Deck 17: Global Pricing

Question 1

Uncontrolled prices can exist when sales are made by members of the multinational corporation to unrelated parties.

Answer 1

True

Question 2

A countertrade is a transaction in which purchases are tied to sales and sales to purchases.

Answer 2

True

Question 3

Pricing changes are static and infrequent when a company's objective is to undersell a major competitor.

Answer 3

False

Question 4

When the government creates regulations that set maximum or minimum prices for products, and the government imposes limits on price changes, this is known as guerilla pricing.

Question 5

The American Patriotic Act (APA) demands that companies pay taxes before they ship products to intercompany subsidiaries.

Question 6

The basis for intercompany transfer pricing, which is the price that unrelated parties would have arrived at for the same transaction, is called competitive parity pricing.

Question 7

Allocation of resources among the various units of the multinational corporation requires central management to establish the appropriate transfer price to meet all but which of the following objectives?

A) Planning and executing government mandated ascertainments
B) Reduction of taxes
C) Management of cash flows
D) Minimization of foreign exchange risks

Question 8

Market-based pricing is determined by the initial price of a product in comparison to competitors' prices.

Question 9

Global marketers must set and adjust both their financial and marketing objectives based on the prevailing conditions in their markets.

Question 10

Costs are frequently used as a basis for price determination largely because they are easily measured and provide a floor under which prices cannot go in the long term.

Question 11

A functional analysis measures the profits of two related companies and compares them with the proportionate contribution of the total income of each corporate group.

Question 12

The cost plus method of pricing is a strategy based on the percentage of debt in developing countries with loans.

Question 13

The amenity accoutrement method is the most applicable approach for transfers of components or unfinished goods to overseas subsidiaries.

Question 14

Manipulating intercorporate prices complicates internal control measures and, without proper documentation, will cause major problems.

Question 15

High transfer prices on goods shipped into a subsidiary and low prices on goods imported from it will result in minimizing the tax liability of a subsidiary operating in a country with high income taxes.

Question 16

Transfer prices can be based on costs or on market prices.

Question 17

Transfer pricing is the pricing of objects that are sold on the broad market and are transported via rail, auto, truck or other mechanized system.

Question 18

Adjusting prices to current conditions is considered price elasticity of consumer demand.

Question 19

Barter is the exchange of goods for other goods of equal value.

Question 20

Deriving transfer prices from the market is the most marketing-oriented pricing method because it takes local conditions into account.

Question 21

Global marketing objectives, both financial and marketing related, are based on what?

A) Customer behavior
B) Cost
C) Corporate delegation
D) Prevailing conditions in the market

Question 22

Prices within the individual markets in which a company operates are determined by all but which of the following?

A) Corporate objectives and costs
B) Customer behavior and market conditions
C) Market structure and environmental constraints
D) Employee compensation and HR requirements

Question 23

Which of the following is not one of the influences on transfer pricing decisions?

A) Age of consumers
B) Competition in target countries
C) Import restrictions
D) Customs duties

Question 24

Which of the following is a principle basis for transfer pricing favored by governments to stop companies from shifting income to foreign subsidiaries in low- or no-tax jurisdictions?

A) The abundance principle
B) The principle of economic security
C) The arm's length standard
D) The gateway empowerment zone

Question 25

Transfer pricing is described as:

A) the value added to goods and services.
B) selling goods overseas for less than what they are sold for in the exporter's home market.
C) goods which have been imported from another country and priced at twice what they were sold for in the exporter's home market..
D) the intercorporate pricing of sales to members of the corporate family.

Question 26

Which of the following is a growing trend among U.S. based multinational corporations with central procurement facilities that must send products to subsidiaries?

A) They do not send competitors products.
B) They always choose imports over exports.
C) They charge a standard administrative fee for their services (7 percent).
D) They over-populate the market for flooding purposes.

Question 27

At what level are the majority of pricing decisions made?

A) The strategic level
B) The corporate headquarter level
C) The local level
D) In the task orientation phase

Question 28

How can the effect of environmental influences on overseas marketers be alleviated?

A) By not shipping products overseas through conventional channels.
B) By manipulating transfer prices in principle
C) By creating demand in ancillary markets
D) By encouraging non-user participation

Question 29

Which of the following is not a characteristic of a situation in which uncontrolled prices exist?

A) Sales are only between parties with minimal relations.
B) Sales are made by members of the multinational corporation to unrelated parties.
C) Purchases are made by members of the multinational corporation from unrelated parties.
D) Sales are made between two unrelated parties, neither of which is a member of the multinational corporation.

Question 30

Since 1991, the Internal Revenue Service has been signing agreements with multinational corporations to stem the tide of unpaid U.S. income taxes. What are these advance pricing agreements called?

A) Advance Pricing Agreements
B) IRS prestart agreements
C) Taxation in the first degree
D) Section orientation

Question 31

On what can transfer prices be based?

A) Costs and market prices
B) Internet inquiries
C) Predisposed calculations
D) Predicable trends

Question 32

If a company's objective is to undersell a major competitor, what will the characteristics of their products' prices be?

A) They will stay the same.
B) They will be high.
C) They will be outdated.
D) They will change frequently.

Question 33

What are the two general types of challenges to transfer pricing policies?

A) Beachfront and island philosophy
B) The supply and demand of adjustable rates
C) Economic disintegration and fragmentation
D) Performance measurement and taxation

Question 34

According to section 482, which of the following is NOT an arm's length method of pricing?

A) The resale price method
B) The cost plus method
C) The comparable uncontrolled price method
D) The aggressive elite method

Question 35

What is significant about the beginning of the 1994 tax return in terms of the requirements for the pricing structures of U.S. firms?

A) These firms must disclose their pricing method.
B) The pricing structure must be in the form of profit prevention.
C) The pricing structure must be discernable and based on mechanized evaluation.
D) The firms must duplicate the previous year's pricing method.

Question 36

The IRS requires that the price or royalty rate for any cross-border transfer must be commensurate with income. What does this mean?

A) It must result in a fair distribution of income between units.
B) The IRS requires a higher royalty rate.
C) The royalty rate is given to the forced line.
D) A technology license is required.

Question 37

Which of the following is not an emerging philosophy of transfer pricing?

A) Cost base
B) Pragmatic
C) Market based
D) Arms length

Question 38

When competition is keen or expected to increase in the near future, what would cause a product to be more attractive to buyers and the market less attractive to the competition?

A) Flooding the market
B) Skimming pricing strategy
C) Perception marketing
D) Low prices

Question 39

What government official has the ability to reallocate income between controlled foreign operations and U.S. parents and between U.S. operations of foreign corporations?

A) The commissioner of major league baseball
B) The director of the Interleague of National Corporations
C) The commissioner of the IRS
D) The director of the Commerce department

Question 40

When one partner is operating in a low-inflation environment and the other in an environment of rampant inflation, what is best to do with transfer prices?

A) Accommodate third party inquiries
B) Re-district the formulation of prices
C) Pierce the market through substantiation
D) Adjust transfer prices to balance the effect

Question 41

Which of the following typically accompanies varying inflation rates?

A) Product differentiation
B) Government controls
C) Free market swings
D) Crisis management

Question 42

This compensation arrangement is a form of countertrade whereby one party agrees to supply technology or equipment that enables the other party to produce goods that are then used to repay the price of the supplied technology or equipment.

A) Boycott
B) Collateral
C) Toggle switch
D) Buyback

Question 43

Which of the following matches this definition? "Adjusting prices to current conditions: for example, a status-conscious market that insists on products with established reputations will be inelastic, allowing for more pricing freedom than a price-conscious market."

A) Price elasticity of consumer demand
B) Price inelasticity of consumer demand
C) Price elasticity of business consumers
D) Price inelasticity of business consumers

Question 44

Who or what sets the price ceiling in a given market?

A) IRS
B) Competitors
C) Demand
D) Prices

Question 45

Because prices are easy to measure and the fact that there is a floor under which they can fall in the long run, what is the basis for most price determination?

A) Compendium expenditure
B) Marketing and advertising relationship
C) Global expansion
D) Costs

Question 46

What is one thing that the price element of the marketing mix creates that the other three elements do not?

Question 47

Which of the following is a form of countertrade in which industrial compensation is mandated by governments when purchasing defense-related goods and services in order to counterbalance the effect of the purchase on the balance of payment?

A) Open account
B) Risk factor
C) Procurement
D) Offset

Question 48

What is a countertrade transaction?

Question 49

What is not one of the reasons for currency crises that have shaken all emerging markets in the last ten years?

A) Free-market economy
B) Corporate socialism
C) Banking stability and management
D) Corporate governance

Question 50

Which of the following is not an effect of price controls?

A) Mainstreaming the product through the marketing channel
B) The wage-price spiral advances vigorously
C) Non-inflationary wage increases are forestalled
D) Authorities raise less in taxes because less money is made

Question 51

What are the three philosophies of transfer pricing?

Question 52

Although it is used less often today, this form of countertrade is an arrangement whereby goods are exchanged directly for other goods of approximate equal value.

A) Factoring
B) Price sensitivity
C) Stratification
D) Barter

Question 53

Credits in a clearing account can be sold or transferred to a third party. This activity is called:

A) switch-trading.
B) the trading floor.
C) a buyers' market.
D) a think tank.

Question 54

Transactions in which purchases are tied to sales and sales to purchases are called:

A) counterweight.
B) retailing.
C) line of sight.
D) countertrade.

Question 55

Which of the following is a disadvantage of organizing an in-house versus a third party countertrade transaction?

A) Less objectivity
B) Lower costs
C) More flexibility
D) More control