Deck 6: International Trade and Investment

Question 1

The term ________ refers to the voluntary exchange of goods, services, assets, or money between one person or organization and another.

A) sales
B) transaction
C) trade
D) strategic management

Answer 1

C

Question 2

Ellis, a manager at an MNE, is studying international trade theories. In his current position, Ellis would most likely use this knowledge to ________.

A) lobby for trade policy changes
B) identify promising new markets
C) predict factors that motivate trade
D) analyze foreign exchange markets

Answer 2

B

Question 3

The theory of ________ maintains that a country's wealth is measured by its holdings of gold and silver.

A) mercantilism
B) neomercantilism
C) competitive advantage
D) comparative advantage

Answer 3

A

Question 4

Which of the following statements is most likely true?

A) Japan eliminated all protectionist policies after WWII.
B) Nearly all countries have some neomercantilist policies.
C) China is one of the few countries with protectionist policies.
D) EU countries are supportive of U.S. neomercantilist policies.

Question 5

In the U.S., sugar growers, steel companies, and the AFL-CIO are supporters of mercantilist policies. These groups are best characterized as ________.

A) protectionists
B) communists
C) isolationists
D) federalists

Question 6

Which of the following benefited the LEAST from mercantilist policies?

A) monarchs
B) local politicians
C) individual consumers
D) domestic manufacturers

Question 7

In 2009, China accounted for nearly ________ of the world's merchandise exports.

A) 10%
B) 25%
C) 40%
D) 55%

Question 8

What type of trade were the early country-based theories of international trade most useful in understanding?

A) services
B) brand name goods
C) commodities
D) high-tech goods

Question 9

All of the following are examples of differentiated products except ________.

A) lumber
B) cameras
C) shampoo
D) automobiles

Question 10

In 2009, total international merchandise trade accounted for about ________ percent of the world's GDP.

A) 12
B) 21
C) 44
D) 59

Question 11

What did Adam Smith believe about the ultimate effects of mercantilist policies on the health of a country's economic situation?

A) Mercantilist policies strengthen an economy by protecting against competition.
B) Mercantilist policies result in strong rates of unemployment.
C) Mercantilist policies reduce the wealth of a country as a whole.
D) Mercantilist policies harm special interest groups.

Question 12

Which of the following is a characteristic of most Mittelstand firms?

A) emphasis on low price guarantees
B) reliance on global supply chains
C) dependence on foreign investors
D) specialization in product niches

Question 13

Who is the father of free market economics?

A) David Ricardo
B) Michael Porter
C) Adam Smith
D) John Dunning

Question 14

According to mercantilism, what should a country's primary goal be?

A) protecting citizens from unfair labor practices
B) encouraging imports to prevent resource depletion
C) promoting exports to enlarge gold and silver holdings
D) ensuring sufficient labor for low-wage jobs in the textile industry

Question 15

During which century were the first theories of international trade developed?

A) sixteenth
B) seventeenth
C) eighteenth
D) nineteenth

Question 16

Which theory suggests that a country should export those goods and services for which it is more productive than other countries and import those goods and services for which other countries are more productive?

A) mercantilism
B) comparative advantage
C) absolute advantage
D) specialization of countries

Question 17

Mercantilism ________.

A) suggests that a country should export those goods for which it is more productive than other countries and trade for those goods for which other countries are more productive
B) maintains that a country's wealth is measured by its holdings of gold and silver
C) suggests that a country will have a comparative advantage in producing products that intensively use resources it has in abundance
D) argues that most trade in manufactured goods should be between countries with similar per capita incomes

Question 18

Adam Smith was best known as an advocate of ________.

A) low-cost manufacturing
B) free-market economics
C) mercantilism
D) labor unions

Question 19

The first theories of international trade used ________ as a unit of analysis.

A) individual countries
B) country clusters
C) regions
D) continents

Question 20

Since World War II, world trade has ________.

A) grown slightly
B) shrunk slightly
C) shrunk significantly
D) grown dramatically

Question 21

Japan exports Toshiba Computers to the United States, and the United States exports Apple Computers to Japan. This is an example of ________.

A) mercantilism
B) diversification
C) interindustry trade
D) intraindustry trade

Question 22

In the ________ stage of the international product life cycle, the product becomes commodity-like and price becomes very important.

A) new product
B) maturing product
C) standardized product
D) international product

Question 23

Which of the following is not one of the stages in the international product life cycle theory?

A) new product
B) modified product
C) maturing product
D) standardized product

Question 24

Germany exports BMWs to the United States, and the United States exports Dell Computers to Germany. This is an example of ________.

A) mercantilism
B) diversification
C) interindustry trade
D) intraindustry trade

Question 25

Which theory incorporates the concept of opportunity cost?

A) comparative advantage
B) mercantilism
C) absolute advantage
D) factor endowments

Question 26

Leontief predicted that if the Heckscher-Ohlin theory held, then the U.S. would ________.

A) import capital-intensive goods
B) import products such as steel
C) export products such as shoes
D) export bulk chemicals

Question 27

The primary flaw in the theory of absolute advantage is that the theory ________.

A) confuses the acquisition of treasure with the acquisition of wealth
B) looks only at relative productivity differences rather than competitive differences
C) suggests that no trade will occur when one country has an absolute advantage in multiple products
D) incorporates the concept of opportunity cost in determining which goods a country should produce

Question 28

Which theory answers the question, "What determines the products for which a country will have a comparative advantage?"

A) relative advantage
B) absolute advantage
C) relative factor endowments
D) specialization of countries

Question 29

Which of the following was determined by Leontief?

A) U.S. exports were less capital intensive than imports.
B) U.S. exports were more capital intensive than imports.
C) Relative factor endowments were not a factor in determining trade patterns.
D) Specialization was not a factor in determining imports and exports.

Question 30

The country similarity theory suggests that most trade in manufactured goods should be between countries with similar ________.

A) labor costs
B) per capita incomes
C) natural resources
D) cultures and languages

Question 31

In which stage of the international product life cycle does the innovating firm's country become a net importer of the product?

A) new product stage
B) maturing product stage
C) standardized product stage
D) never

Question 32

Which theory listed below is also called the Heckscher-Ohlin theory?

A) relative advantage
B) comparative advantage
C) relative factor endowments
D) specialization of countries

Question 33

Which theory promotes the notion of specializing in what you do relatively best?

A) country similarity
B) comparative advantage
C) product life cycle
D) absolute advantage

Question 34

The ________ of a good is the value of what is given up to get the good.

A) relative cost
B) opportunity cost
C) absolute cost
D) discount cost

Question 35

The country similarity theory ________.

A) suggests that a country should export those goods for which it is more productive than other countries and trade for those goods for which other countries are more productive
B) states that a country should produce and export those goods for which it is relatively more productive than other countries and import those goods for which other countries are relatively more productive than it is
C) suggests that a country will have a comparative advantage in producing products that intensively use resources it has in abundance
D) argues that most trade in manufactured goods should be between countries with similar per capita incomes

Question 36

Which theory suggests that a country should produce and export those goods and services for which it is relatively more productive than other countries are and import those goods and services for which other countries are relatively more productive?

A) relative advantage
B) comparative advantage
C) absolute advantage
D) specialization of countries

Question 37

Which statement is asserted by the theory of absolute advantage?

A) A country should export those goods for which it is more productive than other countries and trade for those goods for which other countries are more productive.
B) A country should import goods from developing economies in order to maximize returns on profit and economies of scale.
C) A country will have a comparative advantage if it makes products that rely on global supply networks.
D) Most trade in manufactured goods should be between countries with similar per capita incomes.

Question 38

Which international trade theory originated in the marketing field?

A) new trade theory
B) product life cycle theory
C) country similarity theory
D) theory of competitive advantage

Question 39

The Heckscher-Ohlin theory ________.

A) suggests that a country should export those goods for which it is more productive than other countries and trade for those goods for which other countries are more productive
B) states that a country should produce and export those goods for which it is relatively more productive than other countries and import those goods for which other countries are relatively more productive than it is
C) suggests that a country will have a comparative advantage in producing products that intensively use resources it has in abundance
D) argues that most trade in manufactured goods should be between countries with similar per capita incomes

Question 40

Which factors of production did Leontief focus on?

A) land and labor
B) land and technology
C) capital and labor
D) labor and technology

Question 41

________ argued that firms struggle to develop some sustainable competitive advantage which they then exploit to dominate the global marketplace.

A) Porter
B) Vernon
C) Heckscher and Ohlin
D) Krugman and Lancaster

Question 42

Firm-based theories of international trade are best at explaining trade in all of the following types of products except ________.

A) aluminum
B) televisions
C) bulldozers
D) stereo equipment

Question 43

________ suggest(s) that FDI will be more likely to occur when transaction costs with a second firm are high.

A) Eclectic theory
B) Internalization theory
C) Ownership advantage theory
D) National competitive advantage

Question 44

Which of the following is not one of the four elements discussed in the theory of national competitive advantage?

A) factor conditions
B) opportunity costs
C) firm strategy, structure, and rivalry
D) related and supporting industries

Question 45

Which of the following factors are not included in Porter's view of factor endowments?

A) land
B) capital
C) work ethic of workforce
D) educational level of workforce

Question 46

________ are the costs of negotiating, monitoring, and enforcing a contract.

A) Opportunity costs
B) Transaction costs
C) Indirect costs
D) Direct costs

Question 47

Which theory explains why a firm would choose to enter a foreign market via FDI rather than exploit its ownership advantages internationally through other means?

A) eclectic theory
B) internalization theory
C) relative factor endowments
D) national competitive advantage

Question 48

Foreign portfolio investments are most likely motivated by the desire for ________.

A) risk reduction
B) controlling ownership
C) active management
D) immediate globalization

Question 49

Taylor Helmets has been able to lower the average cost of producing a bicycle helmet as it increases the number of helmets it manufactures each day. Taylor Helmets is most likely benefitting from ________.

A) opportunity costs
B) economies of scope
C) economies of scale
D) competitive advantages

Question 50

Which type of investment involves the acquisition of foreign assets for the purpose of controlling them?

A) Foreign direct investment
B) Foreign portfolio investment
C) Capital investment
D) Controlling ownership

Question 51

The ________ suggests that a firm owning a valuable asset that creates a competitive advantage domestically can use that advantage to penetrate foreign markets through FDI.

A) national competitive advantage
B) comparative advantage
C) relative factor endowments
D) ownership advantage theory

Question 52

Executives at Energex Enterprises are trying to determine whether it would be better to own and operate a factory overseas or to contract with a foreign firm to do this through a licensing agreement. Which theory would most likely help the Energex executives make this decision?

A) ownership advantage theory
B) internalization theory
C) eclectic theory
D) relative factor endowments

Question 53

Porter's theory of national competitive advantage can best be described as a ________.

A) country-based theory
B) firm-based theory
C) hybrid of country-based and firm-based theories
D) government-focused theory based on economies of scale

Question 54

Which theory of international trade explains that success in international trade comes from the interaction of four country- and firm-specific elements?

A) national competitive advantage
B) country similarity
C) absolute advantage
D) relative factor endowments

Question 55

Who developed the theory of national competitive advantage?

A) Adam Smith
B) Raymond Vernon
C) Michael Porter
D) Eli Heckscher

Question 56

The most important source of FDI for the United States is ________.

A) Canada
B) Mexico
C) the U.K.
D) China

Question 57

________ represents passive holdings of securities such as foreign stocks, bonds, or other financial assets.

A) Foreign direct investment
B) Foreign portfolio investment
C) Capital investment
D) Controlling ownership

Question 58

Which of the following is a form of foreign direct investment?

A) foreign stock ownership
B) foreign bond ownership
C) participation in a joint venture
D) mutual fund ownership

Question 59

What is the primary focus of the new trade theory developed by Krugman, Helpman, and Lancaster?

A) protecting intellectual property rights
B) expanding research and development
C) developing economies of scale
D) exploiting the experience curve

Question 60

Which theory suggests that trade flows can be determined by firms making the necessary research and development expenditures?

A) global strategic rivalry theory
B) national competitive advantage theory
C) international product life cycle theory
D) country similarity theory

Question 61

Demand factors affecting the decision to undertake FDI include all of the following except ________.

A) customer access
B) marketing advantages
C) customer mobility
D) resource availability

Question 62

Thanks to the emergence of China as a major exporting nation, Japan, Canada, the EU, and the U.S. countries accounted for just 30 percent of the world's merchandise exports in 2009.

Question 63

Supply factors affecting the decision to undertake FDI include all of the following except ________.

A) logistics
B) production costs
C) customer mobility
D) access to key technology

Question 64

According to the text, which of the following is negatively affecting FDI in Russia?

A) infrastructure
B) labor pool
C) natural resources
D) legal system

Question 65

Saudi Arabia has large crude oil reserves, and India has a large pool of skilled workers. These are both examples of ________.

A) factor endowments
B) economies of scope
C) production factors
D) opportunity costs

Question 66

Coffman Electronics produces small, portable printers. The market for the product has stabilized, and Coffman has shifted production to Taiwan. However, Coffman's marketing department in the U.S. remains responsible for advertising and branding decisions. Coffman Electronics is most likely in the ________ product stage of the product life cycle.

A) globalized
B) standardized
C) maturing
D) new

Question 67

Which of the following has the LEAST influence on a firm's decision to undertake foreign direct investment?

A) supply factors
B) political factors
C) demand factors
D) relative endowment factors

Question 68

Early theories of international trade focused on the patterns of exports and imports in individual countries.

Question 69

Examples of ownership advantage include all of the following except ________.

A) brand name
B) economies of scale
C) intellectual property
D) benefits of outsourcing

Question 70

For the ________ advantage to accrue, undertaking the business activity must be more profitable overseas than undertaking it locally.

A) ownership
B) location
C) home country
D) internalization

Question 71

An "unfavorable" balance of trade indicates that a country's exports are less than its imports.

Question 72

Which of the following is a condition of Dunning's eclectic theory?

A) The firm must own a competitive advantage that overcomes competing against foreign firms in their markets.
B) Research and development costs must outweigh expenses related to foreign direct investment.
C) The firm must benefit more from outsourcing a service than controlling a foreign business.
D) Business activity must be more profitable in a domestic location than in a foreign location.

Question 73

Which of the following is not one of the conditions specified in eclectic theory for the occurrence of foreign direct investment?

A) ownership advantage
B) location advantage
C) home country advantage
D) internalization advantage

Question 74

According to Porter, agglomeration economies lead to all of the following EXCEPT ________.

A) increased entrepreneurship
B) growth of innovative design
C) high reliance on foreign R&D
D) price competition among suppliers

Question 75

Who developed the eclectic theory of international investment?

A) Steffan Linder
B) Raymond Vernon
C) Michael Porter
D) John Dunning

Question 76

World trade initially grew after World War II, but in the last decade has dropped off and been replaced with FDI.

Question 77

MAX Electronics produces tiny wireless speakers that can be used with computers and MP3 players. The firm has built new factories to expand capacity and meet increasing domestic and foreign demand. Over the last six months, foreign and domestic competitors have emerged with a similar product in an attempt to benefit from high consumer demand. MAX Electronics is most likely in the ________ product stage of the product life cycle.

A) globalized
B) standardized
C) maturing
D) new

Question 78

What is the most likely characteristic of a firm that gains a first-mover advantage?

A) government contractor
B) significant capital
C) natural resources
D) niche marketer

Question 79

The firm-based theories developed after World War II help explain patterns of trade in commodities.

Question 80

Pandora Housewares is an MNE with production facilities in Taiwan, England, and India that manufacture bedding, towels, clothing, and luggage. Pandora has benefited from ________ because the firm's average costs have decreased as the number of different products it sells has increased.

A) economies of scope
B) intellectual property rights
C) economies of scale
D) experience curve exploitation