shoes, even the roast lamb on your dinner table is likely to be the result of

A) importing.
B) subsidies.
C) foreign exchange.
D) a trade deficit.
E) exporting.

Answer: A

Diff: 1 Type: MC Page Ref: 99

Skill: Knowledge

Objective: 5.1

6) Farmer Sal grows strawberries. The berries are shipped to a local manufacturing plant where they are made into jam, labeled “Country Recipe Strawberry Jam,” and boxed for shipment overseas. This product of Ontario is also referred to as a(n)

A) export.
B) import.
C) trade product.
D) absolute product.
E) competitive advantage.

Answer: A

Diff: 2 Type: MC Page Ref: 99

Skill: Comprehension

Objective: 5.1

7) Which of the following is an example of importing a service?

A) A Canadian purchases a ticket to see a performance by a Spanish singer
B) A Toronto taxi driver takes an American from Pearson airport to a downtown Toronto hotel
C) A Canadian engineer designs a bridge to be built in Australia
D) An accountant does financial statements for a Mexican company
E) A Canadian lawyer goes to California to work on a litigation case

Answer: A

Diff: 3 Type: MC Page Ref: 99

Skill: Comprehension

Objective: 5.1

8) The annual volume of world trade is about

A) $100 billion.
B) $3 trillion.
C) $875 billion.
D) $19 trillion.
E) $8 trillion.

Answer: D

Diff: 2 Type: MC Page Ref: 99

Skill: Knowledge

Objective: 5.1

9) According to the World Bank, high income countries include all of the following except

A) Japan.
B) the United States.
C) Canada.
D) South Korea.
E) South Africa.

Answer: E

Diff: 2 Type: MC Page Ref: 100

Skill: Knowledge

Objective: 5.1

10) Which organization created the classification of countries based on per capita income?

A) The World Bank
B) The World Trade Organization
C) The International Monetary Fund
D) The European Union
E) The North American Free Trade Agreement

Answer: A

Diff: 2 Type: MC Page Ref: 100

Skill: Knowledge

Objective: 5.1

11) According to the World Bank, ________ is considered an upper middle-income country.

A) Singapore
B) Hong Kong
C) South Korea
D) Argentina
E) United Arab Emirates

Answer: D

Diff: 3 Type: MC Page Ref: 100

Skill: Knowledge

Objective: 5.1

12) According to the World Bank, upper middle-income countries are defined as

A) those with per capita income between US$4126 and US$12 745.
B) those with per capita income between US$5210 and US$8210.
C) those with per capita income between US$765 and US$21 345.
D) those with per capita income between US$3595 and US$11 115.
E) those with per capita income between US$205 and US$9386.

Answer: A

Diff: 3 Type: MC Page Ref: 100

Skill: Knowledge

Objective: 5.1

13) According to the World Bank, lower middle-income countries are defined as

A) those with per capita income between US$4126 and US$12 475.
B) those with per capita income between US$5210 and US$8210.
C) those with per capita income between US$765 and US$21 345.
D) those with per capita income between US$3595 and US$11 115.
E) those with per capita income between US$1046 and US$4125.

Answer: E

Diff: 3 Type: MC Page Ref: 100

Skill: Knowledge

Objective: 5.1

14) According to the World Bank, ________ are high-income countries, while ________ are upper middle income countries.

A) Australia, Japan, and Israel; China, Argentina, and South Africa
B) China, Colombia, and Lebanon; Armenia, Guatemala, and Vietnam
C) Argentina and South Africa; Colombia, Lebanon, and Turkey
D) Colombia, Lebanon, and Turkey; Australia, Japan, South Korea;
E) Canada, the United States, and most countries in Europe; Kuwait, the United Arab Emirates and Oman.

Answer: A

Diff: 3 Type: MC Page Ref: 100

Skill: Knowledge

Objective: 5.1

15) The major reasons why Mexico has recently become a major manufacturing centre are

A) cheap labour and low transportation costs.
B) elimination of quotas and tariffs and low tax rates.
C) low tax rates and cheap labour.
D) cheap labour and elimination of quotas and tariffs.
E) low transportation costs and low tax rates.

Answer: A

Diff: 2 Type: MC Page Ref: 100

Skill: Comprehension

Objective: 5.1

16) The country that has economically dominated Western Europe is

A) Germany.
B) Russia.
C) Finland.
D) Poland.
E) Spain.

Answer: A

Diff: 2 Type: MC Page Ref: 100

Skill: Knowledge

Objective: 5.1

17) Which areas represent the three major market places for international business?

A) North America, South America, and Asia-Pacific
B) North America, Europe, and Asia-Pacific
C) South America, Africa, and Asia-Pacific
D) South America, Europe, and Africa
E) Asia-Pacific, Europe, and Africa

Answer: B

Diff: 2 Type: MC Page Ref: 100

Skill: Knowledge

Objective: 5.1

18) With regard to the BRIC countries, it is correct to say that

A) they all emphasize the export of raw materials.
B) they all have a low level of industrialization at the moment, but are progressing rapidly.
C) Russia is the strongest in terms of manufacturing.
D) Brazil is strong in agriculture and commodities.
E) All of these statements are correct.

Answer: D

Diff: 3 Type: MC Page Ref: 100

Skill: Comprehension

Objective: 5.2

19) Which of the following is correct with respect to the BRIC countries?

A) Russia is the dominant country in the group.
B) There is very little coordination between the BRIC countries, and they do not act like a unit.
C) All of the BRIC countries put a heavy emphasis on exporting commodities.
D) India is a leading service provider.
E) Brazil is the most corrupt of the BRIC nations.

Answer: D

Diff: 2 Type: MC Page Ref: 99

Skill: Comprehension

Objective: 5.2

20) The absolute advantage form of competitive advantage means

A) that a country does not belong to any free trade agreements.
B) that a country can produce everything better or more cheaply than any other country.
C) that a country can produce some products better or more cheaply than it can others.
D) that a country is the sole supplier of a product or service.
E) that a country can produce something better or more cheaply than any other country.

Answer: E

Diff: 2 Type: MC Page Ref: 102

Skill: Comprehension

Objective: 5.3

21) Country Z can produce pig iron more efficiently than any other product. Which type of advantage in pig iron does Country Z have?

A) Absolute advantage
B) National competitive advantage
C) Comparative advantage
D) Trade balance advantage
E) Resource advantage

Answer: C

Diff: 2 Type: MC Page Ref: 102

Skill: Comprehension

Objective: 5.3

22) Country Z can produce pig iron more efficiently than any other country. Which type of advantage in pig iron does Country Z have?

A) Absolute advantage
B) National competitive advantage
C) Comparative advantage
D) Trade balance advantage
E) Resource advantage

Answer: A

Diff: 2 Type: MC Page Ref: 102

Skill: Comprehension

Objective: 5.3

23) Which of the following is correct with respect to absolute and comparative advantage?

A) Brazilian coffee beans are a good example of comparative advantage.
B) Absolute advantage exists when a country can produce something more cheaply and/or of higher quality than the next three most efficient countries.
C) A country has a comparative advantage when it can produce a product more efficiently or better than most (but not all) other countries.
D) All countries have a comparative advantage in some products.
E) All of these are correct.

Answer: D

Diff: 3 Type: MC Page Ref: 102

Skill: Comprehension

Objective: 5.3

24) The comparative advantage form of competitive advantage means

A) that a country does not belong to any free trade agreements.
B) that a country is the sole supplier of a product or service.
C) that a country can produce everything better or more cheaply than any other country.
D) that a country can produce some products better or more cheaply than it can other products.
E) that a country can produce something better or more cheaply than any other country.

Answer: D

Diff: 2 Type: MC Page Ref: 102

Skill: Comprehension

Objective: 5.3

25) Canada has a(n) ________ in farming due to its fertile land, while South Korea has a(n) ________ in electronics manufacturing.

A) absolute advantage; absolute advantage
B) absolute advantage; comparative advantage
C) comparative advantage: absolute advantage
D) comparative advantage; comparative advantage
E) none of these

Answer: D

Diff: 2 Type: MC Page Ref: 102

Skill: Comprehension

Objective: 5.3

26) Which of the following best explains why a nation like Canada or Japan would export a particular product or service?

A) That nation has multinational companies
B) That nation has an absolute advantage
C) That nation has a positive balance of trade
D) That nation has a negative balance of trade
E) All of these

Answer: B

Diff: 1 Type: MC Page Ref: 102

Skill: Comprehension

Objective: 5.3

27) Which of the following best explains why a nation exports specific products and services?

A) Whether the nation has international companies
B) Whether a nation has a trade surplus
C) Whether a nation has an absolute advantage
D) Whether a nation has a balance of trade
E) The level of the country’s GNP

Answer: C

Diff: 2 Type: MC Page Ref: 102

Skill: Comprehension

Objective: 5.3

28) The difference between absolute and comparative advantages is that absolute advantage is relative to ________, while comparative advantage is relative to ________.

A) other nations; activity inside the country
B) similar industries; dissimilar industries
C) similar products; dissimilar products
D) activity inside the country; other nations
E) dissimilar products; similar products

Answer: A

Diff: 2 Type: MC Page Ref: 102

Skill: Comprehension

Objective: 5.3

29) According to the World Economic Forum’s global competitiveness ranking, the top three countries in 2015 were

A) China, India, and Ireland.
B) Switzerland, Singapore, and the United States.
C) the United States, Canada, and Australia.
D) Ireland, Iceland, and Sweden.
E) China, Singapore, and Japan.

Answer: B

Diff: 3 Type: MC Page Ref: 102

Skill: Knowledge

Objective: 5.3

30) In the World Economic Forum’s 2015 global competitiveness ranking, Canada ranked

A) first.
B) second.
C) fourth.
D) sixth.
E) fifteenth.

Answer: E

Diff: 3 Type: MC Page Ref: 102

Skill: Comprehension

Objective: 5.3

31) The theory of national competitive advantage derives from all of the following conditions except

A) demand conditions.
B) supply conditions.
C) strategies, structures, and rivalries.
D) related and supporting industries.
E) factor conditions.

Answer: B

Diff: 2 Type: MC Page Ref: 102

Skill: Comprehension

Objective: 5.3

32) All of the following are included in the balance of payments except

A) money paid for imports.
B) money paid by domestic corporations for taxes.
C) money spent by tourists.
D) money spent on foreign aid.
E) money paid for exports.

Answer: B

Diff: 2 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

33) As the value of a country’s currency rises

A) domestic companies will have a harder time selling their products in foreign markets.
B) foreign companies will find it harder to sell their products in local markets.
C) imports and exports will remain relatively constant.
D) domestic companies will shift from the production of consumer goods to the production of industrial goods.
E) all of these will happen.

Answer: A

Diff: 3 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

34) As the value of a country’s currency falls, its balance of trade should

A) decline.
B) remain the same.
C) improve.
D) either increase or decrease.
E) none of these.

Answer: C

Diff: 3 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

35) A nation’s balance of trade is

A) the relative difference between money flowing into and out of a country.
B) the difference in value between a country’s total exports and its total imports.
C) the relative difference in value between a country’s total exports and its total imports.
D) the difference between money flowing into and out of a country.
E) the difference in exchange rates between two countries.

Answer: B

Diff: 2 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

36) Which of the following best describes a positive trade balance?

A) The economic condition in which a country’s exports exceed its imports
B) The economic condition in which a country’s imports exceed its exports
C) The economic condition in which a country’s inflow of money exceeds its outflow
D) The economic condition in which a country’s outflow of money exceeds its inflow
E) The economic condition in which a country’s natural resources exceed its human resources

Answer: A

Diff: 2 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

37) Which of the following is correct with regard to Canada’s balance of trade?

A) Canada had a trade surplus of $4.6 billion in 2014.
B) The United Kingdom is Canada’s largest trading partner.
C) Canada’s generally favourable trade balance over the years has occurred because our unfavourable balance of trade with the United States is offset by our favourable balance of trade with most other countries.
D) Canada has generally had an unfavourable balance of trade.
E) None of these.

Answer: A

Diff: 3 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

38) The balance of trade that Canada has experienced has been

A) changing between favourable and unfavourable with about a seven year cycle.
B) unfavourable since Confederation.
C) favourable for most of the last 30 years.
D) unfavourable for the last 30 years.
E) favourable since Confederation.

Answer: C

Diff: 2 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

39) The Congo imported $150 billion worth of goods and services while exporting $175 billion to other countries. It has a

A) negative balance of payments.
B) comparative advantage.
C) positive balance of payments.
D) trade surplus.
E) trade deficit.

Answer: D

Diff: 2 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

40) If Japan’s total exports are $12 billion and total imports are $4 billion, then this is called

A) a trade deficit.
B) a positive balance of trade.
C) an absolute advantage.
D) a negative balance of payments.
E) negative capital mobility.

Answer: B

Diff: 2 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

41) The balance of payments refers to

A) the relative difference between money flowing into and out of a country.
B) the difference in value between a country’s total exports and its total imports.
C) the relative difference in value between a country’s total exports and its total imports.
D) the difference between money flowing into and out of a country as a result of trade and other transactions.
E) the difference in exchange rates between two countries.

Answer: D

Diff: 2 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

42) If there is a favourable balance of payments, it means that

A) a country exports manufactured goods and imports raw materials.
B) a country imports more than it exports for each country with which it trades.
C) a country exports more than it imports for each country with which it trades.
D) the country has more money flowing into it than out as a result of trade and other transactions.
E) a country exports raw materials and imports manufactured goods.

Answer: D

Diff: 3 Type: MC Page Ref: 103

Skill: Application

Objective: 5.3

43) If the Canadian dollar becomes weak compared to the Japanese yen, which of the following is likely to occur?

A) Demand for goods would be unaffected by currency changes
B) Japanese products would become cheaper in Canada
C) It would take fewer dollars to buy the same number of yen
D) Canadian products would become less expensive in Japan
E) Japanese demand for goods from Canada would fall

Answer: D

Diff: 3 Type: MC Page Ref: 104

Skill: Comprehension

Objective: 5.3

44) Which of the following is correct with regard to the balance of trade and the balance of payments?

A) If a country has a favourable balance of trade, it will also have a favourable balance of payments.
B) The balance of payments is computed by dividing the value of a country’s currency by the number of currency transactions that took place in the previous year.
C) A country that imports more than it exports has a favourable balance of trade.
D) Countries used to strive to have a favourable balance of trade, but governments no longer worry about that issue because of globalization.
E) Canada has generally had a favourable balance of trade during the last few decades.

Answer: E

Diff: 3 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

45) Which of the following items is least likely to impact a nation’s balance of payments?

A) Gains or losses in exchanges of international currencies
B) An increase in the GDP
C) Money spent by tourists
D) Trade deficits or surpluses
E) Foreign aid programs

Answer: B

Diff: 2 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

46) The balance of payments that Canada has experienced has been

A) unfavourable for many years.
B) favourable since Confederation.
C) changing between favourable and unfavourable with about a seven year cycle.
D) favourable for the last 30 years.
E) unfavourable since Confederation.

Answer: A

Diff: 2 Type: MC Page Ref: 103

Skill: Comprehension

Objective: 5.3

47) When the value of the Canadian dollar drops

A) both our imports and our exports become more expensive.
B) our imports become cheaper and our exports become more expensive.
C) our imports become more expensive and our exports become cheaper.
D) both our imports and our exports become cheaper.
E) there is no change in the price of our imports and our exports.

Answer: C

Diff: 3 Type: MC Page Ref: 104

Skill: Comprehension

Objective: 5.3

48) When the value of the Canadian dollar rises

A) both our imports and our exports become more expensive.
B) there is no change in the price of our imports and our exports.
C) our imports become more expensive and our exports become cheaper.
D) our imports become cheaper and our exports become more expensive.
E) both our imports and our exports become cheaper.

Answer: D

Diff: 3 Type: MC Page Ref: 104

Skill: Comprehension

Objective: 5.3

49) What is an expected result when a nation devalues its currency?

A) Export sales of its products decline.
B) The number of independent agents declines.
C) Export sales of its products increase.
D) No result is more likely than any other.
E) Export sales of its products will be unchanged.

Answer: C

Diff: 2 Type: MC Page Ref: 104

Skill: Comprehension

Objective: 5.3

50) If the Canadian dollar becomes stronger in relation to the Japanese yen

A) the prices of all Canadian-made products would rise in Japan and the prices of all Japanese-made products would fall in Canada.
B) there would be no effect on the prices of Canadian-made products sold in Japan.
C) the prices of all Canadian-made products would fall in Japan and the prices of all Japanese-made products would rise in Canada.
D) the prices of all Canadian-made products would fall in Japan and the prices of all Japanese-made products would fall in Canada.
E) the prices of all Canadian-made products would rise in Japan and the prices of all Japanese-made products would rise in Canada.

Answer: A

Diff: 2 Type: MC Page Ref: 104

Skill: Comprehension

Objective: 5.3

51) If the Canadian dollar rises, our balance of trade will most likely ________ resulting in a ________ of jobs in the export industry.

A) rise; increase
B) decrease; decrease
C) decrease; increase
D) rise; decrease
E) none of these

Answer: B

Diff: 3 Type: MC Page Ref: 104

Skill: Comprehension

Objective: 5.3

52) With regard to exchange rates, it is correct to say that

A) they affect trade balances.
B) they typically vary substantially on a daily basis.
C) they do not vary with market conditions.
D) changes affect only narrow product lines, not all products.
E) as the value of a country’s currency falls, foreign companies have less incentive to ship products into that country.

Answer: A

Diff: 2 Type: MC Page Ref: 104

Skill: Comprehension

Objective: 5.3

53) Which of the following is correct with respect to exchange rates?

A) The value of one country’s currency relative to another varies with changes in GDP, but not as a response to market conditions.
B) The value of the Canadian dollar falls as the foreign demand for Canadian goods rises.
C) Exchange rates typically fluctuate by very small amounts on a daily basis.
D) Fluctuation in exchange rates have little impact on the balance of trade.
E) All of these are correct.

Answer: C

Diff: 2 Type: MC Page Ref: 104

Skill: Comprehension

Objective: 5.3

54) With respect to exchange rates and competition, it is correct to say that

A) companies that conduct international operations do not have to worry about the effect of exchange-rate fluctuations on competition because the accounting department does the conversions.
B) as the value of a country’s currency falls, its balance of trade becomes less favourable.
C) as the value of a country’s currency falls, there is an increased incentive for foreign companies to ship products into the domestic market.
D) Canadian firms can deal with a stronger Canadian dollar by increasing the efficiency their operations.
E) all of these are correct.

Answer: D

Diff: 3 Type: MC Page Ref: 104

Skill: Comprehension

Objective: 5.3

55) Beta Corp. is trying to decide whether to market its products internationally. Its first decision is to

A) determine what the costs would be.
B) check the business climate to see if the foreign country would be positive.
C) check the competition to see what its situation would be.
D) determine whether there is international demand for its products.
E) check the exchange rates to see if they are favourable.

Answer: D

Diff: 2 Type: MC Page Ref: 105

Skill: Application

Objective: 5.4

56) Marina Corp. wants to “go international,” and has already determined that there is international demand for its products. What should the company do next?

A) Determine if their products need to be modified to fit the foreign market
B) Assess the business climate for reaction to foreign products
C) Locate a local business to form a joint venture
D) Conduct market research to determine potential sales
E) Determine what competition would be encountered

Answer: A

Diff: 2 Type: MC Page Ref: 105

Skill: Application

Objective: 5.4

57) McCain Foods developed single-sized portions of frozen vegetables to serve customers in South Africa that do not have proper refrigeration. This is an example of

A) determining whether there is international demand for a product.
B) modifying a product to fit a foreign market.
C) determining the receptivity of a foreign market for a company’s product.
D) acquiring the necessary skills to do business abroad.
E) bootstrapping.

Answer: B

Diff: 2 Type: MC Page Ref: 105

Skill: Comprehension

Objective: 5.4

58) Canada ranks ________ among the G8 countries in the proportion of production that is exported.

A) first
B) second
C) third
D) fourth
E) fifth

Answer: A

Diff: 2 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

59) How will a business firm know if there is a demand for its product in another nation?

A) The company is willing to discuss royalty fees with other international firms.
B) There is a positive balance of payments.
C) A firm cannot know if such a demand exists.
D) The product is very successful in the company’s home nation.
E) Due to the successful prior entry of a competitor firm with a similar product in the international market.

Answer: E

Diff: 2 Type: MC Page Ref: 105

Skill: Comprehension

Objective: 5.4

60) Algoma Treasures, a gift-wrap manufacturer, is considering expanding its business into the international market. What key question must have a positive answer before a company begins international operations?

A) Is there a demand for its products abroad?
B) Is there a favourable balance of trade?
C) What is the currency exchange rate?
D) Is there a favourable balance of payments?
E) Is local culture compatible?

Answer: A

Diff: 2 Type: MC Page Ref: 105

Skill: Comprehension

Objective: 5.4

61) Merritt Corp. is interested in doing business internationally. They have already determined that there is international demand for their product. What should they do next?

A) Determine if the company has the skills necessary to do business abroad
B) Contact a local business to form a joint venture
C) Assess the business climate for reaction to foreign products
D) Determine if the product needs to be modified to fit the foreign market
E) Conduct market research to determine potential sales

Answer: D

Diff: 2 Type: MC Page Ref: 105

Skill: Application

Objective: 5.4

62) Biltmore Corp. is involved in a planning process for doing business internationally. They have already determined that their product can be modified to fit foreign markets. What should they do next?

A) Determine if the company has the skills necessary to do business abroad
B) Determine if there is international demand for the product
C) Assess the business climate for receptivity to imports
D) Determine if the product needs to be modified to fit the foreign market
E) Conduct market research to determine potential sales

Answer: C

Diff: 2 Type: MC Page Ref: 105

Skill: Application

Objective: 5.4

63) The global business environment encompasses many international forces that influence the outcomes of companies doing business in foreign countries. Which of the following scenarios would best count as evidence of globalization?

A) Diamonds mined in Country X are sold on the markets in Country Y. The proceeds are then used to fund a coup against the government in Country X.
B) A natural disaster disables factories in Country X that produce computer chips for Company Y. Company Y reduces the number of employee shifts and raises the price of its products.
C) Farmers in Country X have lost most of their wheat crops due to a drought. The market price for wheat triples and the government pays the farmers for a percentage of the lost wheat.
D) Country X has almost mined all of its available natural energy sources. The government has been investing in alternative energy research for years and now an efficient synthetic energy source has been developed.
E) Country X has raised the tax on oil products. As a result more people are taking public transportation and reducing unnecessary car travel.

Answer: B

Diff: 3 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

64) The CEOs of Company A and B are investigating expansion into new markets, which will provide greater trade volume. Which scenario describes an economic environment that is most suitable for an importing-exporting opportunity?

A) Country X invests primarily in its textile industry, while Country Y focuses on producing high-yield crops.
B) Company A is willing to provide parts used in the production of equipment by Company B in exchange for discounts on manufacturing equipment.
C) The southern region of Country X over-produces a wide range of produce, while few crops can be efficiently grown in the northern region.
D) Company A and Company B are exploring the possibility of a joint venture to provide goods to Country X.
E) Country X is looking to invest in foreign markets and Country Y currently has a large trade deficit.

Answer: A

Diff: 3 Type: MC Page Ref: 105

Skill: Knowledge

Objective: 5.4

65) Robert has established a start-up business manufacturing a range of outdoor wear for the leisure market. Which possible scenario would best show that Robert is positioning his business for the global business market?

A) Robert launched a website for his business and hired two new employees to handle national and international shipping.
B) Robert launched a website and filmed a commercial for television and recorded a radio version for local stations.
C) Robert created a page for his business on a networking site and offered store coupons to his first 100 friends.
D) Robert had his website translated into Korean in order to better serve the local Korean community.
E) Robert took a full-page ad out in the state’s official tourism brochure.

Answer: A

Diff: 3 Type: MC Page Ref: 105

Skill: Knowledge

Objective: 5.4

66) Which of the following companies may not find it profitable to go international?

A) A mining company
B) A company that buys and sells fresh produce and fish
C) A manufacturing firm specializing in bicycles
D) A financial investment firm
E) A newsprint company

Answer: B

Diff: 3 Type: MC Page Ref: 105

Skill: Comprehension

Objective: 5.4

67) What is the implication for a manufacturer of electrically powered equipment contemplating international operation upon learning of the wide variety of electric outlets around the world?

A) Modify the product to meet the standards of different countries
B) Deal with independent agents
C) Delay international operations until the currency exchange rate is favourable
D) Drop the idea of international operation
E) None of these

Answer: A

Diff: 3 Type: MC Page Ref: 105

Skill: Comprehension

Objective: 5.4

68) KFC’s dishes in China come with a side order of rice and soy milk. This is an example of

A) over-expansion without support for repairing the product.
B) adapting to customer needs.
C) misreading demand for the product.
D) overpricing caused by exchange rate changes.
E) a poor business environment for foreign goods.

Answer: B

Diff: 2 Type: MC Page Ref: 105

Skill: Comprehension

Objective: 5.4

69) Clement is the owner of Dills Distillery, which makes and bottles fruit wine. In his planning to export the wine, Clement should consider all of the following except

A) the target country’s balance of trade.
B) demand for the wine.
C) legal aspects of the target country.
D) cultural aspects of the target country.
E) economic road blocks.

Answer: A

Diff: 2 Type: MC Page Ref: 105

Skill: Comprehension

Objective: 5.4

70) In France, McDonald’s restaurants sell wine. This is a classic example of

A) adapting to customer needs.
B) importing.
C) foreign exchange.
D) misreading demand for the product.
E) balance of payments.

Answer: A

Diff: 2 Type: MC Page Ref: 105

Skill: Comprehension

Objective: 5.4

71) ________ is an example of an export of a service.

A) An advertising agency in Montreal making a TV commercial for a company in France
B) Obtaining information from a foreign database
C) Vacations taken by Canadians in a foreign country
D) Purchasing a camera made in Japan
E) A Canadian tourist having a camera repaired in Egypt

Answer: A

Diff: 2 Type: MC Page Ref: 105

Skill: Comprehension

Objective: 5.4

72) Which of the following is correct regarding the levels of foreign involvement a business can exhibit?

A) Importing and exporting represent the highest level of involvement in international operations.
B) Exporters and importers tend to conduct most of their business in foreign markets.
C) Only large companies are exporters.
D) An international firm conducts a significant portion of its business abroad, and it usually manufactures the vast majority of its products in foreign countries.
E) For multinational firms, the location of its head office is largely irrelevant.

Answer: E

Diff: 2 Type: MC Page Ref: 105-106

Skill: Comprehension

Objective: 5.4

73) What is a difference between an international firm and a multinational firm?

A) Multinational firms design, produce, and market products in many nations, whereas international firms are based primarily in one nation.
B) International firms design, produce, and market products in many nations, whereas multinational firms are based primarily in one nation.
C) There is very little difference between International and multinational firms.
D) Multinational firms are concerned primarily with foreign markets, whereas international firms are concerned primarily with the domestic market.
E) International firms are concerned primarily with foreign markets, whereas multinational firms are concerned primarily with the domestic market.

Answer: A

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

74) A firm that conducts a significant portion of its business abroad, that has some facilities overseas, and that imports a significant portion of goods from other countries is best described as

A) an importer.
B) an international firm.
C) mininational.
D) an exporter.
E) a multinational firm.

Answer: B

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

75) A firm that buys products made in another country for distribution and sale in its own country is

A) a multinational firm.
B) a joint venture.
C) an exporter.
D) an international firm.
E) an importer.

Answer: E

Diff: 1 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

76) Which of the following types of firms have planning and decision-making functions that are geared to international markets?

A) Exporting firms
B) International firms
C) Multinational firms
D) Domestic firms
E) None of these

Answer: C

Diff: 2 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

77) A firm that produces goods in one country and distributes and sells them in other countries is

A) a multinational firm.
B) an exporter.
C) an international firm.
D) a joint venture.
E) an importer.

Answer: B

Diff: 1 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

78) Herald Inc., a French newsprint manufacturer, is geared towards international markets but does not have specific domestic and international divisions. This firm is a(n)

A) multinational firm.
B) exporter.
C) independent agent.
D) purely domestic firm.
E) customs broker.

Answer: A

Diff: 1 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

79) Which type of firm is one in which management doesn’t think of itself as having domestic and international operations but rather as a firm that designs, makes, and markets products in many nations?

A) An exporter
B) An importer
C) An international firm
D) A multinational firm
E) Mininational

Answer: D

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

80) In which international structure would royalties likely be paid to the exporter?

A) By a branch office
B) Under a licensing arrangement
C) By a subsidiary manufacturing plant
D) In a joint venture
E) In a strategic alliance

Answer: B

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

81) With respect to international organizational structures, it is correct to say that

A) independent agents usually represent just one firm in foreign markets.
B) licensing arrangements are too expensive for most Canadian firms to get involved in.
C) a company has more control over branch managers than it does over agents or licence holders.
D) the number of strategic alliances has declined somewhat in recent years because of strict government regulations in many foreign countries.
E) Investment Canada’s mandate is to limit direct foreign investment in Canada so that Canadian firms, not foreign ones, will control the Canadian market.

Answer: C

Diff: 2 Type: MC Page Ref: 105-106

Skill: Comprehension

Objective: 5.4

82) Michael is going to sell his baby products abroad, and he is interested in having someone in the foreign country sell the product for him. Michael is most interested in working with a(n)

A) franchisee.
B) multinational firm.
C) branch office.
D) international firm.
E) independent agent.

Answer: E

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

83) A Canadian company has given exclusive rights to a Swiss company to manufacture its products. This is an example of

A) foreign direct investment.
B) a licensing arrangement.
C) a branch office setup.
D) a strategic alliance.
E) an import-export relationship.

Answer: B

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

84) The Acrylic Paint Company in Canada has joined forces with the 1-2-3 Plastics Company in Italy to create a non-peeling, plastics-based paint. Both companies intend to share the research costs and any profits. This an example of

A) a licensing arrangement.
B) a branch office setup.
C) a strategic alliance.
D) a foreign direct investment.
E) an import-export relationship.

Answer: C

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

85) When a company sends some of its own managers overseas to conduct business in a local office, this is an example of

A) developing a strategic alliance.
B) outsourcing.
C) licensing products.
D) investing directly in a foreign venture.
E) opening a branch office.

Answer: E

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

86) Ford, an American car company, purchased Volvo, which is based in Sweden. This is an example of

A) a multinational firm.
B) an independent agency.
C) a licensing arrangement.
D) a foreign direct investment.
E) a strategic alliance.

Answer: D

Diff: 2 Type: MC Page Ref: 107

Skill: Comprehension

Objective: 5.4

87) A foreign individual or organization that agrees to represent an exporter’s interest in foreign markets is called a(n)

A) headquarters arrangement.
B) licensing arrangement.
C) independent agent.
D) strategic alliance.
E) branch office.

Answer: C

Diff: 1 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

88) Which statement is true regarding independent agents?

A) They represent one firm at a time.
B) They usually specialize in a particular product.
C) They act as sales representatives.
D) They are usually based at domestic offices.
E) They do not monitor or address customer satisfaction.

Answer: C

Diff: 1 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

89) BBX represents several firms at once and usually does not specialize in a particular product or market. It is a(n)

A) independent agent.
B) royalty company.
C) licensing company.
D) branch office.
E) strategic alliance.

Answer: A

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

90) All of the following characteristics describe an independent agent except that it

A) often sells the exporter’s products.
B) often makes sure that customers are happy.
C) often represents only one firm.
D) often collects payments.
E) is a foreign individual or organization.

Answer: C

Diff: 2 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

91) Levi Strauss has an organization in a foreign country that has agreed to sell their products, to collect payments from the buyers, and to make sure that the buyers are satisfied. The organization is not part of Levi Strauss and may represent several non-competing firms at the same time. The organizational structure that Levi Strauss has selected is called a(n)

A) strategic alliance.
B) independent agent.
C) branch office.
D) licensing agreement.
E) direct investment.

Answer: B

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

92) Computers-B-Us sent some of its managers abroad to gain more control over the operations and provide a more visible public presence. This type of organizational structure is known as a(n)

A) independent agent.
B) branch office.
C) direct investment.
D) strategic alliance.
E) licensing arrangement.

Answer: B

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

93) Can-Eng Manufacturing, Canada’s largest supplier of industrial furnaces, exports its furnaces to companies in Japan, Brazil, Germany, Korea, Taiwan, and Mexico. Can-Eng has an agreement with foreign companies in these countries called a(n)

A) international mandate.
B) licensing arrangement.
C) independent agency.
D) export agreement.
E) strategic alliance.

Answer: B

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

94) Greencorp Ltd. sold the rights for production of 4 Star Soil to Soil X of Italy, and that company now produces the special mix of fertilized soil and sells it in Italy. This arrangement is called a(n)

A) independent agent.
B) licensing arrangement.
C) strategic alliance.
D) branch office.
E) equality relationship.

Answer: B

Diff: 1 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

95) Mega Computers has decided to expand operations overseas. In order to give foreign customers a sense of security, Mega has chosen to send several of its own managers and technicians to the country as part of the start-up operations. In addition, this will give Mega more control over making sure that top quality service is given to the new customers. Mega has chosen the organizational strategy known as a(n)

A) independent agent.
B) strategic alliance.
C) direct investment.
D) branch office.
E) licensing arrangement.

Answer: D

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

96) Laura’s Lights, Inc. has decided to expand business into Vietnam. Laura is looking for help with funding the operation and to share in the risk. She knows little about the customs and how to get things done in Vietnam. The best international structure for her is probably a(n)

A) branch office.
B) direct investment.
C) strategic alliance.
D) licensing arrangement.
E) independent agent.

Answer: C

Diff: 3 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

97) Which of the following types of payments are usually received by an exporter as an ongoing payment calculated as a percentage of the licence holder’s sales?

A) Quantity discounts
B) Royalties
C) Agent fees
D) Direct investments
E) Flat fees

Answer: B

Diff: 2 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

98) Using a(n) ________ strategy, the company finds a partner in the country in which it would like to conduct business.

A) independent agency
B) direct investment
C) strategic alliance
D) replication
E) branch office

Answer: C

Diff: 1 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

99) Which of the following international organizational strategies means buying or establishing tangible assets in another country?

A) Independent agency
B) Opening branch offices
C) Providing licensing arrangements
D) Forming strategic alliances
E) Foreign direct investment

Answer: E

Diff: 1 Type: MC Page Ref: 107

Skill: Knowledge

Objective: 5.4

100) Lack of knowledge of foreign customs has led most Canadian companies doing business in Japan to select this form of international organization. What is it?

A) Strategic alliances
B) Licensing arrangements
C) Independent agents
D) Direct investments
E) Branch offices

Answer: A

Diff: 3 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

101) Which type of firm is more likely to have its board of directors composed of people from many different nations?

A) Joint venture
B) Multinational
C) Exporter
D) Importer
E) Purely domestic

Answer: B

Diff: 3 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

102) In which international organizational structure would royalties likely be paid to the exporter?

A) Strategic alliance
B) Joint venture
C) Licensing arrangement
D) A green field manufacturing plant
E) Branch office

Answer: C

Diff: 2 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

103) In this type of international structure, the firm locates a partner who shares in the risk and in the profits.

A) Branch office
B) Strategic alliance
C) Foreign direct investment
D) Licensing agreement
E) Independent agent

Answer: B

Diff: 1 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

104) In which international organization structure does a firm have greatest control over foreign activities?

A) Exporting arrangements
B) Strategic alliances
C) Importing arrangements
D) Licensing arrangements
E) Independent agents

Answer: B

Diff: 1 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

105) With regard to strategic alliances, which of the following is true?

A) They are declining in importance after an initially promising start.
B) The satisfaction of the most influential party must be assured for it to work.
C) A clear vision of the future of the venture must be held by at least one of the parties for it to be a success.
D) Partner compatibility is guaranteed by financial agreements at the outset.
E) They are also called joint ventures.

Answer: E

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

106) When Manulife Financial entered the Chinese market, it made an agreement with Sinochem, a state-owned trading company. This is an example of

A) a strategic alliance.
B) world product mandating.
C) a licensing arrangement.
D) a branch office.
E) an independent agent.

Answer: A

Diff: 1 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

107) HydroCan and Ozo of Asia work together to research and develop water filtration. They have been manufacturing two water filters in the Asia plant. With regard to this strategic alliance, which of the following is true?

A) A clear vision of the future of the venture must be held by at least one of HydroCan or Ozo for it to be a success.
B) Partner compatibility is guaranteed by financial agreements at the outset.
C) The satisfaction of Ozo must be assured for it to work, since it is the most influential party.
D) Each party agrees to cooperate for mutual benefit.
E) All of these are true.

Answer: D

Diff: 3 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

108) Bob’s Barbecue has expanded its operations to include several foreign countries. Bob has given individuals or organizations in those countries exclusive rights to market Bob’s products. He has shared his secret recipe and trade secrets on how to produce the products. In return for this, Bob will receive a percentage of the revenues generated in each of the countries. Bob’s arrangements are best described as a(n)

A) licensing arrangement.
B) independent agent.
C) strategic alliance.
D) direct investment.
E) branch office.

Answer: A

Diff: 2 Type: MC Page Ref: 106

Skill: Comprehension

Objective: 5.4

109) Licensing arrangements are arrangements

A) by a creator of a musical or artistic work to allow another person to use, produce, distribute, or market it for a fee or royalty.
B) by a supplier to allow another company the right to install or modify products produced by the supplier for a fee or royalty.
C) by a general contractor to allow international subcontractors to build a building for a fee or royalty.
D) by an owner of a process or product to allow another business to produce, distribute, or market it for a fee or royalty.
E) by an owner of a patent to allow another business to produce, distribute, or market the product covered by the patent for a fee or royalty.

Answer: D

Diff: 2 Type: MC Page Ref: 106

Skill: Knowledge

Objective: 5.4

110) If Montrose Corp. purchases tangible assets in Germany, which international organizational structure is it using?

A) Independent agent
B) Licensing agreement
C) Foreign direct investment
D) Branch office
E) Strategic alliance

Answer: C

Diff: 1 Type: MC Page Ref: 107

Skill: Comprehension

Objective: 5.4

111) Investment Canada’s mandate is

A) to focus on the promotion of Canadian goods to other countries.
B) to focus on attracting foreign investment to Canada.
C) to track investment money to oversea banks.
D) to focus on aiding Canadian businesses in collecting money from their customers in foreign countries.
E) to promote the investment of Canadian dollars into foreign business operations.

Answer: B

Diff: 2 Type: MC Page Ref: 107

Skill: Comprehension

Objective: 5.4

112) Which of the following social or cultural differences would a Canadian exporter of refrigerators to Europe have to deal with?

A) Consumers shopping on a daily basis
B) A younger population
C) An older population
D) Adjusted menus, ingredients, and hours of operation
E) Consumers that are are shorter and slimmer than Canadian consumers

Answer: A

Diff: 2 Type: MC Page Ref: 108

Skill: Comprehension

Objective: 5.5

113) Which of the following is correct regarding the barriers to international trade?

A) Research clearly demonstrates that differences in culture are the most important barrier.
B) The two general categories where barriers exist are in command and market economies.
C) An embargo is an extreme form of a tariff.
D) Local content laws apply only to situations across international borders.
E) When Google agreed to pay $500 million to settle a case with the U.S. government over advertising revenue earned from Canadian online pharmacies, this was an example of business practice laws being violated.

Answer: E

Diff: 2 Type: MC Page Ref: 108-110

Skill: Comprehension

Objective: 5.5

114) International trade improves peoples’ standard of living, yet countries often put up trade barriers? Why is this?

A) Goods that are imported compete with domestic products and put pressure on domestic businesses.
B) The quality of imported products is usually lower than the quality of domestically produced products.
C) Generating government revenue is often more economically valuable than free trade.
D) It is an effort to keep a country’s currency strong.
E) International trade causes political tensions to develop.

Answer: A

Diff: 3 Type: MC Page Ref: 109

Skill: Analysis

Objective: 5.5

115) Which of the following is correct with regard to social and cultural differences?

A) Canadians make fewer trips to supermarkets than Europeans do.
B) Most differences between cultures are pretty obvious.
C) Clothing manufacturers do not have to worry too much about cultural differences because fashion trends have rapidly become worldwide.
D) Countries with growing populations tend to have a disproportionate number of older people.
E) All of these are correct.

Answer: A

Diff: 2 Type: MC Page Ref: 108

Skill: Comprehension

Objective: 5.5

116) When Bob began exporting his famous barbecue beef he found that one country would let him bring only 1000 pounds of beef into the country each year. Bob had just discovered a(n)

A) embargo.
B) local content law.
C) quota.
D) tariff.
E) subsidy.

Answer: C

Diff: 2 Type: MC Page Ref: 108

Skill: Comprehension

Objective: 5.5

117) Laura’s Lights began shipping products to its new partner in a foreign nation only to find out that before the products would be let into the country a tax of $1.00 per unit had to be paid. This tax is known as a(n)

A) subsidy.
B) local content law.
C) quota.
D) embargo.
E) tariff.

Answer: E

Diff: 2 Type: MC Page Ref: 108

Skill: Comprehension

Objective: 5.5

118) Which of the following statements best describes the effects of subsidies?

A) A subsidy essentially lowers the prices of foreign goods rather than raising the prices of domestic goods.
B) A subsidy essentially raises the prices of domestic goods rather than lowering the prices of foreign goods.
C) A subsidy essentially lowers the prices of domestic goods rather than raising the prices of foreign goods.
D) A subsidy essentially raises the prices of foreign goods while also raising the prices of domestic goods.
E) A subsidy essentially lowers the prices of foreign goods while also lowering the prices of domestic goods.

Answer: C

Diff: 2 Type: MC Page Ref: 109

Skill: Comprehension

Objective: 5.5

119) Canada prohibits the importing of ivory from any foreign nation. This is a(n)

A) local content law.
B) subsidy.
C) tariff.
D) quota.
E) embargo.

Answer: E

Diff: 1 Type: MC Page Ref: 108

Skill: Comprehension

Objective: 5.5

120) In marketing its new product in a foreign nation, Mega Computer was surprised to see the very low prices on its local competitor’s models. Subsequent investigation revealed that the domestic businesses had received money from the government. Mega now knows what a(n) ________ is.

A) subsidy
B) tariff
C) embargo
D) local content law
E) quota

Answer: A

Diff: 2 Type: MC Page Ref: 109

Skill: Comprehension

Objective: 5.5

121) Arguments for and against protectionism include all of the following except

A) tariffs and quotas protect domestic firms and jobs.
B) tariffs and quotas reduce competition and drive up prices.
C) tariffs and quotas adversely affect the exchange rate.
D) that while some jobs and industries would be protected with tariffs and quotas, all countries would be better off without them as jobs in other industries would expand.
E) tariffs and quotas are in response to actions of other governments.

Answer: C

Diff: 3 Type: MC Page Ref: 109

Skill: Comprehension

Objective: 5.5

122) Local content laws state that

A) products sold in a country should be at least partially made in that country.
B) an imported product must meet local standards before it can be brought in.
C) an imported product must include some raw materials from the domestic country.
D) an imported product must fit with the local culture before it can be brought in.
E) an imported product must abide by local bylaws before it can be brought in.

Answer: A

Diff: 1 Type: MC Page Ref: 109

Skill: Comprehension

Objective: 5.5

123) Many governments require that products sold in their particular country be at least partly made there. This policy involves ________ laws.

A) quota
B) local content
C) business practice
D) free trade
E) subsidy

Answer: B

Diff: 1 Type: MC Page Ref: 109

Skill: Comprehension

Objective: 5.5

124) If the Mexican government puts a limit on the ounces of tequila being imported into Mexico, what has occurred?

A) The government has installed a protection plan for its own tequila producers and is encouraging imports.
B) The government has installed both a protection plan for its own tequila producers and a quota.
C) The government has installed a quota and an embargo.
D) The government is encouraging imports and installed an embargo.
E) The government installed an embargo and a protection plan.

Answer: B

Diff: 1 Type: MC Page Ref: 109

Skill: Comprehension

Objective: 5.5

125) Dumping involves selling products at

A) less than fair value.
B) less than what domestic producers charge.
C) less than what is reasonable.
D) a lower price than competitors.
E) less in one country than another.

Answer: A

Diff: 2 Type: MC Page Ref: 110

Skill: Knowledge

Objective: 5.5

126) Sometimes foreign companies have many problems in complying with stringent and often changing regulations and bureaucratic obstacles known as

A) business practice laws.
B) cartels.
C) dumping.
D) local content laws.
E) local practices.

Answer: A

Diff: 2 Type: MC Page Ref: 110

Skill: Comprehension

Objective: 5.5

127) Tariffs that are imposed strictly to raise money for the government are referred to as ________ tariffs.

A) quota
B) revenue
C) protectionist
D) union
E) subsidy

Answer: B

Diff: 2 Type: MC Page Ref: 108

Skill: Knowledge

Objective: 5.5

128) In some countries, it may be legal to bribe businesses and government officials, but this practice is illegal in Canada. This barrier to international trade is known as

A) imposing tariffs.
B) quotas.
C) local content laws.
D) business practice laws.
E) cartelling.

Answer: D

Diff: 2 Type: MC Page Ref: 110

Skill: Knowledge

Objective: 5.5

129) Associations of producers that control supply and prices are called

A) cartels.
B) foreign direct investments.
C) business offices.
D) quotas.
E) independent agents.

Answer: A

Diff: 1 Type: MC Page Ref: 110

Skill: Knowledge

Objective: 5.5

130) Selling a product abroad for less than the cost of production is referred to as

A) direct foreign investment.
B) setting up a business office.
C) dumping.
D) imposing tariffs.
E) setting up quotas.

Answer: C

Diff: 1 Type: MC Page Ref: 110

Skill: Knowledge

Objective: 5.5

131) Which of the following is true about dumping?

A) It means selling a product abroad for less than the comparable price at home.
B) It benefits industries in countries where products are dumped.
C) It is legal in Canada.
D) The Canada Revenue Agency determined that cars produced by Toyota and Honda in Japan were being “dumped” in Canada.
E) None of these.

Answer: A

Diff: 2 Type: MC Page Ref: 110

Skill: Comprehension

Objective: 5.5

132) The Canadian government imposed a 34.6 percent tariff on barbecues made in China because complaints were received that Chinese companies were unfairly subsidizing the production of barbecues. This was an example of

A) a revenue tariff.
B) a protectionist tariff.
C) a quota.
D) an embargo.
E) none of these.

Answer: B

Diff: 2 Type: MC Page Ref: 109

Skill: Comprehension

Objective: 5.5

133) What is the purpose of tariffs on imports?

A) Maintaining domestic competitiveness
B) Decreasing exports
C) Increasing imports
D) Subsidizing domestic industry
E) Promoting free trade

Answer: A

Diff: 2 Type: MC Page Ref: 108

Skill: Comprehension

Objective: 5.5

134) Which of the following is not true about protectionism?

A) It reduces competition.
B) It may cause friction between nations.
C) It increases prices to consumers.
D) Tariffs and quotas protect domestic firms and jobs.
E) It is a revenue source for the provincial governments in Canada.

Answer: E

Diff: 1 Type: MC Page Ref: 109

Skill: Comprehension

Objective: 5.5

135) A few years ago, before the various accounting groups merged, the Certified General Accountants challenged the rule that in Quebec only Chartered Accountants could have auditing rights. This was an example of a dispute about

A) protectionist tariffs.
B) revenue tariffs.
C) the Agreement on Internal Trade.
D) money laundering.
E) federal/provincial revenue sharing.

Answer: C

Diff: 2 Type: MC Page Ref: 110

Skill: Comprehension

Objective: 5.5

136) Why do foreign companies sometimes have problems complying with stringent and often changing regulations and bureaucratic obstacles?

A) Because local government is out of control and trying to make a money grab
B) Because the laws are stupid
C) Because the government is trying to achieve cartel status for its domestic products
D) Because of business practice laws
E) Because the managers in the foreign firm are ill-informed

Answer: D

Diff: 1 Type: MC Page Ref: 110

Skill: Comprehension

Objective: 5.5

137) When Walmart was forced to stop refunding price differences on items sold for less by other stores because the practice is illegal in Germany, Walmart discovered the effect of

A) revenue tariffs.
B) embargoes.
C) business practice laws.
D) protectionist tariffs.
E) world product mandating.

Answer: C

Diff: 1 Type: MC Page Ref: 110

Skill: Comprehension

Objective: 5.5

138) The Transparency International “Corruption Perceptions Index” showed that the least corrupt countries are ________, and the most corrupt countries are ________.

A) Denmark, Finland, and New Zealand; North Korea, Afghanistan, and Somalia
B) Iceland, Denmark, and New Zealand; Haiti, Myanmar, and Somalia
C) Canada, the United States, and New Zealand; Myanmar, Chad, and Russia
D) Denmark, New Zealand, and Singapore; Myanmar, Afghanistan, and Somalia
E) Ireland, the United States, and Canada; Zambia, Libya, and Chad

Answer: A

Diff: 3 Type: MC Page Ref: 110

Skill: Knowledge

Objective: 5.5

139) The successor to GATT is

A) the European Union.
B) the WTO.
C) the ASEAN Free Trade Area.
D) NAFTA.
E) the WHO.

Answer: B

Diff: 1 Type: MC Page Ref: 110

Skill: Knowledge

Objective: 5.6

140) The purpose of GATT was to

A) improve trade balances in developing countries.
B) reduce or eliminate trade barriers such as quotas and tariffs.
C) stop the practice of “dumping.”
D) encourage governments to increase the protection for their domestic industries.
E) do all of these.

Answer: B

Diff: 2 Type: MC Page Ref: 110

Skill: Comprehension

Objective: 5.6

141) Which of the following is not one of the goals of the WTO?

A) To promote trade by encouraging members to adopt fair trade practices
B) To promote multilateral negotiations regarding trade
C) To reduce the amount of corruption in countries that score poorly on the Corruption Perceptions Index of Transparency International
D) To establish fair procedures for resolving disputes among members
E) To reduce trade barriers

Answer: C

Diff: 2 Type: MC Page Ref: 110

Skill: Comprehension

Objective: 5.6

142) During the last few years, the benefits of NAFTA have been slowly eroded by

A) the ups and downs of the Canadian dollar.
B) the reluctance of U.S. producers to sell goods to Canadian companies.
C) delays at border crossings between the United States and Canada.
D) higher inflation rates in the United States than in Canada.
E) objections from Mexico about unfair deals between the United States and Canada that shut Mexico out of export possibilities.

Answer: C

Diff: 3 Type: MC Page Ref: 111

Skill: Knowledge

Objective: 5.6

143) Canadians who were opposed to free trade feared all of the following except

A) Canadian cultural sovereignty would be lost.
B) the United States might take our natural resources.
C) Canada would lose the right to control its own environmental standards.
D) jobs would be lost to other countries.
E) Canada would have to peg the Canadian dollar to the U.S. dollar.

Answer: E

Diff: 2 Type: MC Page Ref: 111

Skill: Comprehension

Objective: 5.6

144) Supporters of free trade in Canada argued all of the following except

A) Canadian imports would increase because of free trade.
B) there is nothing in the free trade agreements that threatens Canada’s control over its energy resources.
C) access to U.S. markets is guaranteed by free trade and is therefore crucial to protecting Canadian employment.
D) the environment is not covered in free trade agreements.
E) the free trade agreements are about trade and tariffs, not cultural sovereignty.

Answer: A

Diff: 2 Type: MC Page Ref: 111

Skill: Comprehension

Objective: 5.6

145) The results for Canada from the North American Free Trade Agreement include all of the following except

A) Canada has become an exporting powerhouse.
B) direct foreign investment increased.
C) Canada now exports 40 percent of its GDP.
D) U.S. imports from (and exports) to Mexico increased.
E) Canada is the least trade-intensive country in the G7 group.

Answer: E

Diff: 2 Type: MC Page Ref: 111

Skill: Knowledge

Objective: 5.6

146) ________ is a trade agreement that removes tariffs and other trade barriers among the United States, Canada, and Mexico.

A) NAFTA
B) ASEAN
C) The World Bank
D) The European Union
E) GATT

Answer: A

Diff: 2 Type: MC Page Ref: 111

Skill: Knowledge

Objective: 5.6

147) What organization was founded in Pacific Asia for economic, political, social, and cultural cooperation?

A) CENTO
B) ASEAN
C) Warsaw Pact
D) NATO
E) SEATO

Answer: B

Diff: 2 Type: MC Page Ref: 112

Skill: Knowledge

Objective: 5.6

148) The largest free marketplace in the world is

A) NAFTA.
B) the European Union.
C) ASEAN.
D) Mercosur.
E) the Gulf Cooperation Council.

Answer: B

Diff: 2 Type: MC Page Ref: 111

Skill: Knowledge

Objective: 5.6

5.2 Critical Thinking Questions

1) Fembooks Bookstore sells books only over the Internet. It has established an excellent reputation for finding out-of-print and hard-to-find books of interest to women. The CEO of Fembooks is considering going global with the business, since it is already established on the Internet.

The vice-president of Fembooks argues that they will encounter too many difficulties in taking the business global via the Internet. The president argues that the benefits would be worth the problems encountered. Which of the following statements, if true, would support the argument of the vice-president against going global?

A) While English is the dominant language of the Internet, more local traffic would be generated by webpages in the local language.
B) Being a niche business, going global over the Internet would not put a huge strain on existing personnel.
C) Shipping books overseas could easily be handled by UPS, FedEx, or air mail.
D) Sales predictions for overseas expansion anticipate an initial 30 percent increase, then tapering off to a 20 percent increase annually.
E) Increased Internet advertising costs would be a fairly inexpensive investment to increase business on a global basis.

Answer: A

Diff: 3 Type: MC

Skill: Analysis

2) Fembooks Bookstore sells books only over the Internet. It has established an excellent reputation for finding out-of-print and hard-to-find books of interest to women. The CEO of Fembooks is considering going global with the business, since it is already established on the Internet.

Which of the following statements, if true, would support the president’s argument for the global expansion of Fembooks through the Internet?

A) Payment preferences vary from country to country. Europeans prefer using debit cards over using credit cards due to the high rate of credit card theft.
B) Demographic targeting is more easily accomplished on the Internet than in other forms of advertising.
C) The exchange rate for different currencies can be an issue for global businesses. The use of local currency may increase rates of purchase, but presents challenges for exchange and shipping.
D) Advertising and sales laws (and accompanying taxes) vary from country to country.
E) Local import and export laws would need to be researched and followed.

Answer: B

Diff: 3 Type: MC

Skill: Analysis

3) Fembooks Bookstore sells books only over the Internet. It has established an excellent reputation for finding out-of-print and hard-to-find books of interest to women. The CEO of Fembooks is considering going global with the business, since it is already established on the Internet.

The vice-president further argues that more reasons exist for not expanding Fembooks on a global basis. Which of the following statements, if true, would not support the vice-president’s argument?

A) Bandwidth variability can cause technical problems with ordering through the Internet.
B) Some countries require Internet users to pay by the minute, which further necessitates a rapid ordering and payment procedure.
C) Web censoring, which could impact feminist books, occurs in China, Saudi Arabia, Iran, and Malaysia.
D) The rate of access to computers is increasing on a global basis and now stands at 15 percent, with estimates increasing to 25 percent in the next two years.
E) Local Internet webpage writers would need to ensure that all offensive colors, words, and images were removed to ensure cultural adaptation.

Answer: D

Diff: 3 Type: MC

Skill: Analysis

4) Citronel is a French company that markets a range of fashionable clothing to French consumers under its widely known brand name. The company wants to begin marketing its products worldwide and needs to decide on the most effective and profitable strategy.

Citronel’s CEO thinks that a market segment already exists worldwide that will be receptive to Citronel’s product line. Which of the following, if true, would strengthen the CEO’s position?

A) People in different parts of the world tend to embrace their own clothing fashions.
B) Consumers in different parts of the world have varied spending power.
C) Clothing fashions that originate in France tend to appeal to different places in the world.
D) Citronel has accumulated extensive market data on French consumers.
E) Citronel has been in business for only a few years.

Answer: C

Diff: 3 Type: MC

Skill: Analysis

5) Citronel is a French company that markets a range of fashionable clothing to French consumers under its widely known brand name. The company wants to begin marketing its products worldwide and needs to decide on the most effective and profitable strategy.

Citronel’s Chief Operating Officer thinks that the company should adopt a standardized marketing approach throughout the world. Which of the following, if true, would strengthen her position?

A) Long production runs of the same items would allow the company to save money.
B) Different cultures vary in how they perceive French clothing.
C) The company has had only limited success establishing a consistent marketing strategy throughout France.
D) The company will have strong competition from various brands throughout the world.
E) The company has a substantial marketing budget.

Answer: A

Diff: 3 Type: MC

Skill: Analysis

6) Derrido is an American firm that has produced several successful animated TV series in the United States. It is considering contracting with one or more international companies as a way to market its products overseas.

An executive at Derrido suggests that a contractual relationship will provide the company with a fair amount of control over how the foreign partner markets Derrido’s product. Which of the following, if true, would strengthen this case?

A) Contractual relationships typically include limits and stipulations on the foreign partner.
B) Contractual relationships typically limit the responsibility of the originating firm.
C) Contractual relationships can be complicated by international law.
D) Foreign companies often have considerable familiarity with American culture.
E) Foreign companies usually expect to be given latitude with how they market U.S.-made products.

Answer: A

Diff: 3 Type: MC

Skill: Analysis

7) Derrido is an American firm that has produced several successful animated TV series in the United States. It is considering contracting with one or more international companies as a way to market its products overseas.

One of Derrido’s sales executives suggests that Derrido’s particular type of business enables a contractual relationship to be an especially suitable way for the company to market its products internationally. Which of the following, if true, would strengthen this position?

A) Contractual relationships allow an originating firm to make the most use of local talent.
B) Contractual relationships cannot capture unpredictable future contingencies.
C) Contractual relationships are often cross-culturally contentious.
D) Derrido would not be undertaking large-scale production or shipping operations.
E) Derrido is a large company with ample staff and resources at its disposal.

Answer: D

Diff: 3 Type: MC

Skill: Analysis

8) Derrido is an American firm that has produced several successful animated TV series in the United States. It is considering contracting with one or more international companies as a way to market its products overseas.

Derrido’s marketing director thinks that the company should craft a contractual agreement as an initial entry strategy, because the company might want to choose a more advanced entry strategy later. Which of the following, if true, would strengthen this position?

A) Foreign partners usually want to enter into contractual agreements with American companies for a long-term period.
B) A contractual agreement should spell out as many expectations of the foreign partner as possible.
C) Contractual agreements should be entered into only if the foreign partner is extremely reliable.
D) Contractual agreements require approval by legal specialists from all countries involved.
E) Contractual agreements allow a company to provide for open, flexible terms of operation.

Answer: E

Diff: 3 Type: MC

Skill: Analysis

9) Derrido is an American firm that has produced several successful animated TV series in the United States. It is considering contracting with one or more international companies as a way to market its products overseas.

Another marketing executive points out that a contractual agreement will allow Derrido to blend in with the local market and goes on to argue that this will be advantageous to the company. Which of the following, if true, would strengthen this argument?

A) Consumers in many countries have limited resources with which they can purchase entertainment.
B) Consumers in many countries are wary of what they perceive as American cultural imperialism.
C) Contractual agreements usually require the foreign partner to display the originating firm’s brand as prominently as possible.
D) Contractual agreements initiated by an American company often make for contentious relationships with the foreign partner.
E) Foreign consumers briefly resist cultural imperialism but then quickly embrace American cultural products.

Answer: B

Diff: 3 Type: MC

Skill: Analysis

10) Derrido is an American firm that has produced several successful animated TV series in the United States. It is considering contracting with one or more international companies as a way to market its products overseas.

Derrido’s chief financial officer thinks that the company should enter into a contractual agreement because it will give Derrido an immediate and steady stream of revenue. Which of the following, if true, would strengthen this argument?

A) Contractual relationships with foreign companies usually involve many rounds of negotiations.
B) Contractual relationships are less expensive to enter into than direct investment.
C) Compared to direct investment, contractual relationships make business less subject to unpredictable changes.
D) Compared to other forms of entry into international markets, contractual relationships tend to be risky.
E) Foreign companies in contractual relationships may behave unpredictably at future points in time.

Answer: C

Diff: 3 Type: MC

Skill: Analysis

11) Lite Foods is a producer of breakfast cereals such as oatmeal and cornflakes, and its products can be found in nearly all supermarkets across Canada. Lite Foods now has its sights set on international shores, specifically the large Chinese consumer market. Company executives are currently debating the optimal route for the firm to enter the market.

Which of the following, if true, would strengthen the argument for venturing into the Chinese market?

A) The affluent Chinese middle class is large and is quick to adopt western lifestyles and product preferences.
B) Growth in the United States cereal market continues to be strong.
C) The Chinese fixed exchange rate regime may change, which could mean a stronger Yuan that would affect Chinese exports.
D) Chinese food preferences are very slow to evolve.
E) China recently signed a free-trade agreement with the Association of Southeast Asian Nations (ASEAN).

Answer: A

Diff: 3 Type: MC

Skill: Analysis

12) Lite Foods is a producer of breakfast cereals such as oatmeal and cornflakes, and its products can be found in nearly all supermarkets across Canada. Lite Foods now has its sights set on international shores, specifically the large Chinese consumer market. Company executives are currently debating the optimal route for the firm to enter the market.

Which of the following, if true, would most weaken the argument for venturing into the Chinese market?

A) The Chinese government provides subsidies and tax incentives to local manufacturers who export their products.
B) The Chinese breakfast menu is typically made up of steamed dough, noodles, fruits, and eggs.
C) It would take a few months to establish operations in China because of regulatory hurdles.
D) Several international companies have failed in China because of their inability to understand local requirements.
E) Penetrating the Chinese market requires extensive use of local employees.

Answer: B

Diff: 3 Type: MC

Skill: Analysis

13) Lite Foods is a producer of breakfast cereals such as oatmeal and cornflakes, and its products can be found in nearly all supermarkets across Canada. Lite Foods now has its sights set on international shores, specifically the large Chinese consumer market. Company executives are currently debating the optimal route for the firm to enter the market.

Which of the following, if true, would strengthen the argument for exporting the company’s products to China?

A) Lite Foods has a large budget set aside for foreign direct investments.
B) Lite Foods wants to have strict control over its international operations.
C) Lite Foods has to modify its product line to suit Chinese tastes and preferences.
D) Lite Foods’ products do not have a “healthy” reputation in the United States.
E) Lite Foods has significant excess capacity that results in production overruns.

Answer: E

Diff: 3 Type: MC

Skill: Analysis

14) Lite Foods is a producer of breakfast cereals such as oatmeal and cornflakes, and its products can be found in nearly all supermarkets across Canada. Lite Foods now has its sights set on international shores, specifically the large Chinese consumer market. Company executives are currently debating the optimal route for the firm to enter the market.

Which of the following, if true, would weaken the argument for exporting the company’s products to China?

A) Lite Foods will have to make significant investments if it decides to enter a joint venture in China.
B) Lite Foods would have to hire sales personnel from the host country if it opts for direct export.
C) Lite Foods is a risk-averse organization.
D) Lite Foods lacks Chinese market expertise and has not found reliable intermediaries with expertise in the market.
E) Lite Foods will export its products as is, as more and more Chinese consumers are adopting breakfast cereals.

Answer: D

Diff: 3 Type: MC

Skill: Analysis

5.3 True/False Questions

1) The total volume of world trade is about $10 trillion.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 99

Skill: Knowledge

Objective: 5.1

2) According to the World Bank, Canada, South Korea, and Kuwait are all considered high-income countries.

Answer: TRUE

Diff: 2 Type: TF Page Ref: 100

Skill: Knowledge

Objective: 5.1

3) The contemporary world economy revolves around the major marketplaces of North America, Europe, and Asia-Pacific.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 100

Skill: Knowledge

Objective: 5.1

4) International trade is important for manufactured goods, but not for services.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 99

Skill: Comprehension

Objective: 5.1

5) The status of the BRIC nations has risen in international trade for one main reason: they all are big exporters of the commodities that the advanced industrialized nations need.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 100

Skill: Knowledge

Objective: 5.2

6) All countries have a comparative advantage in some products.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 102

Skill: Knowledge

Objective: 5.3

7) Examples of true absolute advantage are rare.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 102

Skill: Knowledge

Objective: 5.3

8) If Trinidad could produce mangos cheaper and better tasting than any other country due to its climate, then it would have an absolute advantage over any other country.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 102

Skill: Comprehension

Objective: 5.3

9) Countries tend to export products that they can produce better or less expensively than other countries and import products they cannot produce as effectively.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 102

Skill: Comprehension

Objective: 5.3

10) 11.A country has an absolute advantage in goods that it can produce more efficiently than most other countries.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 102

Skill: Comprehension

Objective: 5.3

11) The concept of absolute advantage focuses on cross-country comparisons, while the concept of relative advantage focuses more on the situation within a given country.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 102

Skill: Comprehension

Objective: 5.3

12) When a country imports more than it exports, it has a favourable balance of trade.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 103

Skill: Comprehension

Objective: 5.3

13) Government support of domestic businesses is the most important factor in generating national competitive advantage.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 102

Skill: Comprehension

Objective: 5.3

14) In 2015, Canada ranked in the top 10 in terms of international competitiveness, as reported by the World Economic Forum.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 102

Skill: Knowledge

Objective: 5.3

15) In 2014, Canada had a trade surplus of $4.6 billion.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 103

Skill: Knowledge

Objective: 5.3

16) If a country’s exports totalled $8 billion and its imports totalled $12 billion, then the country’s balance of trade would be a surplus of $4 billion.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 103

Skill: Comprehension

Objective: 5.3

17) The balance of trade and balance of payments concepts are almost identical except that the latter takes into account foreign spending by the military.

Answer: FALSE

Diff: 2 Type: TF Page Ref: 103

Skill: Comprehension

Objective: 5.3

18) Increased demand for a nation’s products will tend to make its currency stronger while driving down the price of foreign goods.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 104

Skill: Comprehension

Objective: 5.3

19) The rate of exchange of a nation’s currency has a noticeable effect upon the competitive advantages or disadvantages of its companies.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 104

Skill: Comprehension

Objective: 5.3

20) When a country’s exchange rate falls, that country’s exports become more expensive to other countries.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 104

Skill: Comprehension

Objective: 5.3

21) Over the past few decades, Canada’s overall trade balance has generally been favourable, but only because we export so much more to the United States than we import from the United States.

Answer: TRUE

Diff: 2 Type: TF Page Ref: 103

Skill: Comprehension

Objective: 5.3

22) For any given country, the balance of trade and the balance of payments must both be both positive or both be negative.

Answer: FALSE

Diff: 2 Type: TF Page Ref: 103

Skill: Comprehension

Objective: 5.3

23) As the value of a country’s currency falls, there is an increasing incentive for foreign companies to ship products into that country’s domestic market.

Answer: FALSE

Diff: 2 Type: TF Page Ref: 104

Skill: Comprehension

Objective: 5.3

24) The first decision in determining whether a company should go international is to determine if the company’s products can be modified to fit a foreign market.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 105

Skill: Knowledge

Objective: 5.4

25) Marketing a specific product to two or more countries is relatively easy since it is increasingly the case with globalization that the same marketing strategy will usually work for both countries.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 105

Skill: Comprehension

Objective: 5.4

26) Exporting activity is limited mostly to multinational firms.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 106

Skill: Knowledge

Objective: 5.4

27) Canada ranks first among the G8 countries in the proportion of its production that is exported.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 106

Skill: Knowledge

Objective: 5.4

28) A licensing arrangement exists where the owner of a product or process allows another business to produce, distribute, or market it for a fee or royalty.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 106

Skill: Comprehension

Objective: 5.4

29) International firms conduct a significant portion of their business abroad, but their primary focus remains on the domestic market.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 106

Skill: Comprehension

Objective: 5.4

30) Canadian companies seeking more involvement in international business generally do not choose licensing arrangements because they cannot charge high enough fees to make the initiative worthwhile.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 106

Skill: Comprehension

Objective: 5.4

31) World product mandating means that foreign buyers who want certain Canadian products are required to buy certain other products as part of a package deal.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 106

Skill: Comprehension

Objective: 5.4

32) All things considered, the best way to achieve foreign direct investment is to use independent agents.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 106

Skill: Comprehension

Objective: 5.4

33) Strategic alliances have declined somewhat in recent years because foreign governments have put up more and more bureaucratic barriers to foreign ownership.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 106

Skill: Comprehension

Objective: 5.4

34) There is no practical difference between an embargo and a quota if the quota is zero.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 108

Skill: Knowledge

Objective: 5.5

35) When Canada placed a tariff on barbecues made in China because of complaints that the Chinese government was subsidizing their manufacture, this was an example of a protectionist tariff.

Answer: TRUE

Diff: 2 Type: TF Page Ref: 109

Skill: Comprehension

Objective: 5.5

36) Social and cultural barriers are the biggest barriers to international trade.

Answer: FALSE

Diff: 2 Type: TF Page Ref: 108-110

Skill: Comprehension

Objective: 5.5

37) Local content laws require that products sold in a particular country must be completely made in that country.

Answer: FALSE

Diff: 2 Type: TF Page Ref: 109

Skill: Knowledge

Objective: 5.5

38) Tariffs increase government revenue, discourage the sale of imported products, and raise prices for consumers.

Answer: TRUE

Diff: 2 Type: TF Page Ref: 108

Skill: Comprehension

Objective: 5.5

39) Local content laws cannot exist within a single country.

Answer: FALSE

Diff: 2 Type: TF Page Ref: 109

Skill: Knowledge

Objective: 5.5

40) The aim of NAFTA is to create a free trade area for Canada, the United States, and Western Europe.

Answer: FALSE

Diff: 1 Type: TF Page Ref: 111

Skill: Knowledge

Objective: 5.6

41) The most fundamental goal of the WTO is to open world markets to international trade.

Answer: TRUE

Diff: 1 Type: TF Page Ref: 110

Skill: Knowledge

Objective: 5.6

42) Because it improves the economies to such a great extent, governments encourage unrestricted trade with foreign countries.

Answer: FALSE

Diff: 2 Type: TF Page Ref: 110

Skill: Comprehension

Objective: 5.6

5.4 Short Answer Questions

1) What is globalization?

Answer: Globalization refers to the process by which the world economy is becoming a single interdependent system.

Diff: 2 Type: SA Page Ref: 99

Skill: Comprehension

Objective: 5.1

2) How might the international market specifically affect the success of a local coffee shop in Regina?

Answer: The price and availability of coffee beans will vary according to the international coffee market. This would affect the price of coffee charged by the coffee shop, which could in turn affect the success of the business. Even local businesses will always be affected by the global economy.

Diff: 2 Type: SA Page Ref: 99

Skill: Comprehension

Objective: 5.1

3) What are the three major marketplaces in the contemporary world economy?

Answer: North America, Western Europe, and Pacific Asia

Diff: 2 Type: SA Page Ref: 100

Skill: Knowledge

Objective: 5.1

4) List the BRICS countries.

Answer: Brazil, Russia, India, China, and South Africa

Diff: 2 Type: SA Page Ref: 100

Skill: Knowledge

Objective: 5.2

5) What are the strengths of each of the BRICS countries?

Answer: Brazil and South Africa are strong in commodities, Russia is an important energy supplier, China is a major hub of manufacturing activity, India has become a leading service provider at various levels ranging from basic customer service call centers to engineering solutions providers.

Diff: 2 Type: SA Page Ref: 100

Skill: Comprehension

Objective: 5.2

6) What is the difference between absolute and comparative advantage?

Answer: An absolute advantage exists when a country can produce something more cheaply and/or of higher quality than any other country. By contrast, a comparative advantage exists in goods that a country can produce more efficiently or effectively than other goods.

Diff: 2 Type: SA Page Ref: 102

Skill: Comprehension

Objective: 5.3

7) In assessing a country’s national competitive advantage, what is meant by “factor conditions”?

Answer: Factors conditions, also known as factors of production, include labour, capital, entrepreneurs, physical resources, and information resources.

Diff: 2 Type: SA Page Ref: 102

Skill: Comprehension

Objective: 5.3

8) Give an example of an absolute advantage.

Answer: (Answers will vary.) Saudi oil, Brazilian coffee beans, and Canadian timber are examples given in the text.

Diff: 2 Type: SA Page Ref: 102

Skill: Comprehension

Objective: 5.3

9) What is a trade deficit?

Answer: A trade deficit is a situation in which a country’s imports exceed its exports, creating a negative balance of trade.

Diff: 2 Type: SA Page Ref: 103

Skill: Comprehension

Objective: 5.3

10) What is a trade surplus?

Answer: A trade surplus is a situation in which a country’s exports exceed its imports, creating a positive balance of trade.

Diff: 2 Type: SA Page Ref: 103

Skill: Comprehension

Objective: 5.3

11) Explain what the term exchange rate means. What is a “floating” exchange rate?

Answer: An exchange rate is the rate at which one nation’s currency can be exchanged for that of another. A floating exchange rate means that the value of a country’s currency is allowed to fluctuate based on market conditions.

Diff: 2 Type: SA Page Ref: 103-104

Skill: Comprehension

Objective: 5.3

12) Why should companies conducting international operations be concerned about exchange rate fluctuations?

Answer: Changes in exchange rates affect overseas demand for their products and can be a major factor in international competition. Exchange rate fluctuations can also affect the companies’ profitability.

Diff: 2 Type: SA Page Ref: 104

Skill: Comprehension

Objective: 5.3

13) What is the difference between the balance of trade and the balance of payments?

Answer: The balance of trade is the difference between the economic value of exports and the economic value of imports. The balance of payments refers to the flow of money into and out of a country, mostly attributed to the country’s balance of trade.

Diff: 2 Type: SA Page Ref: 103

Skill: Comprehension

Objective: 5.3

14) One of the most significant developments in foreign exchange has been the introduction of the euro. Explain why.

Answer: Officially introduced in 2002, it is used by most of the members of the European Union and is destined to become as important as the dollar and yen in international commerce. It has replaced other currencies such as the German Deutsche mark and the French franc.

Diff: 2 Type: SA Page Ref: 104

Skill: Comprehension

Objective: 5.3

15) What is an exporter?

Answer: An exporter is a business that makes products in one country for sale in another.

Diff: 2 Type: SA Page Ref: 105

Skill: Comprehension

Objective: 5.4

16) What is an independent agent?

Answer: An independent agent is a foreign individual or organization that agrees to represent an exporter’s interests.

Diff: 2 Type: SA Page Ref: 106

Skill: Comprehension

Objective: 5.4

17) Why have the number of strategic alliances among major companies increased significantly over the last decade?

Answer: Many companies have realized that sharing resources with other companies can enhance competitiveness and profitability.

Diff: 2 Type: SA Page Ref: 106

Skill: Comprehension

Objective: 5.4

18) What are some advantages for businesses that engage in strategic alliances?

Answer: Such businesses benefit from the knowledge and expertise of foreign partners. In addition, these businesses can share the resources of their partners.

Diff: 2 Type: SA Page Ref: 106

Skill: Comprehension

Objective: 5.4

19) What is foreign direct investment?

Answer: Foreign direct investment is an arrangement in which a firm buys or establishes tangible assets in another country.

Diff: 2 Type: SA Page Ref: 107

Skill: Comprehension

Objective: 5.4

20) How does a quota influence international trade?

Answer: A quota restricts the number of products of a certain type that can be imported into a country.

Diff: 2 Type: SA Page Ref: 108

Skill: Comprehension

Objective: 5.5

21) What is a tariff?

Answer: A tariff is a tax on imported products.

Diff: 2 Type: SA Page Ref: 108

Skill: Comprehension

Objective: 5.5

22) What is protectionism?

Answer: Protectionism is the practice of protecting domestic business against foreign competition.

Diff: 2 Type: SA Page Ref: 109

Skill: Comprehension

Objective: 5.5

23) What is a cartel?

Answer: A cartel is an association of producers whose purpose is to control supply and prices.

Diff: 2 Type: SA Page Ref: 110

Skill: Comprehension

Objective: 5.5

24) What is product dumping?

Answer: Selling a product abroad for less than the comparable price charged at home

Diff: 1 Type: SA Page Ref: 110

Skill: Comprehension

Objective: 5.5

25) What countries are covered under NAFTA?

Answer: The United States, Canada, and Mexico

Diff: 2 Type: SA Page Ref: 111

Skill: Knowledge

Objective: 5.6

26) What are the three goals of the World Trade Organization (WTO)?

Answer: The three goals are (1) to encourage members to adopt fair trade practices; (2) to reduce trade barriers; and (3) to establish fair procedures for resolving disputes among members.

Diff: 2 Type: SA Page Ref: 110

Skill: Knowledge

Objective: 5.6

5.5 Essay Questions

1) The World Bank, an agency of the United Nations, uses per capita income as a measure to divide countries into one of four groups. Distinguish among the four groups and identify the countries in each group.

Answer:

– High-income countries are those with per capita income greater than US$12 746. These include Canada, the United States, most countries in Europe, Australia, New Zealand, Japan, South Korea, Kuwait, the United Arab Emirates, Israel, Singapore, and Taiwan.

–Upper middle-income countries are those with per capita income of less than US$12 745, but more than US$4126. Some of the countries in this group are the Czech Republic, Greece, Hungary, Poland, most countries comprising the former Soviet Bloc, Turkey, Mexico, Argentina, and Uruguay.

– Low middle-income countries are those with per capita income between US$1046 and US$4125. Among countries in this group are Colombia, Guatemala, Samoa, and Thailand. Some of these, such as China and India, have huge populations and are seen as potentially attractive markets for international business.

– Low-income countries (developing countries) are those with per capita income of less than US$1046. Due to low literacy rates, weak infrastructures, unstable governments, and related problems, countries in this group are less attractive to international business. Somalia, as an example, is plagues by drought, civil war and starvation.

Diff: 3 Type: ES Page Ref: 100

Skill: Comprehension

Objective: 5.1

2) Describe the forces that have combined to spark and sustain globalization.

Answer: Several forces have combined to spark and sustain globalization. First, governments and businesses are more aware of the benefits of globalization to businesses and shareholders. Second, new technologies have made international travel, communication, and commerce much faster and cheaper. Third, competitive pressures often play a role in the decision to go global. Finally, various legal agreements (GATT, NAFTA) have also sparked international trade.

Diff: 3 Type: ES Page Ref: 99

Skill: Comprehension

Objective: 5.1

3) What are the advantages and disadvantages of globalization?

Answer: Globalization has increased the standard of living for billions of people and has helped to create enormous wealth in many different parts of the globe. However, many people have not shared in this wealth and some critics believe that globalization has exploited workers in less developed countries and destroyed or damaged the unique cultures that exist in different parts of the world. In recent years, governments and businesses have become more aware of the benefits of globalization to businesses and shareholders, while critics have been more willing to protest or demonstrate at international gatherings of global economic leaders.

Diff: 3 Type: ES Page Ref: 99

Skill: Comprehension

Objective: 5.1

4) Why does the contemporary world economy revolve around three major marketplaces: North America, Europe, and Asia-Pacific?

Answer: These three geographic regions are home to most of the world’s largest economies, biggest multinational corporations, most influential financial markets, and highest-income consumers.

Diff: 2 Type: ES Page Ref: 100

Skill: Comprehension

Objective: 5.1

5) What are the BRICS countries, and why have they become important?

Answer: BRICS is a term that describes five increasingly important nations in global trade: Brazil, Russia, India, China, and South Africa. The status of these five nations has risen in international trade for different reasons. Brazil and South Africa are strong in commodities, Russia is a powerful energy supplier, China is a major hub of manufacturing activity, and India has become a leading service provider at various levels ranging from basic customer service call centers to engineering solutions providers. The growth and quick market development of the consumer market in these nations is also providing great sales opportunities for foreign companies that manufacture products like cars and high-end clothing brands.

These five nations have begun to act like a unit, holding unofficial summits and discussing common strategies. The old international trading patterns and activities are changing. In the past, Western companies used less developed markets to acquire natural resources supplies and to carry out simple assembly tasks. But the BRICS nations now demonstrate relationships that are much more complex (e.g., Indian car maker Tata acquired Jaguar and Land Rover from Ford).

Diff: 2 Type: ES Page Ref: 100

Skill: Comprehension

Objective: 5.2

6) Explain the two forms of competitive advantage and provide examples of each.

Answer: Absolute advantage refers to a nation’s ability to produce something more cheaply or better than any other country. Examples include Saudi oil, Brazilian coffee beans, and Canadian timber. Comparative advantage refers to a nation’s ability to produce some products more cheaply or better than it can produce others. Examples include farming in Canada and electronics manufacturing in Korea.

Diff: 2 Type: ES Page Ref: 102

Skill: Comprehension

Objective: 5.3

7) Explain the theory of national competitive advantage.

Answer: The theory of national competitive advantage says that a country will be inclined to engage in international trade when four conditions are evident: factor conditions (the factors of production that were identified in Chapter 1), demand conditions (a large domestic consumer base that promotes strong demand for innovative products), related and supporting industries (strong local or regional suppliers and/or industrial customers), and strategies, structures, and rivalries (firms and industries that stress cost reduction, product quality, higher productivity, and innovative new products). When all of these conditions exist, a country will be inclined to engage in international business.

Diff: 2 Type: ES Page Ref: 102

Skill: Comprehension

Objective: 5.3

8) Describe the impact of exports and imports on a country’s balance of trade and its balance of payments.

Answer: Exports are products created domestically and then transported and sold abroad, whereas imports are products created abroad and then transported and sold domestically. A nation’s balance of trade is determined through the relationship of its exports to its imports. A positive balance of trade, also known as a trade surplus, occurs when a country exports more than it imports. A negative balance of trade, or a trade deficit, occurs when a country imports more than it exports. A country’s balance of payments results from the inflow and outflow of money into and out of the country as a result of the country’s trade balance.

Diff: 2 Type: ES Page Ref: 103

Skill: Comprehension

Objective: 5.3

9) Explain why fluctuations in exchange rates have a significant influence on the balance of trade.

Answer: When the value of a country’s currency rises, companies based there find it harder to export products to foreign markets and easier for foreign companies to enter local markets. As the value of a country’s currency falls, its balance of trade usually improves because domestic companies experience a boost in exports. There should also be less reason for foreign companies to ship products into the domestic market and less reason to establish operations in other countries.

Diff: 2 Type: ES Page Ref: 104

Skill: Comprehension

Objective: 5.3

10) What are the four steps that firms should go through when deciding whether or not to go international?

Answer: The four steps involve answering four important questions: (1) Is there international demand for the firm’s product? (2) Can the product be modified to fit a foreign market? (3) Is the foreign business climate suited to imports? and (4) Does the firm have or can it get the necessary skills and knowledge to do business abroad?

Diff: 2 Type: ES Page Ref: 105

Skill: Knowledge

Objective: 5.4

11) Why might a company decide not to conduct business internationally?

Answer: A company may decide not to “go international” for several reasons: its product(s) may be unsuitable for international shipping (due to storage and/or transportation costs), or there may be low demand for its product(s) in foreign markets, or the business climate of a given country may be unsuitable for the company, or the company may not have or be able to obtain the necessary skills and knowledge to do international business.

Diff: 2 Type: ES Page Ref: 105

Skill: Comprehension

Objective: 5.4

12) Define licensing arrangements and strategic alliances and discuss their relative merits.

Answer: With a licensing arrangement, a firm gives foreign entities exclusive rights to manufacture or market their products in that market. With such arrangements, the licensing firm is not often present to monitor that production and quality control standards are consistently being met. Such arrangements, which include franchising, might benefit the licensing firm in that the local people likely know the local market best; therefore, a licensing arrangement would allow the licensing firm to tap into a foreign market via the use of employees who share cultural similarities with that particular market. In a strategic alliance, a firm comes together in a form of a partnership with a firm in a country in which it wants to do business. Both sides agree to invest resources and capital into a new business or toward a common purpose. This type of partnership represents a type of “marriage” between two firms; both sides are present while major decisions are being made and both sides work toward their common purpose.

Diff: 2 Type: ES Page Ref: 106

Skill: Comprehension

Objective: 5.4

13) What are the three basic levels of involvement in international business?

Answer:

– Exporting/importing goods and services

– Organize as an international firm

– Operate as a multinational firm

Diff: 1 Type: ES Page Ref: 106

Skill: Knowledge

Objective: 5.4

14) List and briefly explain the different international organizational structures that can be used to “go international.”

Answer: A company can use an independent agent (a foreign individual or organization who agrees to represent an exporter’s interests in foreign markets), licensing (an arrangement whereby an owner of a process or product allows another business to produce, distribute, or market it for a fee or royalty), a branch office (establishing a location in a foreign country in order to sell products more effectively), a strategic alliance (an enterprise in which two or more persons or companies temporarily join forces to undertake a particular project), or foreign direct investment (buying or establishing tangible assets in another country).

Diff: 2 Type: ES Page Ref: 106

Skill: Comprehension

Objective: 5.4

15) Why would two companies, both earning large profits and expanding into Japan, form a strategic alliance?

Answer:

– Share the costs and risks of new ventures

– Gaining access to new markets or customers

– Limits financial aid needed for the venture

Diff: 3 Type: ES Page Ref: 106

Skill: Comprehension

Objective: 5.4

16) Might getting involved in a strategic alliance be considered more risky, more involved, and more complex than operating under a licensing arrangement? Explain.

Diff: 3 Type: ES Page Ref: 106

Skill: Comprehension

Objective: 5.4

17) What are the advantages of forming a strategic alliance?

Answer:

– Gaining access to new markets or customers

– Sharing costs and risks

– Obtaining financing to supplement a firm’s debt capacity

Diff: 3 Type: ES Page Ref: 106

Skill: Comprehension

Objective: 5.4

18) How does exporting benefit the Canadian economy?

Answer:

– Increased sales volume

– Increased profits, leading to increased salaries

– Increased consumption, leading to more jobs

– Increased global market awareness

Diff: 2 Type: ES Page Ref: 105

Skill: Comprehension

Objective: 5.4

19) What are the advantages and disadvantages associated with a multinational corporation?

Answer:

– Advantages: encouraged economic growth in many areas, fresh technological expertise, managerial abilities

– Disadvantages: nonallegiance to the host country, transferring profits from the host country, failing to promote R&D, not hiring local workers

Diff: 2 Type: ES Page Ref: 106

Skill: Comprehension

Objective: 5.4

20) Describe the relationship of exports and imports in a country’s balance of trade and its balance of payments.

Diff: 2 Type: ES Page Ref: 103, 105

Skill: Comprehension

Objective: 5.4

21) “All this talk about a global economy is relevant only for big firms. My company is too small for that type of thinking.” Agree or disagree with this statement, and support your position.

Answer: Conclusions will vary, but should include a discussion of technology, opportunities, and ease of entry into international markets.

Diff: 2 Type: ES Page Ref: 106

Skill: Analysis

Objective: 5.4

22) Explain why foreign direct investment is often the riskiest, most complex, and most involved of the various types of international involvement.

Answer: With exporting, a company is merely producing in this country and shipping abroad. With licensing, a company is giving another company in another country the right to produce its product; after the foreign company begins producing, the Canadian company is not involved in the actual production processes. With a strategic alliance, companies are working together toward a common purpose, perhaps working to create a new product or improve a type of technology. Foreign direct investment, however, presents different types of challenges to companies. Technologies or access to technologies vary from country to country. Exchange rate fluctuations and economic differences between countries can alter trade patterns. Socio-cultural differences in people, including religion, tastes, preferences, buying patterns, perceptions of time, perceptions of space, and cultural communication styles, can present roadblocks for businesses engaging in foreign direct investment. Finally, political and legal differences between countries can alter the methods with which business is conducted as well as impact what are acceptable and unacceptable practices.

Diff: 2 Type: ES Page Ref: 107

Skill: Comprehension

Objective: 5.4

23) Why might social and cultural differences prevent a firm in one country from exporting their products to another country?

Answer: These differences (e.g., different religious and social beliefs, language barriers, physical needs, and lifestyle needs. may mean that the consumers in a foreign country are simply not interested in the products and services that a company in another country is offering.

Diff: 2 Type: ES Page Ref: 107

Skill: Comprehension

Objective: 5.5

24) How might socio-cultural differences affect the sales of Nokia phones outside Finland?

Answer: Any firm planning to conduct business in another country must understand the socio-cultural differences between the host country and the home country. One of the most obvious barriers is language. The packaging, instructions, and menu must be translated into the language of users in other countries. Nokia must also consider cultural differences in cell phone usage in each country to which they wish to export. For example, is it culturally acceptable to speak on a cell phone while walking down the street? Is face-to-face communication preferred over phone communication? Some social and cultural differences are obvious, but a wide range of subtle value differences can also affect operations.

Diff: 2 Type: ES Page Ref: 108

Skill: Application

Objective: 5.5

25) List and briefly describe the three basic barriers to international trade. Give examples of each.

Answer: The three basic barriers are: (1) social and cultural differences (different countries have different demographics, customs, cultures, language, shopping patterns, subtle behavioural differences, physical size differences, etc.); (2) economic differences (differences in the level of government involvement in business, extent of credit card use, the level of industrial development, etc.), and (3) legal and political differences (differences in tariffs, quotas, and subsidies, differences in protectionist sentiment, differences in local content laws and in business practice laws, etc.).

Diff: 3 Type: ES Page Ref: 108-110

Skill: Comprehension

Objective: 5.5

26) What is protectionism? List and describe four protectionist measures.

Answer: Protectionism is the practice of protecting domestic businesses at the expense of free market competition. Protectionist measures include quotas, embargoes, tariffs, subsidies, local content laws, and business practice laws. Quotas are restrictions on the number of a certain type of product that can be imported into a country. An embargo is a government order banning exportation and/or importation of a particular product or all products from a particular country. Tariffs are taxes on imported products. Subsidies are government payments to help domestic businesses compete with foreign firms. Local content laws require that products sold in a particular country be at least partly made there. Finally, business practice laws govern business practices in a given country.

Diff: 3 Type: ES Page Ref: 109

Skill: Comprehension

Objective: 5.5

27) Other than a quota, embargo, or tariff, what legal barriers might Canada use to discourage the importation of cell phones?

Answer: Parliament might consider a subsidy program for domestic manufacturers or enact local content laws. If the federal government were to subsidize domestically produced cell phones, the price would likely go down. With lower prices, the sales of domestically produced cell phones would likely increase and sales of foreign produced cell phones would likely decrease. Local content laws require that products sold in a particular country be at least partly made there. A foreign manufacturer like Nokia could meet this requirement by taking on a domestic partner. Yet, Nokia would probably experience higher costs by being required to buy components of its phones from Canadian firms or by setting up a production facility in Canada to complete assembly.

Diff: 3 Type: ES Page Ref: 108

Skill: Comprehension

Objective: 5.5

28) What actions can a government take to discourage trade?

Answer: A government may impose a quota (a restriction on the number of products that can be imported), an embargo (a complete ban on the exportation/importation of a particular product), or a tariff (a tax on imported products).

Diff: 2 Type: ES Page Ref: 108

Skill: Comprehension

Objective: 5.5

29) What are local-content laws? What do they usually imply?

Answer: Local-content laws require that products sold in a particular country be at least partly made in that country. These laws usually imply that firms seeking to do business in a country must either invest directly in that country or form a joint venture with another business from that country.

Diff: 3 Type: ES Page Ref: 109

Skill: Comprehension

Objective: 5.5

30) Identify some of the free trade agreements located outside of the Americas and the countries involved in them.

Answer: Around the world, groups of nations are banding together to form regional trade associations for their own benefit. These organizations include the ASEAN Free Trade Area (which includes several nations in southeast Asia), the Asia-Pacific Economic Cooperation (many nations of the Pacific Rim, as well as the United States, Canada, and Mexico), the Economic Community of Central African States (many nations in equatorial Africa), and the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates). The most recent agreements are the Trans-Pacific Partnership (TPP), which involves 12 different Pacific Rim Countries, and the Canada-European Union Comprehensive and Economic Trade Agreement (CETA).

Diff: 3 Type: ES Page Ref: 112

Skill: Comprehension

Objective: 5.6

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