Study Guide – Second Midterm
Business 187 – Prof. Wood – Spring 2013
Ver. 1.0
The first midterm, like the first, will include 20 to 28 true-false, multiple choice, and short
answer questions. It will also include an essay that you will select from a choice of two or
three. This guide covers the major topics we have studied and lists questions you will need
to be able to answer. The second midterm is comprehensive, but to limit study demands a
significant number of topics from early class meetings have been eliminated from this guide
and will not appear on the text. The answers to some questions asked here are not simple,
so you need to highlight and review the readings and study the notes you took in class as
well as reviewing the study guide and slides from the lectures. However, you should be able
to figure out at least 90% of the 20 to 28 questions on the test ‘s first part if you know the
answers to the questions here. Where an important point is not in the required reading or is
made difficult by complex writing in the readins, I give the needed facts here. Statements in
italics are points you need to know and do not need to know more details about for the test.
Topic
You should know …
Globalization (The
New Global
Economy)
What is globalization? (be able to give a definition)
How has globalization affected production? How has globalization
affected markets? What kinds of products have the most globalized
markets? What kinds of products still tend to involve very large
national differences?
What are the two most important drivers of globalization?
How much have global trade and global production (gross national
income) grown since World War II?
What is culture? (Know Hofstede definition – though it’s not perfect)
Know that human groups have always tended to take for granted that
their own ways of doing things were natural and right.
What are values? Norms? (know the difference).
Know these standard dimensions of social structure of cultures:
- group (or “collective”) vs. individually oriented
- stratification – classes and castes
Know meaning of these Hofstede dimensions of culture:
individualism, power distance, uncertainty avoidance
Political economic systems create key institutions/“rules of the game.”
They differ enormously. Be able to think about what are the rules in a
place. Can they be relied on? (problems of corruption & of
Hill-packet pp. 1-20.
Differences in
Culture
Benedict-packet pp.
21-26;
Hill-packet pp. 27-32
“Institutions”-packet
pp. 33-34
Political Economy
and International
Business
Hill-packet pp. 107-132
“political risk”-packet
p. 133
International Trade
Theory
The slides and the
Lauren Landsberg web
intro are most helpful
for understanding
undemocratic changes in nations without mature democracy)
Know market economy, command economy, mixed economy
Legal systems-be able to define “property rights,” “contracts,” and
“intellectual property”
What does the Foreign Corrupt Practices Act require? What exception
does it allow? What is political risk?
What are “Gross National Income” and “GNI per capita at PPP?”
Define “free trade.” Why do economists believe there are gains from trade?
Explain Adam Smith’s “absolute advantage theory.” Explain Ricardo’s
comparative advantage theory. Why did Ricardo believe there were
gains even when one country is better at everything? How can you
identify a nation’s comparative advantage (see slides)? How did
Smith and Ricardo believe countries and people could best find the
these questions. See
packet pp. 160-162 for
economic arguments
for intervention in
trade.
activities where they had advantage? They favored free trade and free
competition among businesses. See Lauren Landsberg:
http://www.econlib.org/library/Topics/Details/comparativeadvantage.html
What do successful governments do to make efficient free trade
possible? Create infrastructure, education, institutions.
List limitations of comparative advantage theory. assumes resources,
including people, move freely; doesn’t address income distribution
Topics in trade
See slides for
definitions of key
terms; packet pp. 160167 for how the world
trading system
developed.
Foreign exchange
The key info is in the
slides
The International
Monetary System
Packet pp. 179-194
Foreign direct
investment
The Strategy of
International
Business
From Porter article,
“Competitive
Advantage of
Nations”
Describe the ‘infant industry’ argument. What can cause it to fail?
Why do some argue for “strategic trade policy?“
Note: While we study ways of restricting trade, remember that most
economists oppose use of most of these tactics.
Understand definitions (on slides) of key ways of trade restriction:
tariffs, subsidies, quotas, “voluntary export restraints,”
administrative policies, local content requirements, “dumping.”
Development of world trading system: considerable liberalization after
WW II through General Agreement on Tariffs and Trade; further
liberalization after 1995 through World Trade Organization
What has the World Trade Organization done? Resolved many more
disputes; opened trade in telecommunications, services
Be able to define: money, foreign exchange, exchange rate, spot
exchange rate, forward rate. Also bid, offer, and spread
Understand how rates are set under fixed/pegged and floating rates
Understand the concept of currency hedging; know that London is
most common site for currency trading.
Reasons why values of floating currencies change: inflation, budget and
trade deficits, interest rates (higher rates drive currency value up).
History of international monetary system: 1) Fixed rates in 19th Century
and from 1944 Bretton Woods conference to 1972; 2) floating rates with
some management by International Monetary Fund after 1972.
Understand both the advantages and the difficulties of fixed rates
Definition of foreign direct investment
Why some firms do FDI instead of exporting or licensing; costs of FDI
Arguments for and against acquiring an existing foreign firm as
opposed to building a foreign business from scratch (“greenfield”)
Recent trends: Rapid growth over 20 years
Growth in FDI to many developing (poor) countries
What is strategy? Plans and actions to attain the goals of the firm,
especially big plans and actions that will have big effects
The goal of long-term profitability; value-creation as the driver
Two “basic strategies” – differentiation and low cost, and the selection
of a strategic position.
Basic global strategic issues: pressures for cost reduction, pressures
for local responsiveness
Possible responses – 4 main strategic positions: “international”,
localization, global standardization, transnational
Competitive advantage of industries in nations and regions
The key driver: capacity to innovate and upgrade an industry
4 determinants: factor conditions (specialized), demand conditions,
related industries, firm strategy & rivalry
Importance of pressure on firms; clusters as the result
Ethics
Reasons to believe ethical approaches may be the most profitable: .
Reasons to believe ethical approaches may not be most profitable.
Processes of moral development – preconventional (learning to
respond to rules), conventional (meeting expectations of family,
peer group, or nation is seen as good in its own right), and
postconventional/”principled” stages (seeing things from a point of
view that takes everyone’s interests into account) .
Lawrence Kohlberg’s principle-oriented approach to morality vs.
Carol Gilligan’s relationship-oriented approach