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InternationalBusiness-TestBank

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CHAPTER 1—WE LIVE IN A GLOBAL ECONOMY
TRUE/FALSE
1. An example of domestic business is when a person living in Canada buys a product made in Germany.
ANS: F
PTS: 1
2. Products sold by companies in the United States to customers in India are exports.
ANS: T
PTS: 1
3. International trade usually reduces the product choices available to consumers.
ANS: F
PTS: 1
4. When consumers in the United States buy products made in Poland, they are buying imported goods.
ANS: T
PTS: 1
5. Religious beliefs are not likely to influence international business activities.
ANS: F
PTS: 1
6. Import taxes are a form of trade barrier.
ANS: T
PTS: 1
7. Expanded international business activities make different types of jobs available for workers.
ANS: T
PTS: 1
8. International business makes it possible for a company to increase sales by selling to customers in
other countries.
ANS: T
PTS: 1
9. Individuals, businesses, and countries all face the basic economic problem of limited resources to
satisfy needs and wants.
ANS: T
PTS: 1
10. International business can help to improve political relations among countries.
ANS: T
PTS: 1
11. International business started when many transportation and communication inventions occurred in the
1800s.
ANS: F
PTS: 1
12. Culture refers to the type of government of a country.
ANS: F
PTS: 1
13. Family relationships and religious activities influence the culture of a society.
ANS: T
PTS: 1
14. The availability of natural resources affects the economic conditions of a country.
ANS: T
PTS: 1
15. As a country expands its international trade activities, the choice of goods available to consumers in
that country usually decreases.
ANS: F
PTS: 1
MULTIPLE CHOICE
1. A global dependency exists when
a. massive crop failures require buying food from another country.
b. a country buys tools from another country because it does not have the technology to make
the tools.
c. doctors travel to another country to provide healthcare because there is a shortage of
medically-trained professionals in that country.
d. all of the above
ANS: D
PTS: 1
2. Historically, international business
a. is a relatively new concept made possible by communications technology.
b. probably occurred as long as 15,000 years ago.
c. declined when European countries created colonies on other continents.
d. none of the above
ANS: B
PTS: 1
3. All of the following are benefits of international business except
a. expanded business opportunities.
c. decreased competition.
b. increased sources of raw materials.
d. improved political relationships.
ANS: C
PTS: 1
4. Free trade among countries can be restricted by
a. import taxes.
c. import quotas.
b. trade barriers.
d. all of the above
ANS: D
PTS: 1
5. An example of a cultural factor that can affect international business is
a. the weather is too hot for selling ice cream products without refrigeration units.
b. consumer protection laws require expensive packaging.
c. the major religion prohibits the use of alcohol in any food products.
d. none of the above
ANS: C
PTS: 1
6. Of the following statements about international business and individual citizens, the one that is not true
is
a. individual decisions may affect people in other parts of the world.
b. international business usually decreases career opportunities.
c. individual shopping habits have no effect on international business.
d. international competition usually results in more product choices for individuals.
ANS: B
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7. Business activities that occur within one country are called
a. foreign trade.
c. international business.
b. domestic business.
d. free trade.
ANS: B
PTS: 1
8. A country’s need to purchase food from other countries is an example of
a. exporting.
c. global dependency.
b. domestic business.
d. a trade barrier.
ANS: C
PTS: 1
9. An example of exporting would be
a. products made and sold in Japan.
b. a European country’s tax on products made in other countries.
c. products that were made in Poland and bought by Polish consumers.
d. products sold by a company in Mexico for purchase by Italian consumers.
ANS: D
PTS: 1
10. An example of a trade barrier would be
a. efforts by a government to encourage exporting among businesses in its country.
b. consumers who prefer to buy products from domestic companies rather than foreign
companies.
c. a limit on the number of foreign automobiles a country allows to be imported.
d. a sales tax on products made and sold within a country.
ANS: C
PTS: 1
11. A cultural factor affecting international business activities would be
a. the availability of natural resources.
b. government policies toward business.
c. stability of the money supply.
d. family relationships.
ANS: D
PTS: 1
12. A political factor affecting international business activities would be
a. the general education level of a country’s population.
b. religious beliefs.
c. the type of government.
d. a country’s commonly used language.
ANS: C
PTS: 1
13. The economic conditions of a country refer to its
a.
b.
c.
d.
type of government.
decisions regarding the use of resources.
social relationships among the country’s people.
policies toward regulation of business.
ANS: B
PTS: 1
14. International business most commonly affects consumers by creating
a. a greater variety of buying choices.
c. a change in taxes.
b. fewer buying choices.
d. fewer stores to shop in.
ANS: A
PTS: 1
15. Voting for public officials who want to expand foreign trade is part of a person’s role as a
a. business owner.
c. worker.
b. consumer.
d. citizen.
ANS: D
PTS: 1
COMPLETION
1. When a company in one country sells its products in another country, these products are called
____________________.
ANS: exports
PTS: 1
2. When a company buys products from a company in another country, these products are called
____________________.
ANS: imports
PTS: 1
3. When goods and services are made, bought, and sold within one country, ____________________
business is being conducted.
ANS: domestic
PTS: 1
4. An example of _________________________ is when people in one country need to buy wheat from
another country because they cannot produce enough of it themselves.
ANS: global dependency
PTS: 1
5. The accepted behaviors, customs, and values of a society are referred to as that society’s
____________________.
ANS: culture
PTS: 1
6. _________________________ refers to the activities necessary for creating, shipping, and selling
goods and services across national borders.
ANS: International business
PTS: 1
7. Often countries enact ____________________ that are restrictions that reduce free trade among
countries.
ANS: trade barriers
PTS: 1
8. Regulation of fair advertising, enforcement of contracts, and consumer safety laws are examples of
how ____________________ influences business.
ANS: government
PTS: 1
9. Everyone faces the basic economic problem of how to use ____________________ to satisfy wants
and needs.
ANS: limited resources
PTS: 1
10. An individual influences international business in three roles, acting as a global citizen, global worker,
and global ____________________.
ANS: consumer
PTS: 1
SHORT ANSWER
1. Businesses face the problem of limited resources to satisfy needs and wants; how do individuals face
the same problem?
ANS:
Individuals continually make decisions about the use of time, money, and energy.
PTS: 1
2. Why is world peace important to international trade?
ANS:
War between nations disrupts the exchange of goods and services.
PTS: 1
3. How does international business affect individual workers?
ANS:
International business usually expands opportunities for workers because increases in business require
additional workers and even new responsibilities for existing workers.
PTS: 1
4. Explain how you can purchase an item in a store in your neighborhood and still participate in
international business.
ANS:
The neighborhood store may sell items manufactured in other countries and then exported to your
country.
PTS: 1
5. What are four factors that influence a country’s international business environment?
ANS:
Geographic conditions, cultural and social factors, political and legal factors, and economic conditions.
PTS: 1
6. How does the level of technology in a country affect its economic condition?
ANS:
The level of technology affects a country’s ability to both produce and distribute goods and services;
lower levels of technology decrease the ability to produce and distribute goods and services.
PTS: 1
ESSAY
1. Describe three reasons why international business is important.
ANS:
Answers should include three of the following points: (1) to allow consumers to buy products that are
only available from other countries; (2) to expand business opportunities beyond domestic markets; (3)
to create new investment opportunities for investors; (4) to improve political relations between
countries through mutual understanding, communication, and respect among people in other nations.
PTS: 1
2. Describe how geographic conditions—the climate, terrain, seaports, and natural resources—of a
country can influence its business decisions.
ANS:
Answers should include the following concepts: (1) climate can affect the types of crops that can be
grown and even the types of businesses that can operate in that climate; (2) terrain can affect how
goods are shipped to other locations; (3) seaports enable companies to easily ship products for foreign
trade; (4) an abundance of natural resources expands the ability of domestic businesses to produce a
wide variety of goods, while a scarcity of natural resources make a country more dependent on
imports.
PTS: 1
3. Describe four subject areas or skills that are important to international business and explain why they
are important.
ANS:
Answers should include four of the following subjects/skills: (1) history—awareness of the past helps
you better understand today’s international business relations; (2) geography helps you understand
how the climate and terrain of a country affects transportation, housing, and other business activities;
(3) foreign language knowledge enables you to communicate effectively with people from other
societies to conduct efficient business activities; (4) cultural awareness skills allow people to be more
sensitive to customs and traditions of other societies in order to make sound business decisions; (5)
study skills add the ability to keep up to date on changes in international factors that affect
international business.
PTS: 1
4. Describe four different historical time periods in which international business activities occurred.
ANS:
Answers should include four of the following periods: (1) trade between China, India, and Japan, and
African and South American thousands of years ago; (2) Greek and Middle Eastern merchants in 5th
century BCE; (3) Roman Empire for 600 years; (4) Arab Empire, Holy Roman Empire, Viking
explores; (5) European sea trade from the 11th century on; (6) colonization from 1500-1900; inventions
that expanded interest and opportunities from 1769 to 1915.
PTS: 1
CHAPTER 2—OUR GLOBAL ECONOMY
TRUE/FALSE
1. A command economy operates on the forces of supply and demand.
ANS: F
PTS: 1
2. A country with a large agricultural base is usually more economically developed than one with a large
manufacturing base.
ANS: F
PTS: 1
3. An increase in demand, with no change in supply, will usually cause prices to rise.
ANS: T
PTS: 1
4. An industry that undergoes privatization is changed from private ownership to government ownership.
ANS: F
PTS: 1
5. Capital resources are expensive and usually used over a period of several years.
ANS: T
PTS: 1
6. Continually rising prices are one sign of a healthy economy.
ANS: F
PTS: 1
7. Developing countries have an economic development somewhere between that of a less developed
country and an industrialized country.
ANS: T
PTS: 1
8. If the supply of an item decreases, the price usually goes up.
ANS: T
PTS: 1
9. In market economies, most economic decisions are made by the government.
ANS: F
PTS: 1
10. Literacy level is an important measure of a country’s level of economic development because
better-educated citizens can usually produce more goods and services of high quality.
ANS: T
PTS: 1
11. On a graph of supply and demand, the market price is where the supply line and the demand line
intersect.
ANS: T
PTS: 1
12. The first step of the decision-making process is to evaluate the alternatives.
ANS: F
PTS: 1
13. The gross domestic product of France would not include products manufactured in England using
French resources.
ANS: T
PTS: 1
14. The time used to study economics instead of to shop at the mall is an example of an opportunity cost.
ANS: T
PTS: 1
15. When two countries are being compared, the one with the higher total GNP has the stronger economy.
ANS: F
PTS: 1
MULTIPLE CHOICE
1. Economics is the study of how
a. decisions are made using six steps.
b. limited resources are used to satisfy unlimited wants and needs.
c. individuals make decisions about buying products.
d. none of the above
ANS: B
PTS: 1
2. If you decide to get a full-time job after graduating from high school instead of going to college, the
opportunity cost of the decision is
a. the salary from your job.
c. the loss of a college education.
b. the money saved on college tuition.
d. none of the above
ANS: C
PTS: 1
3. After you take action on a choice in the decision-making process, it is important to review the decision
because
a. changed circumstances may require a change in the decision.
b. a different decision may need to be made.
c. you may have made an error in defining the original problem.
d. all of the above
ANS: D
PTS: 1
4. If consumers want more of a good than the amount supplied
a. prices will decrease.
c. supply will decrease.
b. prices will increase.
d. none of the above
ANS: B
PTS: 1
5. Capital resources include
a. gold, silver, and other minerals.
b. buildings, money, and equipment.
c. factories, mines, and talented personnel.
d. none of the above
ANS: B
PTS: 1
6. An economy in which an individual may own and run a private business to make a profit, with little
government involvement with business is a
a. communist economy.
c. mixed economy.
b. command economy.
d. none of the above
ANS: D
PTS: 1
7. Private property, profit motive, and a free, competitive marketplace are characteristics of a
a. command economy.
c. mixed economy.
b. market economy.
d. none of the above
ANS: B
PTS: 1
8. The consumer price index shows
a. how many consumer products a particular foreign currency can purchase.
b. price levels for various products and services.
c. the total price of the goods and services produced by a country in a period of time.
d. none of the above
ANS: B
PTS: 1
9. The unemployment rate is an indicator of a country’s economic situation because
a. people not earning an income reduce the flow of money in circulation.
b. fewer goods and services are produced when there is high unemployment.
c. a high unemployment rate can cause other people to lose their jobs.
d. all of the above
ANS: D
PTS: 1
10. South Africa has a large percentage of the world’s diamond deposits. This is an example of
a. comparative advantage.
c. a developing country.
b. absolute advantage.
d. none of the above
ANS: B
PTS: 1
11. Per capita GDP is a better measure of a nation’s economic development than total GDP because
a. it shows how wealthy each person in the country is.
b. it gives a better comparison between countries of different population sizes.
c. it shows how the unemployment rate affects GDP.
d. none of the above
ANS: B
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12. The first step of the decision-making process is to
a. evaluate the alternatives.
c. take action on the choice.
b. make a choice.
d. define the problem.
ANS: D
PTS: 1
13. Opportunity cost refers to the
a. wages paid to workers in factories and offices.
b. rising prices in an economy.
c. things given up when a choice is made.
d. products bought by one country from another country.
ANS: C
PTS: 1
14. As the demand for a product increases, prices tend to
a. rise.
c. remain constant.
b. fall.
d. first decline, then rise.
ANS: A
PTS: 1
15. Of the following characteristics, a less-developed country is least likely to have
a. low economic wealth.
b. poor housing and health care.
c. a highly educated population.
d. an emphasis on agriculture and mining.
ANS: C
PTS: 1
COMPLETION
1. ____________________ refers to an increase in average prices for goods and services in a country.
ANS: Inflation
PTS: 1
2. When demand exceeds supply and prices go up, the result is ____________________ inflation.
ANS: demand-pull
PTS: 1
3. Materials that come from the ground are called ____________________ resources.
ANS: natural
PTS: 1
4. ____________________ is an economic system with most basic industries owned and operated by
government.
ANS: Socialism
PTS: 1
5. A measure of the productive output of a country within its borders, including items produced with
foreign resources, is gross ____________________ product.
ANS: domestic
PTS: 1
6. When a country can produce a good or service at a lower cost than other countries, it has a(n)
____________________ advantage.
ANS: absolute
PTS: 1
7. ____________________ is the amount of a good or service that consumers are willing and able to
purchase at a certain price.
ANS: Demand
PTS: 1
8. The difference between a country’s exports and imports is its _________________________.
ANS: balance of trade
PTS: 1
9. A nation’s transportation, communication, and utility systems are referred to as its
____________________.
ANS: infrastructure
PTS: 1
10. When a country exports more than it imports, it has a ____________________ balance of trade.
ANS: favorable
PTS: 1
SHORT ANSWER
1. In the six-step decision-making process, why is the sixth step, Review the Decision, important?
ANS:
Decision-making is an ongoing process and it is important to review decisions to determine whether a
decision needs to be changed or other decisions need to be made.
PTS: 1
2. Describe the difference between demand-pull and cost-push inflation.
ANS:
Demand-pull inflation results when demand exceeds supply, so prices tend to rise. In cost-push
inflation, expenses of businesses increase, causing prices to rise.
PTS: 1
3. Identify and describe the three factors of production.
ANS:
Natural resources are the raw materials that come from the earth; human resources are the labor of
people who work to create goods and services; capital resources are buildings, money, equipment, and
factories used in production.
PTS: 1
4. Describe the differences between a command economy and a market economy.
ANS:
In a command economy, the government regulates production and owns the productive resources. In
a market economy individual companies and consumers make the production decisions and own the
resources.
PTS: 1
5. What is comparative advantage?
ANS:
Comparative advantage is the situation in which a country specializes in the production of a good or
service at which it is relatively more efficient than other countries.
PTS: 1
6. What is the difference between gross domestic product (GDP) and gross national product (GNP)?
ANS:
GDP measures the output of goods that a country produces within its borders, while GNP also includes
production in other countries that uses resources of the country whose GNP is being measured.
PTS: 1
ESSAY
1. Axis Company manufactures a product that is used in most households, but lately the company’s sales
have been declining. Managers are considering changing the packaging of the product, increasing
advertising, and using technology to make a change in the product to create a newer and better model.
List the six steps in the decision-making process and give an example of each step for this situation for
Axis Company.
ANS:
Answers should include the following steps and an example of each.
(1) Define the problem; example: Need to increase sales.
(2) Identify the alternatives; example: new packaging, increased advertising, technological change.
(3) Evaluate the alternatives; examples might include cost and timing of the alternatives.
(4) Make a choice: example should be one of the alternatives identified.
(5) Take action on the choice: example should describe how the alternative is implemented.
(6) Review the decision; example should describe how the effects can be evaluated, such as analyzing
the cost of the alternative and the change in sales level.
PTS: 1
2. Describe how the balance of trade and foreign debt affect a country’s economy.
ANS:
The balance of trade is the difference between exports and imports. A trade deficit results when
imports exceed exports. An ongoing trade deficit creates foreign debt. Foreign debt must be paid from
future income, which limits funds available for improving a country’s infrastructure and for providing
services to citizens in the future.
PTS: 1
3. Identify and describe the three main influences on a country’s level of economic development.
Include in the descriptions how these influences affect economic development.
ANS:
Answers should include the following influences:
(1) literacy level; refers to ability to read and education level of the people in a country;
better-educated workers can produce higher quality goods for citizens.
(2) technology; refers to automated production, distribution, and communications systems; better
technology allows companies to create and delivery goods, services, and ideas quickly.
(3) agricultural dependency; refers to the proportion of agricultural activity to manufacturing activity;
countries that are mostly involved in agriculture do not have the manufacturing base to provide
citizens with a large number of quality products.
PTS: 1
4. How does unemployment affect a country’s economic situation?
ANS:
Unemployed people are neither producing goods and services, nor purchasing them. This restricts the
flow of money a country needs to operate efficiently. Also, when people are not purchasing goods
and services, additional people can lose their jobs, thus increasing the unemployment rate.
PTS: 1
CHAPTER 3—CULTURAL INFLUENCES ON GLOBAL BUSINESS
TRUE/FALSE
1. All aspects of a particular culture are usually taught in homes, schools, religious institutions, and the
workplace.
ANS: F
PTS: 1
2. It is usually possible to learn all about a culture by examining people’s behavior, appearance, and the
culture’s literature, art, and music.
ANS: F
PTS: 1
3. Most people are members of more than one subculture.
ANS: T
PTS: 1
4. Business subcultures around the world have similar values, beliefs, and assumptions.
ANS: T
PTS: 1
5. Extended families are very common in developed countries.
ANS: F
PTS: 1
6. One aspect of mobility is the willingness to relocate to another location for better employment.
ANS: T
PTS: 1
7. A culture that values education for all its members has a business advantage over those that do not.
ANS: T
PTS: 1
8. In a country with a strong class system, it is relatively difficult to change your class level.
ANS: T
PTS: 1
9. In a high-context culture language is very direct and words are taken literally.
ANS: F
PTS: 1
10. The meanings of body language are universal.
ANS: F
PTS: 1
11. Technology is seen as a threat to the way of life by some cultural groups.
ANS: T
PTS: 1
12. All countries welcome technology as a way of improving the standard of living.
ANS: F
PTS: 1
13. Reverse culture shock is a normal reaction to returning home after a lengthy stay abroad.
ANS: T
PTS: 1
14. Some cultures communicate very indirectly, and others communicate very directly.
ANS: T
PTS: 1
15. Religion has no influence on international business.
ANS: F
PTS: 1
MULTIPLE CHOICE
1. Of the following choices, the one that is not a characteristic of a culture is that it is
a. learned.
c. shared.
b. unifying.
d. always written down.
ANS: D
PTS: 1
2. A U.S. high school sophomore belongs to the subculture of
a. professional athletes.
c. students.
b. senior citizens.
d. baby boomers.
ANS: C
PTS: 1
3. An extended family consists of
a. the parents.
b. the children.
c. the parents’ and/or the children’s children.
d. all of the above
ANS: D
PTS: 1
4. Of the following countries, the one in which there are strong ties between family and business is
a. Australia.
c. Mexico.
b. Canada.
d. the United States.
ANS: C
PTS: 1
5. A language that is not considered a major language for international business purposes is
a. Bahasa Indonesian.
c. German.
b. French.
d. Spanish.
ANS: A
PTS: 1
6. Of the following language-related statements, the only statement that is true is
a. English is the only language ever used for international business purposes.
b. Japanese is a language used by one unimportant trading country.
c. international businesspersons often prefer to transact business in their native languages,
even if they speak English well.
d. for a career in international business, you need to learn at least ten languages besides your
native language.
ANS: C
PTS: 1
7. High-context communication is typical in
a. Canada.
b. Germany.
ANS: D
c. the United States.
d. Japan.
PTS: 1
8. All of the following choices are examples of nonverbal communication except
a. waving to a friend.
c. wearing red on Valentine’s Day.
b. speaking to your teacher.
d. standing two feet from your friend.
ANS: B
PTS: 1
9. All of the following choices are stages of the culture shock process except
a. total rejection of the new culture after a lengthy stay there.
b. happiness or euphoria.
c. frustration, anger, or depression.
d. acceptance of the new culture.
ANS: A
PTS: 1
10. A citizen of the United States who has recently returned home after living in an underdeveloped
section of Africa for two years is least likely to say
a. "This air-conditioning works too well; I’m chilly."
b. "Everything is exactly as it was when I left two years ago."
c. "He has worn a different outfit to work every day for the last two months."
d. "Wow! There are at least 20 flavors of ice cream from which to choose."
ANS: B
PTS: 1
11. Business subcultures would probably be very similar in
a. France, Egypt, and Chile.
c. Argentina, Chile, and Venezuela.
b. the U.K., U.S.A., and Italy.
d. none of the above
ANS: C
PTS: 1
12. In a culture with strong business and family ties
a. several members of a family may work in the same business.
b. family members are usually promoted first in a family-owned business.
c. protecting a family member is sometimes more important than a good business decision.
d. all of the above
ANS: D
PTS: 1
13. Education, occupation, and income are factors that may determine
a. mobility.
c. class level.
b. gender roles.
d. none of the above
ANS: C
PTS: 1
14. Members of a society are most likely to have good educational opportunities in
a. a developing country.
c. an industrialized economy.
b. a less developed country.
d. none of the above
ANS: C
PTS: 1
15. In most cultures’ beliefs about gender roles
a. both males and females work outside the home.
b. males are the primary workers outside the home.
c. females may work outside the home but are not the primary support of the family.
d. none of the above
ANS: D
PTS: 1
COMPLETION
1. A system of learned, shared, unifying, and interrelated beliefs, values, and assumptions is known as a
____________________.
ANS: culture
PTS: 1
2. A ____________________ is a subset or part of a larger culture.
ANS: subculture
PTS: 1
3. The idea that you carry your beliefs, values, and assumptions with you at all times is referred to as
_________________________.
ANS: cultural baggage
PTS: 1
4. When a parent or parents and their unmarried children live together, it is referred to as a(n)
____________________ family.
ANS: nuclear
PTS: 1
5. The parents, children, and other relatives all live together, the group is known as a(n)
____________________ family.
ANS: extended
PTS: 1
6. ____________________ refers to how direct or indirect communication is.
ANS: Contexting
PTS: 1
7. Meaning can be conveyed in a nonverbal way by facial expressions, upper and lower body
movements, and gestures by using _________________________.
ANS: body language
PTS: 1
8. Some societies have a strong belief in ____________________, which means the belief in the
individual and his or her ability to function relatively independently.
ANS: individualism
PTS: 1
9. When members of a society believe that the group is more important than the individual, they are
practicing ____________________.
ANS: collectivism
PTS: 1
10. A major obstacle to conducting successful international business is ____________________, which is
the belief that one’s culture is better than other cultures.
ANS: ethnocentrism
PTS: 1
SHORT ANSWER
1. Explain how business subcultures may affect international business transactions.
ANS:
Transactions between business subcultures that are very similar will usually be both easier and more
frequent than those between business subcultures that are very different.
PTS: 1
2. How is education provided in cultures?
ANS:
The family unit provides early education. In more developed countries the family shares the
responsibility with other institutions, such as schools, religious groups, and businesses.
PTS: 1
3. What is the purpose of a class system in a society?
ANS:
A class system divides the members of a cultural group into various levels based on education,
occupation, heritage, status, or income.
PTS: 1
4. Why is Japanese frequently the recommended language for Americans to learn for business use?
ANS:
Japan is one of the world’s dominant trading nations.
PTS: 1
5. What should be considered when conducting business with a country that has a high-context culture?
ANS:
Words should not be taken too literally and personal embarrassment must be avoided to have good
business relationships.
PTS: 1
6. How do different cultures view technology?
ANS:
Most developed countries view technology favorably while many less-developed countries may resist
technology and technological change.
PTS: 1
ESSAY
1. Explain how a culture is like an iceberg.
ANS:
An iceberg has parts that are visible above the water and larger parts that are submerged. So does a
culture have both visible parts and invisible parts. Visible parts may be seen in clothing, foods,
literature, art, and music. Behavior can also be observed. But expectations, attitudes, values, beliefs,
and perceptions may be hidden from outsiders.
PTS: 1
2. Use yourself and the cultures and subcultures you belong to in order to describe the differences
between a culture and a subculture.
ANS:
Students should describe how a subculture is a part of a main culture and that it may have both shared
and different values, assumptions, and beliefs. Answers should include the country’s main culture,
and one or more subcultures such as student subculture, religious subculture, and so on.
PTS: 1
3. Describe how a culture’s gender role beliefs affect business.
ANS:
Student answers should include the following points:
(1) Some societies assign roles based on gender.
(2) In some societies only women are primary workers outside the household, in other societies, only
men, and in yet other societies, both men and women.
(3) Viewpoints about the roles of males and females in business vary worldwide.
(4) In some cultures women are not given a role in international business.
PTS: 1
4. Why is English often considered to be the language of international business?
ANS:
Answers should include the following points:
(1) English is used in almost every country around the world.
(2) English has a large number of business-related words.
(3) English can be concise and precise.
PTS: 1
CHAPTER 4—GOVERNMENT AND GLOBAL BUSINESS
TRUE/FALSE
1. A government restriction on the number of cameras that can be imported from China each year is an
example of an import quota.
ANS: T
PTS: 1
2. Duties are not collected when goods are imported into a free-trade zone.
ANS: T
PTS: 1
3. Democratic societies do not usually have a market economy.
ANS: F
PTS: 1
4. A multinational enterprise in a host country must operate within the host country’s economic social,
and legal constraints.
ANS: T
PTS: 1
5. Multinational companies usually do not benefit the citizens of the host country.
ANS: F
PTS: 1
6. An outbreak of civil war within a country is an example of political risk.
ANS: T
PTS: 1
7. Import quotas are used to help protect domestic companies from foreign competition.
ANS: T
PTS: 1
8. Customs duties are often assessed to make imported products more expensive than similar products
produced locally.
ANS: T
PTS: 1
9. Sales taxes are regressive taxes because people with a lower income pay a larger percentage of their
income than do people with a higher income.
ANS: T
PTS: 1
10. Governments try to discourage other countries from investing and locating plants in their countries by
using tax incentives.
ANS: F
PTS: 1
11. A country with most favored nation status usually exports into the granting country at lower customs
duty rates than other companies.
ANS: T
PTS: 1
12. A free-trade agreement between two companies results in increased trade between the countries
because barriers to trade are removed.
ANS: T
PTS: 1
13. The main reason countries join together in a common market is to allow workers to move freely across
borders.
ANS: F
PTS: 1
14. If a U.S. exporter has export credit insurance from EXIM, its shipments are insured against damage or
destruction caused by wars, revolutions, and civil disorders.
ANS: T
PTS: 1
15. The more taxes there are on a business, the higher the price the business charges consumers for its
products.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. Of the following characteristics, the one that is not characteristic of a democratic system is that
a. individuals have the freedom to own and operate private businesses.
b. individuals can build a small business into a very large business.
c. the economy is usually a command economy.
d. individuals may travel freely to other countries.
ANS: C
PTS: 1
2. A multinational enterprise is not acting with social responsibility if it
a. installs anti-pollution controls more powerful than required by law.
b. hires host-country citizens and provides training.
c. introduces new products that support dominant religious beliefs of the host country.
d. hires all employees from the home country labor force.
ANS: D
PTS: 1
3. Tariffs, quotas, and boycotts are examples of
a. civil unrest.
b. political unrest.
ANS: C
c. trade barriers.
d. none of the above
PTS: 1
4. Protectionism policies such as tariffs and quotas are used because
a. the government wants to make it harder for companies in other countries to compete with
local companies.
b. consumers need to be protected from inferior or hazardous products.
c. the country needs additional revenue.
d. none of the above
ANS: A
PTS: 1
5. Governments encourage and promote its country’s exports primarily because
a. exports create jobs and foster economic prosperity.
b. exports increase the country’s international image and reputation.
c. exports increase government revenues through selling export insurance.
d. none of the above
ANS: A
PTS: 1
6. When countries join together to eliminate duties and other trade barriers, allow companies to invest
freely in each other’s country, and allow workers to move freely across borders, they are said to have
a. free-trade zones.
c. a free trade-agreement.
b. most favored nation status.
d. a common market.
ANS: D
PTS: 1
7. A tax that can be used as a trade barrier is the
a. personal income tax.
b. excise tax.
ANS: D
c. value-added tax.
d. import duty tax.
PTS: 1
8. The most serious form of political risk for a multinational company is
a. privatization.
c. import quotas.
b. expropriation.
d. double taxation.
ANS: B
PTS: 1
9. Governments privatize their state-owned companies to
a. provide tax incentives to their exporting companies.
b. make these companies more efficient and profitable.
c. create free-trade agreements.
d. establish foreign-trade zones.
ANS: B
PTS: 1
10. Protectionism occurs when
a. governments encourage international trade.
b. one company is granted a tax holiday.
c. a country is granted most favored nation status.
d. governments establish trade barriers.
ANS: D
PTS: 1
11. In 1979, the Shah of Iran was overthrown and a new government was established. This government
immediately seized control of all U.S. companies and assets in Iran. This is an example of
a. privatization.
c. commercial risk.
b. expropriation.
d. granting most favored nation status.
ANS: B
PTS: 1
12. A U.S. company can obtain political risk insurance on an overseas subsidiary or investment from
a. the U.S. Department of Agriculture.
b. the U.S. Department of Commerce.
c. the Overseas Private Investment Corporation.
d. free-trade agreements.
ANS: C
PTS: 1
13. A U.S. company can obtain political risk insurance on its export shipments from
a. the U.S. Department of Agriculture.
b. the Export-Import Bank of the United States.
c. the Overseas Private Investment Corporation.
d. free-trade agreements.
ANS: B
PTS: 1
14. A common market
a. eliminates all duties between member countries.
b. encourages economic nationalism among its members.
c. maintains a trade embargo against all nonmember countries.
d. eliminates all political risk between companies within the common market.
ANS: A
PTS: 1
15. If the United States placed a trade embargo on a foreign country,
a. quotas would be placed on all goods entering the United States.
b. no products could be traded between the United States and the foreign country.
c. all businesses owned by the foreign government in the United States would be privatized.
d. the United States would have granted most favored nation status to this foreign country.
ANS: B
PTS: 1
COMPLETION
1. A ____________________ is a political system in which all citizens take part in making the rules that
govern them.
ANS: democracy
PTS: 1
2. A political system in which one political party holds all the power and prohibits members of other
parties from participating is a ____________________ system.
ANS: totalitarian
PTS: 1
3. A ____________________ country is the country in which a multinational enterprise is a guest.
ANS: host
PTS: 1
4. A ____________________ country is the country in which a multinational enterprise is headquartered.
ANS: home
PTS: 1
5. ____________________ is a government policy of protecting local or domestic industries from
foreign competition.
ANS: Protectionism
PTS: 1
6. A tariff or tax placed on products that are traded internationally is called a ____________________.
ANS: duty
PTS: 1
7. ____________________ occurs when a government takes control and ownership of foreign-owned
assets and companies.
ANS: Expropriation
PTS: 1
8. A ____________________ is an association of countries that join together to promote more mutual
trade.
ANS: common market
PTS: 1
9. Economic ____________________ occurs when a country restricts foreign ownership of companies
and establishes laws unfavorable to foreign imports.
ANS: nationalism
PTS: 1
10. A country imposes a trade ____________________ against another country to stop all import and
export trade with that country.
ANS: embargo
PTS: 1
SHORT ANSWER
1. What social, economic, and legal standards must a multinational company meet in its home country
and in a host country?
ANS:
Home country: standards of that country; host country: standards of the host country.
PTS: 1
2. What is the purpose of a tariff or duty?
ANS:
A tariff raises the cost of the product to the importer, which discourages consumers from buying the
imported product. This usually protects domestic companies from foreign competition.
PTS: 1
3. What are symptoms of possible civil unrest in a country?
ANS:
Social disorder, extreme income unevenness, and frequent changes in the structure and activity of
political parties.
PTS: 1
4. What is the difference between a progressive and a regressive tax?
ANS:
A progressive tax follows the "ability to pay" principle with wealthier persons paying a larger
percentage that less wealthy persons. A regressive tax charges the same percentage to all persons
regardless of ability to pay.
PTS: 1
5. What is a free-trade agreement and why do countries enter into them?
ANS:
A free-trade agreement eliminates duties and trade barriers between the countries making the
agreement in order to increase trade between them.
PTS: 1
6. What is the difference between the Export-Import Bank of the United States (EXIM) and the Overseas
Private Investment Corporation (OPIC)?
ANS:
EXIM helps finance the export sales of U.S. products while OPIC provides investment insurance to
U.S. companies to establish operations in developing countries.
PTS: 1
ESSAY
1. Describe the advantages to a host country of the operations of a multinational enterprise.
ANS:
Answers should include the following points:
(1) stimulate economic activity by purchasing land, goods, and services locally;
(2) provide employment for host country citizens;
(3) may introduce more advanced technology that helps economic development;
(4) conducts business in a socially responsible manner so that it is a welcome guest.
PTS: 1
2. Describe four kinds of political risks in international business.
ANS:
Answers should include four of the following:
(1) Trade sanctions: sanctions from tariffs to boycotts that arise from foreign policy decisions.
(2) Expropriation: confiscation of a company or property.
(3) Economic nationalism: restricting foreign ownership and legislating against foreign imports.
(4) Civil war, revolution, or uprisings within a country.
(5) War with another country.
PTS: 1
3. Describe two major ways governments regulate businesses and what effect this regulation has on
business.
ANS:
Answers should include the following points:
(1) Governments use health and safety regulations to protect workers.
(2) Governments use consumer protection laws to protect consumers from unsafe products and
deceptive or false advertising practices.
(3) Government regulation generally increases the cost of doing business and may make a product less
competitive with products manufactured in countries that do not have such strict regulation.
PTS: 1
4. Describe four different trade barriers a country can use to protect domestic businesses from foreign
competition.
ANS:
Answers should include the following:
(1) Tariffs or duties are a tax on imported goods.
(2) Quotas limited the quantity of specified products than can be imported.
(3) Boycotts can restrict the import of certain products from certain countries.
(4) Licensing requirements can control imports by limiting companies that can obtain an import
license.
PTS: 1
CHAPTER 5—STRUCTURES OF INTERNATIONAL BUSINESS
ORGANIZATIONS
TRUE/FALSE
1. A sole proprietorship is the easiest type of business to start.
ANS: T
PTS: 1
2. A corporation is considered a legal "person" that acts on behalf of the company’s owners.
ANS: T
PTS: 1
3. Owners of a corporation are commonly called stockholders.
ANS: T
PTS: 1
4. Corporate earnings can be taxed twice: first as business income and second as dividend income to
stockholders.
ANS: T
PTS: 1
5. Direct exporting occurs when a company actively seeks to sell goods and services in other countries.
ANS: T
PTS: 1
6. If one partner buys expensive equipment for the partnership without consulting the other partner, only
that partner is liable for the cost of the equipment.
ANS: F
PTS: 1
7. One way to raise money to operate a corporation is to sell portions of ownership to the public.
ANS: T
PTS: 1
8. Limited liability means that stockholders can lose their investment if the corporation fails.
ANS: T
PTS: 1
9. Municipal corporations do not usually engage in international business activities.
ANS: F
PTS: 1
10. A cooperative is an example of a government-owned corporation.
ANS: F
PTS: 1
11. Multinational companies only pay taxes to the government in their home countries.
ANS: F
PTS: 1
12. A multinational company is said to have a world-wide market view because it views the entire world
as a potential customer.
ANS: T
PTS: 1
13. The simplest, lowest-risk method of getting involved in international business is to form a joint
venture with a company in another country.
ANS: F
PTS: 1
14. One reason direct exporting is a relatively low-risk method of getting involved in international
business is because the exporting company does not have an extensive investment in another country.
ANS: T
PTS: 1
15. Contract manufacturing can be a form of international business if the manufacturer produces products
for a company located in another country.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. A common disadvantage of a sole proprietorship is
a. difficulty starting the business.
b. the limited life of the business.
c. that the owner must share profits with others.
d. double taxation of earnings.
ANS: B
PTS: 1
2. Ease of creation and availability of different talents are common advantages of a
a. partnership.
c. cooperative.
b. corporation.
d. sole proprietorship.
ANS: A
PTS: 1
3. A common disadvantage of partnerships is
a. disagreements among owners.
b. ease of creation.
ANS: A
PTS: 1
4. A common advantage of a corporation is
a. ease of creation.
b. double taxation of earnings.
ANS: D
c. double taxation of earnings.
d. limited liability.
c. unlimited liability of owners.
d. limited liability of owners.
PTS: 1
5. A method of international business with the lowest risk is
a. indirect exporting.
c. a joint venture.
b. franchising.
d. foreign direct investment.
ANS: A
PTS: 1
6. When a movie company allows its cartoon characters to be used on clothing items produced in other
countries, it is an example of
a. management contracting.
c. licensing.
b. a wholly owned subsidiary.
d. direct exporting.
ANS: C
PTS: 1
7. A joint venture exists when
a. companies in two countries are taxed as a single organization.
b. a foreign government buys imported goods or services.
c. a company obtains the right to use a company name or business process.
d. two or more companies share a business project.
ANS: D
PTS: 1
8. A separate foreign company owned by a parent company is called a
a. joint venture.
c. cooperative.
b. wholly owned subsidiary.
d. municipal corporation.
ANS: B
PTS: 1
9. Unlimited liability means that
a. if a sole proprietorship fails, the business’s creditors may force the owner to sell personal
property, such as a house and car, to pay the amounts owed.
b. each partner in a partnership may independently make decisions affecting the partnership.
c. all stockholders who own shares of a corporation vote on who will manage the
corporation.
d. none of the above
ANS: A
PTS: 1
10. An example of a business organization that is formed to make a profit is a
a. municipal corporation.
b. nonprofit corporation.
c. multinational corporation.
d. cooperative.
ANS: C
PTS: 1
11. An example of a cooperative is a
a. credit union.
b. hospital.
ANS: A
c. private college.
d. none of the above
PTS: 1
12. Of the following statements, the one that does NOT describe a multinational company is that
a. it maintains both an international and local perspective.
b. a country may become too dependent on it.
c. it obtains raw material only from the country in which it manufactures products.
d. none of the above
ANS: C
PTS: 1
13. Many people believe that multinational companies need to be regulated and controlled because
a. they make too much money.
b. they may dominate a country’s economy and control the political situation.
c. they do not employ citizens of the host countries to a large enough extent.
d. none of the above
ANS: B
PTS: 1
14. Of the following methods for getting involved in international business, the one with the lowest risk is
a. joint venture.
c. management contracting.
b. licensing.
d. foreign direct investment.
ANS: C
PTS: 1
15. Of the following methods for getting involved in international business, the one with the highest risk is
a. joint venture.
c. management contracting.
b. licensing.
d. foreign direct investment.
ANS: D
PTS: 1
COMPLETION
1. Profit results when the money paid for ____________________ is subtracted from the money taken in
for sales.
ANS: expenses
PTS: 1
2. A document that represents ownership in a corporation is a ____________________.
ANS: stock certificate
PTS: 1
3. Corporations share their profits with stockholders by paying ____________________.
ANS: dividends
PTS: 1
4. A ____________________ corporation is an incorporated town or city organized to provide services
for citizens rather than to make a profit.
ANS: municipal
PTS: 1
5. Using agents and brokers to arrange for buyers in other countries for a product is known as
____________________ exporting.
ANS: indirect
PTS: 1
6. ____________________ exporting occurs when a company actively seeks out opportunities and sells
goods to other countries.
ANS: Direct
PTS: 1
7. When a company buys the right to use the name of a fast-food restaurant, such as McDonald’s or
Wendy’s, and operate a restaurant in a specific way, it is buying a ____________________.
ANS: franchise
PTS: 1
8. When two or more companies agree to share a business project and share the profits, they are
operating a ____________________.
ANS: joint venture
PTS: 1
9. When a British company buys an office building in New York City, it is making a
____________________ investment.
ANS: foreign direct
PTS: 1
10. A ____________________ subsidiary is an independent company owned by a parent company.
ANS: wholly-owned
PTS: 1
SHORT ANSWER
1. What are the disadvantages of the partnership form of business organization?
ANS:
Unlimited liability of partners, sharing profits, potential for disagreements between partners, and
possible sudden dissolution of the business.
PTS: 1
2. What are the advantages of the corporation form of business organization?
ANS:
More sources of funds, limited liability of investors, availability of specialized management, and
unlimited life of the company.
PTS: 1
3. Give five examples of nonprofit corporations.
ANS:
Examples could include churches, synagogues, private schools, colleges, and universities, many
charities, labor unions, environmental groups, and other public interest organizations, American Red
Cross, Boy Scouts of America, and the Salvation Army. Incorrect answers would include
incorporated towns and cities, cooperatives, and credit unions.
PTS: 1
4. Describe two relatively low-risk methods of getting involved in international business.
ANS:
Students should describe indirect exporting, direct exporting, management contracting, licensing, or
franchising.
PTS: 1
5. What is the difference between licensing and franchising?
ANS:
Licensing is selling the right to use some intangible property such as a process, trademark, or brand
name, while franchising is selling the right to use a company name or business process in a specific
way, usually involving selling a product or service.
PTS: 1
6. Describe two different types of foreign direct investment.
ANS:
A foreign company may buy land or other resources in another country or it may buy a company in
another country.
PTS: 1
ESSAY
1. Cheryl Cluxton has been making a wooden document organizer in her home workshop for friends.
Lately, other friends and acquaintances have been requesting that she make one for them. She is
considering starting a business to manufacture and sell these organizers. After considering all the
factors, she will begin as a sole proprietorship. Explain why she probably made this decision. Then
briefly describe the circumstances under which she might want to expand to a proprietorship or
corporation as the business grows.
ANS:
Answers should include the following concepts:
(1) Sole proprietorship has the advantages of ease of starting, freedom to make decisions, keeping all
the profits, and pride of ownership.
(2) A partnership might become practical as the business expands and needs additional investment
and/or additional skills a partner might contribute.
(3) A corporation would facilitate additional investments and have tax advantages without the
disadvantages of a partnership.
PTS: 1
2. Your long-time friend Dominic Chin has approached you to enter a partnership with him to create and
market computer software. You have outstanding programming skills and Dominic is outgoing and
has outstanding human relations and sales skills. What should you consider before going into
partnership with Dominic?
ANS:
Answers should include the following points:
(1) There should be a firm understanding and written agreement about investments and sharing of
profits and losses that fairly represents the investment of money and ability to the partnership.
(2) There should be full consideration of the risks of going into business with a friend because of the
possibility of disagreements and the consequences of unlimited liability.
PTS: 1
3. You are the president of a less-developed country (LDC) on an island in the Pacific Ocean. A
wealthy multinational company (MNC) wishes to open a factory on your island. Discuss the
advantages and disadvantages and then make a decision about whether to allow the factory or not.
ANS:
Answers should include the following concepts:
(1) Advantages: The MNC could provide jobs, products, services, and even improved infrastructure
for the island nation.
(2) Disadvantages: The MNC could be the dominant economic power, making the country totally
dependent on its presence and success. The MNC could also influence or even control the
government.
(3) The decision about allowing the MNC to open the factory will vary depending on student
perceptions of MNCs. Students might acknowledge that there is not enough information provided
to decide or state that the reputation and history of the MNC could be a determining factor.
PTS: 1
4. Describe three characteristics of successful multinational corporations.
ANS:
Answers should include three of the following concepts:
(1) A competitive advantage.
(2) Considers and adapts to different societies and countries.
(3) World-wide market view.
(4) Standardized product.
(5) Culturally-sensitive hiring.
(6) Both an international and local perspective.
PTS: 1
CHAPTER 6—IMPORTING, EXPORTING, AND TRADE RELATIONS
TRUE/FALSE
1. A country has a favorable balance of payments if the total flow of money going out of a country is
greater than the total flow of money coming into the country.
ANS: F
PTS: 1
2. A trade deficit is created by a favorable balance of payments.
ANS: F
PTS: 1
3. An oligopoly exists when a few large companies control an industry.
ANS: T
PTS: 1
4. Some goods have to be imported because they are only available from foreign sources.
ANS: T
PTS: 1
5. The risk involved in importing is increased if you do not first determine whether there is any demand
for the product you plan to import.
ANS: T
PTS: 1
6. Imported goods often require a period of time before they are received.
ANS: T
PTS: 1
7. When food products are exported, they can usually be standardized for most countries.
ANS: F
PTS: 1
8. When sales terms are described as cost and freight (C&F), this means that all costs of the goods and
shipping are include in the price including insurance.
ANS: F
PTS: 1
9. Many U.S. companies successfully export products to other companies, but exports of services are
very rare.
ANS: F
PTS: 1
10. A country’s balance of payments is a better measure of international business then the balance of trade
because it includes more exchanges with foreign sources.
ANS: T
PTS: 1
11. Items bought at a free-trade zone of an airport and then taken into the country are subject to the
customs duties of that country.
ANS: T
PTS: 1
12. Competition will usually improve the economic situation and living conditions of a nation.
ANS: T
PTS: 1
13. An industry is a group of companies in the same type of business.
ANS: T
PTS: 1
14. The candy bar industry is an example of pure competition.
ANS: F
PTS: 1
15. Monopolistic competition occurs when a few large companies control an industry.
ANS: F
PTS: 1
MULTIPLE CHOICE
1. An organization that bonds countries together to allow a free flow of products is called
a. an economic community.
c. an industry.
b. a monopoly.
d. a balance of trade agreement.
ANS: A
PTS: 1
2. The forces of supply and demand are the major influence on prices in
a. a monopoly.
c. a duty-free market.
b. an oligopoly.
d. pure competition.
ANS: D
PTS: 1
3. A common characteristic of monopolistic competition is
a. few sellers of a good or service.
b. one seller controlling a market.
c. many sellers with slightly different products.
d. identical products for each company in the market.
ANS: C
PTS: 1
4. A situation in which a few large companies control an industry is called
a. a monopoly.
c. a free-trade zone.
b. an oligopoly.
d. a competitive market.
ANS: B
PTS: 1
5. Two reasons why importing is important are because
a. customers want the product and it is cheaper from another country.
b. your country has a competitive advantage and home-country products are more expensive.
c. availability of parts for manufacturing and customs duties.
d. none of the above
ANS: A
PTS: 1
6. A purchase agreement should include all of the following details except
a. who will pay for shipping.
b. the amount of customs duty.
ANS: B
c. how will payment be made.
d. when will the items be delivered.
PTS: 1
7. Of the following business transactions, the only one that describes an importing activity is
a. a wholesaler in Brazil packs goods for shipment to Liberia.
b. a retailer in Sweden receives goods from Mexico to sell in a chain of stores.
c. a restaurant food supplier in Japan ships sushi ingredients to a restaurant in Turkey.
d. none of the above
ANS: B
PTS: 1
8. A U.S. company exported kitchen appliances to Italy without changing the appliances. Italians did
not buy the appliances because they would not work with the way Italian electrical current is supplied
to households. The step in the exporting process the exporter did not properly complete is
a. agree on sales terms.
c. meet the needs of customers.
b. provide products or services.
d. complete the transaction.
ANS: C
PTS: 1
9. When goods are exported to another company
a. the quickest method of shipment should be used.
b. the least expensive method of shipment should be used.
c. the method of shipment varies depending on the product and other factors.
d. none of the above
ANS: C
PTS: 1
10. Products that do not usually require much modification for foreign customers include
a. laundry detergent.
c. clothing.
b. skin care products.
d. none of the above
ANS: C
PTS: 1
11. A country with exports of $6 million and imports of $10 has a
a. trade surplus.
c. favorable balance of payments.
b. trade deficit.
d. unfavorable balance of payments.
ANS: B
PTS: 1
12. A country with exports of $6 million and other cash coming into the country of $3 million and imports
of 5 million and other cash going out of the country of $3 million has a
a. trade surplus.
c. favorable balance of payments.
b. trade deficit.
d. unfavorable balance of payments.
ANS: C
PTS: 1
13. Money given as foreign aid to another country
a. decreases the balance of payments of the country making the payment.
b. increases the balance of payments of the country making the payment.
c. has a negative effect on the trade deficit.
d. none of the above
ANS: A
PTS: 1
14. A company can have a competitive advantage if it
a. produces a comparable product at the same cost as others in the market.
b. builds the best reputation for quality of all companies in the market.
c. has about the same manufacturing costs as other companies in the market.
d. none of the above
ANS: B
PTS: 1
15. The major factors that affect the degree of competition are
a. number of companies, amount of advertising, and number of factories.
b. number of companies, size of companies, and type of product.
c. number of companies, business costs, and product differences.
d. none of the above.
ANS: C
PTS: 1
COMPLETION
1. A customs official is a government employee authorized to collect the ____________________ levied
on imports.
ANS: duties
PTS: 1
2. A company that arranges to sip goods to customers in other countries is a
_________________________.
ANS: freight forwarder
PTS: 1
3. A document that states the agreement between the exporter and the transportation company is a
____________________.
ANS: bill of lading
PTS: 1
4. A document that states the name of the country in which the shipped goods were produced is a
_________________________.
ANS: certificate of origin
PTS: 1
5. A measure of the total flow of money coming into a country minus the total flow going out of the
country is called the _________________________.
ANS: balance of payments
PTS: 1
6. When a country imports more goods and services than it exports, the balance of payments shows a
trade ____________________.
ANS: deficit
PTS: 1
7. When goods or services are exchanged between two parties with no money involved,
____________________ has occurred.
ANS: direct barter
PTS: 1
8. Companies in different countries may use a ____________________ when they wish to exchange
goods or services that have different values and this trade may include some currency exchange.
ANS: countertrade
PTS: 1
9. An ____________________ consists of all the companies that are in the same type of business.
ANS: industry
PTS: 1
10. A ____________________ exists when one seller controls the entire market for a product or service.
ANS: monopoly
PTS: 1
SHORT ANSWER
1. Why is it important to determine demand before importing goods to resell?
ANS:
The biggest risk in importing is not being able to sell them. If demand for the goods is determined
before they are imported the risk is minimized.
PTS: 1
2. What do the terms of sale "free on board (FOB) mean?
ANS:
The selling price of the product includes the cost of loading the goods onto transportation vessels at the
specified place.
PTS: 1
3. Why do some export companies use freight forwarders rather than shipping goods themselves?
ANS:
Freight forwarders are experts in international trade and can provide information about export
regulations, shipping costs, and foreign import regulations.
PTS: 1
4. What determines whether products will be shipped by air or water?
ANS:
Products in high demand or products that are perishable may require the faster, but more expensive, air
transportation; other products may be shipped by less costly water transport.
PTS: 1
5. Why do companies in different countries use barter or countertrade?
ANS:
To avoid or minimize the risk of receiving payment in a currency that has limited value. Also, in
some cases a government may require countertrade to help the importing country avoid a trade deficit
and stimulate economic growth.
PTS: 1
6. What is a "barrier to entry" in a market?
ANS:
A barrier to entry is some factor that makes the cost of competing too expensive for other companies
to undertake, such as needing large amounts of capital and equipment to start operations or having to
compete against an existing, established brand name.
PTS: 1
ESSAY
1. What does "meet the needs of customers" mean for a business preparing to enter into exporting?
ANS:
Answers should include the following concepts:
(1) Determine if people in other countries can use your product or service.
(2) Determine whether the product will be accepted by foreign customers exactly as it is or whether it
needs to be adapted.
(3) Determine whether product changes are needed to meet geographic, social, cultural, and legal
needs.
PTS: 1
2. Discuss why the company with the best product is not necessarily the most successful company in its
industry.
ANS:
Answers should include the following points:
(1) Another company may have a competitive advantage such as an effective delivery system.
(2) Another company may compete by successfully doing only one thing and doing it well.
(3) Another company may be able to produce a similar product better, faster, or cheaper.
PTS: 1
3. Discuss the advantages and disadvantages of competition.
ANS:
Answers should include the following concepts:
(1) Advantages: improved economic situation and living conditions when competition results in better
goods and services in less time.
(2) A dominant company can control a geographic area or portion of an economy to the extent that
consumers have to pay whatever the business charges. Workers may have to accept whatever
wages are offered by such a company, whether they are fair or not.
PTS: 1
4. In 1999, the U.S. government took action against Microsoft Corporation because it appeared to be a
monopoly, since its computer operating system software dominated the computer industry. Discuss
the situation, describing advantages and disadvantages of the situation. Give your opinion on whether
Microsoft’s influence should be controlled through legal action.
ANS:
Answers should include most of the following concepts:
(1) Consumers may benefit from having a universal operating system.
(2) A powerful and wealthy corporation has almost unlimited resources for developing state-of-the-art
products.
(3) Consumer choice is limited when one product dominates the market.
(4) Monopoly power allows a company to charge high prices that consumers must pay because the
product is the only one available.
(5) Some students will argue that Microsoft’s monopoly power should be limited by government;
others may admire the company and its business practices and argue that the strongest companies
should prevail.
PTS: 1
CHAPTER 7—FOREIGN EXCHANGE AND INTERNATIONAL FINANCE
TRUE/FALSE
1. The exchange rate of currencies always stays the same from one day to the next.
ANS: F
PTS: 1
2. An unfavorable balance of payments will usually result in a decline in the value of a nation’s currency.
ANS: T
PTS: 1
3. The World Bank has the major function of providing economic assistance to less-developed countries.
ANS: T
PTS: 1
4. The International Monetary Fund sets the exchange rate for currencies in different countries.
ANS: F
PTS: 1
5. A letter of credit allows an importer to pay for goods before they are received, but after they are
shipped.
ANS: T
PTS: 1
6. A bond is used to determine the value of currencies among different nations.
ANS: F
PTS: 1
7. As prices rise, lenders usually charge a lower interest rate on loans.
ANS: F
PTS: 1
8. Usually when a country experiences high foreign demand for its products the demand results in a
strong currency for the country because its manufacturers want to be paid in their own currency.
ANS: T
PTS: 1
9. An example of an exchange control is when a company limits the amount of its currency that tourists
may take out of the country.
ANS: T
PTS: 1
10. A country’s currency usually declines in value when the country’s debt increases significantly.
ANS: T
PTS: 1
11. Credit terms of 1/15, n/30 mean that a 15% discount may be taken on the amount due if paid before the
normal 30 days.
ANS: F
PTS: 1
12. Long-term financing methods are often used for capital projects.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. When money is deposited in a bank for future use, it is being used as a
a. medium of exchange.
c. store of value.
b. measure of value.
d. payment on account.
ANS: C
PTS: 1
2. The value of a country’s currency would be increased by
a. an unfavorable balance of trade.
c. political instability.
b. lower inflation.
d. higher interest rates.
ANS: B
PTS: 1
3. A payment method that involves a financial document issued by a bank for an importer in which the
bank guarantees payment is
a. cash in advance.
c. a sale on account.
b. a letter of credit.
d. an account receivable.
ANS: B
PTS: 1
4. A bond is used when a company needs to
a. borrow money over a long period of time.
b. borrow money over a short period of time.
c. pay a foreign company for imported goods.
d. exchange currency between countries.
ANS: A
PTS: 1
5. Shells were used as money once but would not work well as money because
a. it would be difficult to persuade anyone to accept them as money.
b. they are not scarce.
c. they are fragile.
d. all of the above
ANS: D
PTS: 1
6. The exchange rate for a stable country
a. remains the same unless there is a political change.
b. changes somewhat from day to day.
c. is always based on the U.S. dollar.
d. none of the above
ANS: B
PTS: 1
7. Of the following situations, the one that does not usually cause an increased interest rate is
a. political uncertainty.
b. people are saving more and borrowing less.
c. inflation is increasing.
d. none of the above
ANS: B
PTS: 1
8. A currency future is
a. an exchange rate.
b. an exchange control.
ANS: C
c. a contract.
d. none of the above
PTS: 1
9. A document that states a promise to pay a set amount by a certain date is
a. a letter of credit.
c. a bill of exchange.
b. an account payable.
d. a promissory note.
ANS: D
PTS: 1
10. A document prepared by an exporter that includes details about the buyer, seller, merchandise,
amounts, prices, shipping method, date of shipment, and terms of payment is a
a. promissory note.
c. commercial invoice.
b. bill of exchange.
d. none of the above
ANS: C
PTS: 1
11. Methods of short-term financing include
a. trade credit and mortgages.
b. accounts payable, accounts receivable, and bonds.
c. trade credit, bonds, and bills of exchange.
d. accounts payable and accounts receivable.
ANS: D
PTS: 1
12. All of the following are examples of capital projects except
a. installing a new computer and network system.
b. buying a 6-month supply of packaging materials to take advantage of a 10% discount.
c. buying ships to handle your own overseas transportation of goods.
d. buying a company that competes with your own company.
ANS: B
PTS: 1
NUMERIC RESPONSE
1. An invoice dated October 8 for $1,000 has the following credit terms: 2/20, n/60. If the invoice is paid
on October 26, what amount would the customer have to pay?
ANS:
$980
$1,000 – (.02 × $1,000)
PTS: 1
2. An invoice dated March 12 for $5,000 has credit terms of 2/10, n/15. How much will you save if you
pay the invoice on March 22?
ANS:
$100
.02 × $5,000
PTS: 1
NARRBEGIN: Table 7-1
Table 7-1
Currency Exchange Rates
Currency
British pound(£)
Value in
U.S. Dollars
$1.51
Units per
U.S. Dollar
.66£
Canadian dollar
.73
1.37 Canadian dollars
German Deutsche Mark (DM)
.61
1.64 DM
Indian rupee
.032
31.25 rupees
Mexican peso
.30
3.33 pesos
South African rand
.27
3.70 rands
NARREND
3. Using Table 7-1, what would be the cost in U.S. dollars for a hotel room in Canada that costs 200
Canadian dollars?
ANS:
$146.00
200 Canadian dollars × .73 = $146.00
PTS: 1
4. Using Table 7-1, if you purchased a camera for 300 deutsche marks, what would be the price in U.S.
dollars?
ANS:
$183.00
300 DM × .61 = $183.00
PTS: 1
5. Using Table 7-1, if you purchase a hat costing $20 U.S while traveling in India, how many rupees
would that be?
ANS:
625
$20 U.S. × 31.25 = 625 rupees
PTS: 1
6. Use Table 7-1. You plan to take $500 U.S. on a trip to England. How many British pounds is this?
ANS:
330
$500 U.S. × .66 = £330
PTS: 1
COMPLETION
1. An ____________________ is the amount of currency of one country that can be traded for one unit
of the currency of another country.
ANS: exchange rate
PTS: 1
2. The cost involved when individuals, businesses, and countries borrow money is the
____________________.
ANS: interest rate
PTS: 1
3. A monetary unit that is freely converted into other currencies is called ____________________.
ANS: hard currency
PTS: 1
4. A contract that allows a buyer the option to purchase a foreign currency sometime in the future at
today's rate is a currency ____________________.
ANS: future
PTS: 1
5. ____________________ is buying or selling on account.
ANS: Trade credit
PTS: 1
6. An amount owed to a supplier is an account ____________________.
ANS: payable
PTS: 1
7. A ____________________ is a certificate representing money borrowed by a company over a long
period of time, usually between five and 30 years.
ANS: bond
PTS: 1
8. A document that states a promise to pay a set amount by a certain date is a ____________________.
ANS: promissory note
PTS: 1
9. Companies and individuals use a(n) _________________________ (EFT) when they move payments
through banking computer systems.
ANS: electronic funds transfer
PTS: 1
10. An expensive, long-term financial activity is a ____________________ project.
ANS: capital
PTS: 1
SHORT ANSWER
1. How does money act as a store of value?
ANS:
Money can be saved for future spending.
PTS: 1
2. How does inflation affect interest rates and why?
ANS:
When there is inflation (increasing prices), lenders need to collect more money for a loan to cover the
lost buying power of the currency they receive in later payments, so interest rates are higher.
PTS: 1
3. What is the purpose of exchange controls?
ANS:
To protect the value of a country’s currency.
PTS: 1
4. What is the difference between short-term and long-term financing?
ANS:
Short-term financing is usually for less than a year while long-term financing is for a year or longer.
PTS: 1
5. What is the purpose of the foreign exchange market?
ANS:
To buy and sell different currencies; individuals and businesses can exchange currencies at banks that
are members of the foreign exchange market.
PTS: 1
6. What is the purpose of a letter of credit in an export transaction?
ANS:
The letter of credit guarantees payment to the exporter after goods are shipped to minimize the risk of
shipping to an unknown customer.
PTS: 1
ESSAY
1. Describe the five characteristics of money.
ANS:
(1)
(2)
(3)
(4)
(5)
Acceptability: people must be willing to accept an item in exchange for what they are selling.
Scarcity: the item must be scarce enough to maintain its value.
Durability: the item must be strong enough that it does not spoil or get damaged easily.
Divisibility: the item must be able to be divided into smaller monetary units.
Portability: the item must be easily moved from one place to another.
PTS: 1
2. Describe three factors that affect the value of a country’s currency.
ANS:
(1) Balance of payments: A favorable balance of payments has a positive effect on a country’s
currency.
(2) Economic conditions: High inflation and interest rates have a negative effect on a country’s
currency.
(3) Political stability: Political instability increases the risk of doing business and has a negative effect
on a country’s currency.
PTS: 1
3. Your company has an opportunity for several large transactions during the coming month; however,
you will have to buy large amounts of supplies and merchandise and you don’t have the cash available
to do so. Your new customers will require terms of net 60 days. What are your financing options?
ANS:
The situation requires short-term financing. The two main options are buying supplies and
merchandise on credit (accounts payable) or seeking commercial loans from banks and other financial
institutions. You may have to sign a promissory note with some vendors.
PTS: 1
4. Describe capital projects and methods of financing them.
ANS:
A capital project is a long-term financial transaction, such as building a factory or introducing a new
product. Since the activity extends over many years, the financing sources should also be long-term
financing. One option is to borrow from a bank or other financial institution. A second option
sometimes used by large companies is to issue bonds which represent money borrowed over a long
period of time. Bonds are a promise to repay the money by a certain date with interest.
PTS: 1
CHAPTER 8—LEGAL AGREEMENTS AROUND THE WORLD
TRUE/FALSE
1. Common law is an accumulation of prior legal decisions.
ANS: T
PTS: 1
2. Civil laws are enacted and revised by a body of lawmakers specifically established for the purpose of
making laws.
ANS: F
PTS: 1
3. Statutory laws are enacted as a single comprehensive set of rules.
ANS: F
PTS: 1
4. A patent, copyright, or trademark protects a product or process throughout the world once the
originator obtains legal protection in his or her native country.
ANS: F
PTS: 1
5. When a company does business in another country, it must observe its own country’s laws, the host
country’s laws, and any treaties and trade agreements involving that country.
ANS: T
PTS: 1
6. Statutes are usually passed in order to add to or change existing laws and to define laws for new
situations that arise.
ANS: T
PTS: 1
7. If you own a business, you are liable for the condition of the building.
ANS: T
PTS: 1
8. Manufacturers are usually only liable for harm caused by their products if they intentionally caused the
harm.
ANS: F
PTS: 1
9. Non-democratic countries that wish to participate in international business usually recognize property
rights in order to attract international business.
ANS: T
PTS: 1
10. The World Intellectual Property Organization (WIPO) coordinates international treaties to protect
patents, trademarks, and other intellectual property.
ANS: T
PTS: 1
11. A contract is not enforceable if the terms of the contract call for breaking the law.
ANS: T
PTS: 1
12. Throughout the world, most legal disputes have to be settled in court.
ANS: F
PTS: 1
13. A mediator’s decision does not need to be based on mutual agreement between the parties for it to be
legal and binding.
ANS: F
PTS: 1
14. Most countries have more than one court system, and the rules and procedures are usually different in
each system.
ANS: T
PTS: 1
15. Arbitration and mediation are usually faster and less expensive than litigation.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. The legal concept that refers to every kind of responsibility, obligation, or duty of a person or business
is called
a. a contract.
c. product liability.
b. strict liability.
d. liability.
ANS: D
PTS: 1
2. The term consideration refers to
a. the protection of a symbol used as an identifying mark by a business.
b. something of value received or promised in a contract.
c. the mutually agreed-upon settlement resulting from mediation.
d. the legally binding decision of an arbitrator.
ANS: B
PTS: 1
3. The term copyright refers to
a. the protection of a symbol used as an identifying mark by a business.
b. something of value received or promised in a contract.
c. the protection of an original work by an author, artist, or composer.
d. the protection of a product or process.
ANS: C
PTS: 1
4. The term patent refers to
a. an inventor’s exclusive rights to a product or process.
b. an author’s exclusive rights to publish a work.
c. a company’s responsibility to produce safe items.
d. a symbol used to identify a company’s product.
ANS: A
PTS: 1
5. Parties that can appear before the International Court of Justice include
a. countries, companies, and individuals.
b. countries and companies.
c. only companies.
d. only countries.
ANS: D
PTS: 1
6. Components required for a contract to be valid and enforceable include
a. legal agreement, mutual capacity, consideration, and provisions for arbitration.
b. provisions for arbitration, agreement to forgo litigation, mediated agreement, and
consideration.
c. consideration, legal purpose, mutual agreement, and capacity.
d. consideration, arbitration, mediation, and capacity.
ANS: C
PTS: 1
7. The International Court of Justice’s legal principles are based primarily on
a. principles of law from all countries in the world.
b. principles of law from Asian countries.
c. principles of law from Western countries.
d. principles of law from Islamic countries.
ANS: C
PTS: 1
8. A liability for unpaid wages that are due to an employee for work performed is an example of
a. product liability.
c. liability for debt, loss, and injury.
b. strict liability.
d. all of the above
ANS: C
PTS: 1
9. Under strict liability laws, if a consumer uses gasoline to clean stains off clothing and then lights a
match and suffers burns, the seller or manufacturer of the gasoline
a. is liable under strict liability laws.
b. is liable because there were no printed warnings not to light matches when using gasoline.
c. is liable because the product was unreasonably dangerous to the user.
d. none of the above
ANS: D
PTS: 1
10. A person who makes duplicate copies of a DVD of a commercial movie and then sells it would be
violating a
a. patent.
c. copyright.
b. trademark.
d. none of the above
ANS: C
PTS: 1
11. The term consideration used in regards to a contract means
a. both parties agree to be considerate of each others’ needs.
b. something of value must be given by both parties.
c. one party offers valid terms and the other party accepts them.
d. none of the above
ANS: B
PTS: 1
12. International treaties and trade agreements may serve all the following purposes except
a.
b.
c.
d.
allowing free flow of goods and services between member countries.
helping to provide uniformity between different cultures and customs.
setting currency exchange rates.
helping to ensure fair competition practices between member countries.
ANS: C
PTS: 1
13. Of the following, the one that is not a reason for using mediation or arbitration instead of court action
to settle a dispute is
a. to save time.
b. to follow legal procedures.
c. to avoid bad publicity.
d. to avoid the risk of discriminatory treatment in a foreign court.
ANS: B
PTS: 1
14. A mediator does all of the following EXCEPT
a. makes a binding decision.
b. makes suggestions and proposals.
c. helps the parties reach a compromise.
d. addresses the substance of the dispute.
ANS: A
PTS: 1
15. In arbitration between parties in two different countries
a. the arbitrator may be an officer in a chamber of commerce or trade association for a third
country.
b. the party who does not agree with the arbitrator’s decision may pursue further litigation.
c. the host country party usually establishes the procedures for the arbitration.
d. none of the above
ANS: A
PTS: 1
COMPLETION
1. A legal system that relies on the accumulation of decisions made in prior cases is
____________________ law.
ANS: common
PTS: 1
2. Laws that have been enacted by a body of lawmakers, such as the U.S. Congress or the British
Parliament are called ____________________.
ANS: statutes
PTS: 1
3. ____________________ is the failure of a responsible party to follow standards of due care.
ANS: Negligence
PTS: 1
4. Technical knowledge or creative work that an individual or company has developed is called
____________________ property.
ANS: intellectual
PTS: 1
5. A ____________________ is the exclusive right of an inventor to make, sell, and use a product or
process.
ANS: patent
PTS: 1
6. A business’s ____________________ is a distinctive name, symbol, word, picture, or combination of
these that identifies its services or products.
ANS: trademark
PTS: 1
7. A ____________________ is a legally enforceable agreement between two or more persons either to
do or not do a certain thing or things.
ANS: contract
PTS: 1
8. When ____________________ is used to resolve a conflict, a neutral third party makes a binding
decision.
ANS: arbitration
PTS: 1
9. When ____________________ is used to resolve a conflict, a neutral third party attempts to reconcile
the viewpoints of the disputing parties, but the parties are not bound to agree to the recommendation.
ANS: mediation
PTS: 1
10. A lawsuit brought to enforce the rights of a person or organization or to seek a remedy to the violation
of their rights is called ____________________.
ANS: litigation
PTS: 1
SHORT ANSWER
1. What three rights are included in property rights?
ANS:
Rights to possess and use property and its profits, right to exclude everyone else from interfering with
the property, and right to dispose of the property in any legal way.
PTS: 1
2. What is the difference between common law and statutory law?
ANS:
Common law is based on decisions made in prior cases while statutory laws are enacted by a body of
lawmakers.
PTS: 1
3. Distinguish between real, personal, and intellectual property.
ANS:
Real property consists of land and anything built on or attached to the land. Personal property is
tangible but does not have a permanent location. Intellectual property is intangible and based on ideas.
PTS: 1
4. Distinguish between patent law, trademark protection, and copyright law.
ANS:
Patent laws protect the inventor of a new product or process. Trademark protection protects the
trademark of a company or its goods and services. Copyright laws protect the original works of
authors, composers, playwrights, artists, and publishers.
PTS: 1
5. Why do businesses prefer express contracts to implied contracts?
ANS:
Because an express contract is written and signed (agreed to) by the parties, there is distinct evidence
of the agreement and less disagreement about the intent if there are disputes.
PTS: 1
6. Distinguish between mediation and arbitration.
ANS:
Both mediation and arbitration involve using a third party to reconcile viewpoints in a dispute;
however, in arbitration the parties are obligated to accept the decision of the third party while in
mediation the parties must voluntarily agree to accept the decision.
PTS: 1
ESSAY
1. Discuss reasons why intellectual property is protected by law.
ANS:
Answers should include the following concepts:
(1) Intellectual property is a created work, the product of someone’s ability, and although it is
intangible it deserves as much protection as property that has been acquired by other means.
(2) If intellectual property is not protected, dishonest competitors can steal it and compete unfairly.
(3) Those who steal intellectual property and sell it as their own deceive the customers who buy it.
(4) When intellectual property is stolen and sold, the originator of the idea is cheated of the profits
from the sale of his or her work.
(5) If intellectual property does not benefit the creator, there is less incentive to create original
intellectual works.
PTS: 1
2. Two adult entrepreneurs have signed a contract agreeing that Mr. Nunoz will furnish a specific
quantity of a frozen dessert product to Ms. Madera’s company in another country. The agreement
specifies the quantity per month, delivery methods, and payment terms. Halfway through the terms of
the agreement, Ms. Madera’s country places an embargo on the product and Mr. Nunoz stops
furnishing the product. Use the four essential components of a contract to discuss whether Ms.
Madera has legal rights to enforce the contract or receive compensation for
ANS:
Answers should include the following points:
(1) Capacity: The parties are competent, of legal age, and mentally capable.
(2) Mutual agreement: The parties both agreed to the terms of the contract and signed it.
(3) Consideration: Mr. Nunoz furnishes a product and Ms. Madera pays for it.
(4) Legal purpose: The terms of the contract were in agreement before the embargo, but the embargo
makes the agreement outside the law. Neither Ms. Madera nor Mr. Nunoz can legally fulfill the
terms of the contract.
PTS: 1
3. Cheng Manufacturing Company is involved in a dispute over wages and working conditions with the
labor union that represents most of its employees. Currently, the workers are on strike and the factory
is shut down. Discuss the advantages of settling the dispute using mediation or arbitration.
ANS:
Answers should include the following points:
(1) It is to the advantage of both workers and company to get the factory reopened quickly so that
workers receive wages and the factory has products to sell.
(2) Mediation and arbitration would probably be less expensive than a protracted court battle.
(3) Both the union and the factory would benefit from private mediation or arbitration without bad
publicity.
(4) Agreeing to arbitration and/or showing willingness to compromise in mediation would help future
working relationships remain positive.
PTS: 1
4. Why is the International Court of Justice, and international law in general, important to international
business?
ANS:
Answers should include most of the following points:
(1) Companies and countries both benefit from international business. Companies benefit from
increased sales and profits while countries benefit from stronger economies and better standards
of living.
(2) Although the International Court of Justice only hears disputes between nations, it does provide
guidelines for acceptable ways of doing business for governments and citizens of all countries.
(3) In order to encourage international business, businesses need to know they will be treated in a
consistent manner in foreign environments.
(4) As long as international principles of law are observed, particularly property rights and
responsibilities and enforcement of contracts, businesses will feel safer in conducting
international transactions.
PTS: 1
CHAPTER 9—GLOBAL ENTREPRENEURSHIP AND SMALL BUSINESS
MANAGEMENT
TRUE/FALSE
1. An entrepreneur brings together the resources needed for a company to get started and to operate
successfully.
ANS: T
PTS: 1
2. Running your own business guarantees that you will have a steady income.
ANS: F
PTS: 1
3. Materials are usually considered to be a variable production cost.
ANS: T
PTS: 1
4. The major source of new jobs in the United States is large corporations that make products bought by
millions of people.
ANS: F
PTS: 1
5. Consumers buy directly from retailers.
ANS: T
PTS: 1
6. Burnout from working too hard for too many hours is a major reason why small-business owners sell
their companies.
ANS: T
PTS: 1
7. A good statement of a goal for a business would be to increase sales.
ANS: F
PTS: 1
8. When a business’s sales have peaked, the only way to make significant sales increases is to develop a
new product idea.
ANS: F
PTS: 1
9. A business plan is a guide that could be used to start and operate a company.
ANS: T
PTS: 1
10. The only purpose of a business plan for a new business is to provide a guide or blueprint for the
company’s activities.
ANS: F
PTS: 1
11. The salaries of office staff are an example of variable costs.
ANS: F
PTS: 1
12. Equity funds refer to money invested by the owners of a business.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. The purpose of a retailer is to
a. sell directly to consumers.
b. take raw materials from nature or grow products.
c. buy from a manufacturer and sell to other businesses.
d. change raw materials into usable products.
ANS: A
PTS: 1
2. One of the most common causes of business failure is
a. too many customers.
b. poor management decisions.
c. foreign competition.
d. weak financial record-keeping systems.
ANS: B
PTS: 1
3. Marketing activities include all of the following except
a. advertising.
c. manufacturing.
b. packaging.
d. retailing.
ANS: C
PTS: 1
4. A business owner obtains a loan from a bank to cover the cost of building a new factory. This is an
example of
a. variable costs.
c. a business plan.
b. equity funds.
d. debt funds.
ANS: D
PTS: 1
5. All of the following are economic or social benefits of entrepreneurial efforts EXCEPT
a. creating new products.
b. providing personalized service.
c. maintain a low inventory.
d. providing new jobs.
ANS: C
PTS: 1
6. Wholesalers benefit the economy and other businesses by
a. being intermediaries between producers and sellers.
b. buying products from manufacturers.
c. shipping products to retailers.
d. all of the above
ANS: D
PTS: 1
7. All of the following are expected to be areas of growth for entrepreneurs except
a. personal services.
b. training workers to adapt to a changing workplace.
c. health care services.
d. automobile parts manufacturing.
ANS: D
PTS: 1
8. All of the following are reasons for writing a business plan for a new business except
a. to set goals or a plan of action for the business.
b. to qualify for a bank loan.
c. to persuade customers to buy the product.
d. to attract new investors.
ANS: C
PTS: 1
9. The organizational structure section of the business plan for a new business would include all of the
following except
a. whether the business is a sole proprietorship, partnership, or corporation.
b. the price that will be charged for the company’s product.
c. any joint ventures or licensing agreements the company has.
d. relationships with supplier.
ANS: B
PTS: 1
10. Cash sales, cash collected from customers on account, and cash obtained from loans or additional
investments from owners are examples of
a. assets.
c. gross profit.
b. revenues.
d. cash inflows.
ANS: D
PTS: 1
11. Human resource management involves
a. hiring, training, and retaining employees.
b. supervising employees.
c. allocating resources so employees can do their jobs effectively.
d. all of the above
ANS: A
PTS: 1
12. All of the following are part of a management information system plan except
a. obtaining information.
c. planning cash flow.
b. distributing reports to managers.
d. organizing information.
ANS: C
PTS: 1
NUMERIC RESPONSE
1. A company sells 1,000 leather jackets for $150,000; the jackets cost the company $90 each. What is
the total gross profit?
ANS:
$60,000
$150,000 – ($90 × 1,000 jackets)
PTS: 1
2. Rent, salaries, and other fixed costs are $250,000. The gross profit on each unit of sales is $10. How
many units must the company sell before it begins to earn a profit?
ANS:
25,000
$250,000 ÷ 10
PTS: 1
3. A manufacturing business has total fixed costs of $120,000. It sells its product for $800 but it costs
$600 to manufacture each unit. How many units must the company sell to break even?
ANS:
600 units
$800 – $600 = $200 gross profit per unit; $120,000 ÷ $200 = 600
PTS: 1
4. A company’s balance sheet shows assets of $1,000,000 and liabilities of $450,000. What is the
company’s owner’s equity?
ANS:
$650,000
$1,000,000 – $450,000
PTS: 1
5. A company wants to make a profit of $24,000. It has fixed costs of $50,000, a unit selling price of
$16 and a unit cost of $12. How many units must it sell?
ANS:
14,500
$16 – $12 = $4 gross profit per unit; $50,000 ÷ $4 gross profit = 12,500 units breakeven point;
$24,000 profit ÷ $12 unit cost = 2,000 units; 12,500 breakeven units + 2,000 units = 14,500 units
PTS: 1
6. A company has cash flow of $750,000, sales revenue of $800,000, and operating expenses of
$625,000. What is the company’s profit?
ANS:
$175,000
$800,000 sales revenue – $625,000 operating expenses
PTS: 1
COMPLETION
1. An ____________________ company takes raw materials from nature or grows products.
ANS: extracting
PTS: 1
2. A ____________________ is a business that sells directly to consumers.
ANS: retailer
PTS: 1
3. A ____________________ is a formal, written guide used to start and operate a business.
ANS: business plan
PTS: 1
4. A company prepares a ____________________ as a financial tool to estimate funds and plans for
spending those funds.
ANS: budget
PTS: 1
5. ____________________ costs are business expenses that change in proportion to the level of
production.
ANS: Variable
PTS: 1
6. ____________________ costs are business expenses that do not change as the level of production
changes.
ANS: Fixed
PTS: 1
7. A ____________________ is the financial document that reports a company’s assets, liabilities, and
owner’s equity.
ANS: balance sheet
PTS: 1
8. Using a computer and other technology to work at home instead of in a company office or factory is
known as ____________________.
ANS: telecommuting
PTS: 1
9. The difference between the cost of an item and the price for which the business can sell that item is
called the ____________________.
ANS: gross profit
PTS: 1
10. Business funds obtained from the owners of a business are called ____________________ funds.
ANS: equity
PTS: 1
SHORT ANSWER
1. What are three economic and social benefits of small businesses?
ANS:
Small businesses are major creators of new products, a major source of new jobs, and often provide
personal service.
PTS: 1
2. What are the two main purposes of a business plan?
ANS:
To attract new investors or achieve a bank loan and to serve as a blueprint for company activities.
PTS: 1
3. Distinguish between fixed and variable costs.
ANS:
Fixed costs remain the same regardless of the level of production; variable costs increase in direct
proportion to increases in production.
PTS: 1
4. Explain the significance of the breakeven point.
ANS:
Businesses have both fixed and variable costs. The breakeven point is the level of sales at which all
fixed costs have been covered, but no profit has yet been earned.
PTS: 1
5. Describe the two sources of funds for a business.
ANS:
Equity funds are the business funds obtained from the owners. Debt funds are funds obtained by
borrowing from bank loans and other sources.
PTS: 1
6. What are the main cash inflows and outflows of a business?
ANS:
Cash inflows are cash sales and cash collected from customers on account, as well as cash borrowed
and invested by owners. Cash outflows are for current operating expenses, new equipment, and
payments of debts and taxes.
PTS: 1
ESSAY
1. Describe the advantages of telecommuting for both businesses and employees.
ANS:
Answers should include the following:
(1) Businesses save money because less office space is needed.
(2) Businesses may keep talented employees who do not want to work in a structured environment.
(3) Employees save time and energy by not traveling to a place of employment.
(4) Employees may have more time with families and save money on childcare.
PTS: 1
2. Describe the disadvantages of self-employment.
ANS:
Answers should include the following:
(1) Time commitment may be greater than a full-time job.
(2) Income, especially at the beginning, may be uncertain.
(3) Investment will be lost if the business fails.
PTS: 1
3. James Sweeney is an entrepreneur and runs an exporting business. He has no employees and does
everything himself. He’s an excellent sales person and says he’s too busy selling to sit down and do
reports. Even though his sales are high he never seems to have much money and he frequently has to
borrow to pay expenses. He has no idea what his business is worth. A friend suggested that he
prepare an income statement, balance sheet, and annual and monthly budgets. James protests that he
doesn’t have time for paperwork. "Besides," James says, "don’t all those reports show the same
thing? I don’t have time for busywork." What would you say to James?
ANS:
Answers should include the following concepts:
(1) A balance sheet reports what the business owns (assets), what it owes (liabilities), and what it is
worth (owner’s equity).
(2) An income statement will report the sales and expenses.
(3) A budget will serve as a plan for future operations and also show when cash is needed for
expenses and when cash is expected to be received.
(4) The reports do not repeat the same information and are needed to plan operations.
PTS: 1
4. Describe the three major activities involved in human resource management.
ANS:
Answers should include the following:
(1) Hire employees: Positions are advertised, applications are screened, candidates are interviewed,
and people are selected.
(2) Training employees: Training is required both at the start of a job and on a continuing basis to
keep skills updated for technology, the economy, and legal rulings.
(3) Maintain employee satisfaction: Employees must be paid adequately, given appropriate benefits,
and motivated.
PTS: 1
CHAPTER 10—MANAGEMENT PRINCIPLES IN ACTION
TRUE/FALSE
1. Although successful managers possess a wide variety of conceptual, technical, and interpersonal
abilities, they tend to have a common core of important personal characteristics.
ANS: T
PTS: 1
2. No one managerial style is best in all circumstances.
ANS: T
PTS: 1
3. Individual employees always conform to the standards of their cultural groups.
ANS: F
PTS: 1
4. The participative manager gives employees both authority and responsibility to a certain degree.
ANS: T
PTS: 1
5. A virtual corporation comprises "the best of the best" units.
ANS: T
PTS: 1
6. Autocratic, participative, and free-rein managers use power differently.
ANS: T
PTS: 1
7. The autocratic style of management is usually the style employees work best under.
ANS: F
PTS: 1
8. Every culture and subculture has norms for the behaviors of its members.
ANS: T
PTS: 1
9. Workers in every culture regard permanence of employment very highly and prefer not to look for new
opportunities.
ANS: F
PTS: 1
10. Managers who consider the values, beliefs, and assumptions of the culture and subculture rather than
those of individuals are generally the most successful in global business.
ANS: F
PTS: 1
11. Line positions are managerial, but staff positions are not.
ANS: T
PTS: 1
12. Most organizations today are tall because so many managers are needed to accomplish complex goals.
ANS: F
PTS: 1
13. A company with several different departments should always organize by function.
ANS: F
PTS: 1
14. The number of managers a business needs depends on the size of the business and the complexity of
its operations.
ANS: T
PTS: 1
15. In an international corporation a parent company provides an organizational structure of local,
national, or regional subsidiaries that are usually responsible for decision making and customer
service.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. The free-rein manager
a. rules with a heavy hand.
b. regularly consults with employees.
c. exists primarily as a contact person for outsiders.
d. centralizes authority in his or her position.
ANS: C
PTS: 1
2. Argo, Inc., is a global corporation with Asian, European, and North American divisions. From this
information, you can infer that it is organized by
a. function.
c. geography.
b. product.
d. process.
ANS: C
PTS: 1
3. Juliette supervises three printing-press operators at the local newspaper. Juliette is a
a. front-line manager.
c. senior manager.
b. middle manager.
d. chief executive officer.
ANS: A
PTS: 1
4. Span of control refers to
a. the distance in feet between the employees and their manager.
b. the number of levels of managers within the organization.
c. the distance between levels of management in an organization.
d. the number of employees that a manager supervises.
ANS: D
PTS: 1
5. A well-constructed organizational chart documents
a. autocratic management.
b. selected managerial relationships within the organization.
c. all the departmental relationships within the organization.
d. only managerial positions within the organization.
ANS: C
PTS: 1
6. A flat organization
a. has many levels of managers.
b. is the first stage in becoming a global organization.
c. has few levels of managers.
d. is an organization that is managed ineffectively.
ANS: C
PTS: 1
7. In the managerial sense, delegating is
a. selecting a representative to government.
b. transferring authority and responsibility.
c. accepting authority and responsibility, alone.
d. centralizing power.
ANS: B
PTS: 1
8. Leadership can be described as
a. forcing people to do what you want them to do.
b. gathering information to solve problems.
c. the ability to get others to follow.
d. the ability to use resources to achieve goals.
ANS: C
PTS: 1
9. A manager who usually completes projects by ordering employees to do certain tasks but does not tell
the employees how the tasks contribute to the project is
a. an autocratic manager.
b. a participative manager.
c. a free-rein manager.
d. a manager who combines several styles of management.
ANS: A
PTS: 1
10. All of the following are actions that a participative manager would take except
a. encourage employees to contribute ideas and suggestions.
b. keep employees informed about project needs.
c. give employees the opportunity to learn on their own and supply their own motivation.
d. help employees set goals and ways to measure them.
ANS: C
PTS: 1
11. All of the following statements describe behaviors that could be influenced by cultural differences
except
a. George Amarkos prefers to work in a local company where several of his relatives also
work.
b. Thea Erickson buys all the products her company manufactures because she plans to work
for the company until she retires in forty years.
c. Mario Herrera is uncomfortable when his supervisor asks him for an opinion about a
project at work.
d. Oki Komuro does not like to work in an office that is air-conditioned.
ANS: D
PTS: 1
12. All of the following are examples of the controlling function of management except
a.
b.
c.
d.
taking preventive and corrective actions.
motivating employees.
using outside auditors to review accounting records.
adjusting inputs to maximize outputs.
ANS: B
PTS: 1
13. A company that is organized into separate divisions for paper products, plastic products, and metal
products is an example of
a. organization by function.
c. organization by geography.
b. organization by product.
d. organization by division.
ANS: B
PTS: 1
14. Lines of authority
a. are usually less clearly understood in a small sole proprietorship.
b. indicate who is responsible to whom and for what.
c. are not as important in a larger business where people work as teams.
d. none of the above
ANS: B
PTS: 1
15. All of the following are characteristics needed by managers of the future global corporation except
a. able to manage transition and change in a culturally diverse world.
b. able to quickly adapt to a changing environment.
c. able to function as part of a team.
d. able to make quick decisions without regard to consequences for other managers.
ANS: D
PTS: 1
COMPLETION
1. Managers who centralize power and tell employees what to do are ____________________ managers.
ANS: autocratic
PTS: 1
2. Managers who avoid the use of power and let employees establish their own goals and monitor their
own progress are ____________________ managers.
ANS: free-rein
PTS: 1
3. A company organized into manufacturing, customer service, and human resources departments is
organized by ____________________.
ANS: function
PTS: 1
4. A publishing company that is organized into book, magazine, and newspaper departments is organized
by ____________________.
ANS: product
PTS: 1
5. A company that is organized into northern, southern, and central divisions is organized by
____________________.
ANS: geography
PTS: 1
6. The number of employees that a manager supervises is referred to as the
_________________________.
ANS: span of control
PTS: 1
7. Managers need to understand the _________________________ so that they know what they are
responsible for and whom they report to.
ANS: lines of authority
PTS: 1
8. The amount of authority and responsibility that is delegated to employees or to organizational units is
called the degree of ____________________.
ANS: centralization
PTS: 1
9. An organization that has many levels of management is described as being ____________________.
ANS: tall
PTS: 1
10. Managers who decentralize power and share it with employees as they work together to achieve goals
are ____________________ managers.
ANS: participative
PTS: 1
SHORT ANSWER
1. Distinguish between line and staff positions.
ANS:
Line positions are managerial positions with authority and responsibility over people and resources
while staff positions are not managerial, but assist or advise those in line positions.
PTS: 1
2. How should managers consider group cultural preferences and individual preferences of employees?
ANS:
Managers should be aware of group cultural preferences but also understand that individuals may not
totally reflect the preferences of the cultural group. Therefore, individual preferences must also be
considered for a manager to be successful.
PTS: 1
3. How do planning and decision making work together in the management function?
ANS:
Planning involves setting goals or objectives to be attained. Decisions are then made, evaluating
alternatives, to reach the goals or objectives.
PTS: 1
4. How does the span of control typically change when a small sole proprietorship grows and adds more
employees?
ANS:
A small sole proprietorship typically has a single owner-manager; increased size and employees may
require additional managers, and the span of control of the owner-manager would be reduced.
PTS: 1
5. How does degree of centralization relate to authority and responsibility?
ANS:
A centralized organization has authority and responsibility tightly held by the managers; a
decentralized organization distributes authority and responsibility among many employees and
organizational units.
PTS: 1
6. What is the difference between an international corporation and a global corporation?
ANS:
An international corporation creates and markets goods and services in both its home country and
other countries, with an organizational structure and operational strategy provided by the parent
company. In contrast, a global corporation operates as if there were no boundaries between countries.
PTS: 1
ESSAY
1. Describe the characteristics of an autocratic manager and explain why U.S. workers often do not work
well under this style of manager.
ANS:
Answers should include:
(1) Autocratic managers centralize power and tell employees what to do; they rule with a heavy hand,
take full authority, and assume full responsibility. They may use power negatively, leaving
employees feeling uninformed, insecure, and afraid; if they use power positively, rewards are
distributed only to those who comply.
(2) U.S. employees want to be actively involved in decision making, tend to be confrontational toward
managers, and value personal freedom, independence, and self-respect. Therefore, their goals are
very different from those of autocratic managers, they will not do their best work under this
management style, and conflicts are inevitable.
PTS: 1
2. How do managers motivate employees? Consider both internal and external motivation of
employees.
ANS:
Answers should include the following points:
(1) Motivating involves creating the desire to achieve.
(2) Internal motivation comes from within the employee, such as the desire to perform work more
efficiently. Managers who encourage these internal motivations will have employees who are
more effective.
(3) External motivation comes from outside the employee, such as salary and benefits. Managers
must also pay attention to these external motivation factors to have successful employees.
PTS: 1
3. Technology is changing rapidly and competition increases daily. How do these trends affect whether
a business organization is tall or flat?
ANS:
Rapid technological change and increased competition both require that organizations respond quickly.
A tall organization with many levels of management may not be able to act quickly. Therefore,
organizations are increasingly becoming flatter with fewer levels of management in order to remain
competitive.
PTS: 1
4. What are some characteristics of the manager for the global marketplace?
ANS:
Answers should include most of the following points:
(1) Have insight into the future and ability to facilitate this vision in others.
(2) Function as part of a team.
(3) Seek the trust of boards and shareholders, as well as customers, employees, suppliers, and
governments.
(4) Be multilingual and multicultural to meet the needs of diverse groups.
(5) Possess global strategic skills.
(6) Manage transition and change in a culturally diverse world.
(7) Possess all the usual management skills but also be able to quickly adapt to a changing
environment.
PTS: 1
CHAPTER 11—HUMAN RESOURCE MANAGEMENT
TRUE/FALSE
1. Companies sometimes employ specialized recruitment firms if they have unusual or high-ranking
managerial positions to fill.
ANS: T
PTS: 1
2. An applicant’s work record is of little interest during the selection process.
ANS: F
PTS: 1
3. Family relationships have no bearing on the success of a manager working abroad.
ANS: F
PTS: 1
4. Culturally sensitive compensation packages can motivate employees.
ANS: T
PTS: 1
5. Sam Hogan was born and raised in England. When he works in the United States he is an expatriate.
ANS: T
PTS: 1
6. Maria Gonzales was born and raised in Mexico and works in a Canadian company’s New York City
office. Maria is considered a parent-country national.
ANS: F
PTS: 1
7. Sometimes a less-developed company will benefit from a foreign company that uses the ethnocentric
approach.
ANS: T
PTS: 1
8. A disadvantage of the polycentric approach to human resource management is the cultural gap
between the headquarters and subsidiary managers.
ANS: T
PTS: 1
9. The characteristics of a job applicant’s family may be an important consideration for a position in a
foreign country.
ANS: T
PTS: 1
10. When hiring for an international position, a company always hires the applicant who has the best
combination of competence, adaptability, and personal characteristics even if the applicant is weak in
some areas.
ANS: T
PTS: 1
11. Companies that provide training and development for employees on international assignments are
usually more successful than those that do not.
ANS: T
PTS: 1
12. It is possible in some cultures to offend an employee by giving public praise for outstanding
achievement.
ANS: T
PTS: 1
13. A cost-of-living adjustment is a way to adjust an employee’s compensation up or down to reflect the
relative cost of living in a different location.
ANS: F
PTS: 1
14. When an employee’s performance is being evaluated, one factor to consider is the difficulty of the
tasks assigned.
ANS: T
PTS: 1
15. Expatriates should begin planning for their return before they even travel abroad.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. Human resource management is different in the global and the domestic environments because
a. labor markets are the same around the world.
b. all companies in the global environment choose the same human resources mix.
c. there are no obstacles to worker mobility.
d. companies must cope with differences in national and global orientations.
ANS: D
PTS: 1
2. Supply analysis is
a. estimating in advance the types and numbers of employees needed.
b. using selection and reduction processes.
c. determining if there are sufficient types and numbers of employees available.
d. balancing the demand for and the supply of employees.
ANS: C
PTS: 1
3. Of the following questions, the one that best assesses the applicant’s ability to adjust to different
conditions is
a. How well do you work with those from your own cultural group?
b. Why do you want to work in the global environment?
c. What college degrees have you earned?
d. How would those you supervise rate your maturity?
ANS: B
PTS: 1
4. Of the following, the least useful type of training to a French employee working in South Korea would
be
a. Korean language.
c. culture.
b. economy.
ANS: D
d. court system.
PTS: 1
5. Common reasons why parent-country nationals fail in international assignments include all of the
following except
a. the employee’s spouse has difficulty adjusting.
b. the employee dislikes the local government.
c. the employee has difficulty accepting new responsibilities.
d. the employee’s children have difficulty coping.
ANS: B
PTS: 1
6. The type of human resources approach that uses natives of the host country to manager operations
within their country and parent-country natives to manage at headquarters is the
a. ethnocentric approach.
c. regiocentric approach.
b. polycentric approach.
d. geocentric approach.
ANS: B
PTS: 1
7. The type of human resources approach that uses the best available managers without regard for their
countries of origin is the
a. ethnocentric approach.
c. regiocentric approach.
b. polycentric approach.
d. geocentric approach.
ANS: D
PTS: 1
8. A job description should include all of the following information except
a. the identification or title of the job.
b. the education and experience requirements of the job.
c. the marital status and family characteristics required for the job.
d. the duties and responsibilities of the job.
ANS: C
PTS: 1
9. All of the following are dimensions of the factor of competence for a position in another country
except
a. cultural awareness and language skills.
b. technical knowledge and experience.
c. desire to work abroad.
d. leadership and the ability to manage.
ANS: C
PTS: 1
10. All of the following are dimensions of the factor of personal characteristics for a position in another
country except
a. maturity.
c. tactfulness.
b. social acceptability.
d. foreign language fluency.
ANS: D
PTS: 1
11. The chances of employee failure on an overseas assignment can be reduced by all of the following
practices except
a. providing training before, during, and after the assignment.
b. making international assignments part of the long-term employee development process.
c. providing a job that use the employee’s international experience when the employee
returns from the assignment.
d. providing extra compensation for taking an international assignment.
ANS: D
PTS: 1
12. All of the following statements about money as a motivating factor are true except
a. money is seen by U.S. employees as a reward for taking risks.
b. money is a major motivating factor for most U.S. employees.
c. in addition to money, other factors such as personal recognition, are also motivating
factors for many U.S. workers.
d. the U.S. model of money as a motivating factor is dominant throughout the world.
ANS: D
PTS: 1
13. Evaluating employee performance in company offices around the world
a. should be tailored to meet local environment, task, and individual personality differences.
b. may present a challenge in cultures in which evaluation is seen as a lack of trust.
c. may use different standards and forms in different countries even in the same company.
d. all of the above
ANS: D
PTS: 1
14. Additions to employee compensation may include
a. transportation.
c. anything that is legal.
b. vacation trips.
d. all of the above
ANS: D
PTS: 1
15. All of the following are ways of minimizing problems in repatriation except
a. being grateful for experiences abroad as a way of appreciating the home culture.
b. keeping foreign experiences private because old friends will not understand them.
c. planning in advance for employment after returning home.
d. exploring job options with other companies.
ANS: B
PTS: 1
COMPLETION
1. Employees who are natives of the country in which they work are called ____________________
nationals.
ANS: host-country
PTS: 1
2. Employees who live and work outside their native countries are called ____________________.
ANS: expatriates
PTS: 1
3. The ____________________ approach to human resource management uses natives of the parent
country of a business to fill key positions both at home and abroad.
ANS: ethnocentric
PTS: 1
4. The ____________________ approach to human resource management uses the best available
managers without regard for their country of origin.
ANS: geocentric
PTS: 1
5. Estimating in advance the types and numbers of employees a company will need is called employment
____________________.
ANS: forecasting
PTS: 1
6. A document that includes the identification, statement, duties and responsibilities, and specifications
and requirements of a job is called a _________________________.
ANS: job description
PTS: 1
7. A ____________________ is a person or firm that locates one or more qualified applicants for a job
for a fee.
ANS: headhunter
PTS: 1
8. When a company transfers an employee to a location with higher living costs, it may frequently add a
____________________ adjustment to the employee’s compensation.
ANS: cost-of-living
PTS: 1
9. One factor employers look for in job applicants is ____________________, which includes both
technical knowledge and experience.
ANS: competence
PTS: 1
10. The process a person goes through when returning home and getting settled after having worked
abroad is called ____________________.
ANS: repatriation
PTS: 1
SHORT ANSWER
1. Describe the disadvantages of the ethnocentric approach to human resource management.
ANS:
Local workers are deprived of the opportunity to fill key managerial positions, which can lower morale
and productivity of local workers and natives of the parent country may not be culturally sensitive
enough to manage local workers.
PTS: 1
2. What are three broad factors the companies are usually concerned about when they are screening
applicants for jobs?
ANS:
Competence, adaptability, and personal characteristics.
PTS: 1
3. Why is adaptability an important characteristic for someone seeking a job in international business?
ANS:
An international job requires the ability to adapt to diverse groups of people, difference cultures and
attitudes, and different managerial styles. Family members may also have to adapt to living in a
different country.
PTS: 1
4. What does a company do when it finds that none of the applicants for a job possesses the perfect
combination of qualifications for the job?
ANS:
A company has to balance an applicant’s strengths against the weaknesses and choose the applicant
whose qualifications are the best match for the job with the highest likelihood of success.
PTS: 1
5. What does cross-cultural training for a job in a foreign country include?
ANS:
Training about the local culture, life in the host country, currency, food, costs, and housing.
PTS: 1
6. What are some steps a company can take to minimize a negative effect of spouses and children on an
employee assigned to another country?
ANS:
Provide cross-cultural training to family members and help spouses find jobs in the foreign country.
PTS: 1
ESSAY
1. Describe the advantages of the polycentric approach to human resource management.
ANS:
Answers should include the following concepts:
(1) Locals manage in the country for which they are best prepared.
(2) Incentives and salary may be cheaper.
(3) Local managers are culturally sensitive and may help in politically sensitive situations.
PTS: 1
2. How does the type of employee needed influence the method of recruiting employees?
ANS:
Answers should include the following concepts:
(1) For unskilled or semi-skilled workers, local public outlets such as Job Service and classified
advertising can be used.
(2) For skilled, technical, or managerial workers, both public and private outlets may be used.
(3) For unusual or high-ranking managerial positions, a headhunter may be used.
PTS: 1
3. How can employees reduce the negative effects of reverse culture shock after repatriation?
ANS:
Answers should include most of the following concepts:
(1) Plan ahead.
(2) Keep in frequent communication with former colleagues and friends; share new experiences with
them and ask about their lives.
(3) Learn to enjoy the benefits of the host culture.
(4) Begin exploring new career options at least one year before the end of the assignment abroad.
(5) Encourage the employer to find suitable jobs that make use of the recent international experiences.
(6) When returning home, be grateful for the adventure abroad and view the native culture in a new
light compared with the experience abroad.
PTS: 1
4. What are some problems faced by global companies when they evaluate employee performance?
ANS:
Answers should include the following concepts:
(1) Evaluation forms may be misunderstood, even when translated into the local language.
(2) Different cultures may perceive evaluation as threatening, insulting, or evidence of a lack of trust.
(3) It is difficult to balance the needs of both the company and the employee.
(4) Standards may vary from country to country.
PTS: 1
CHAPTER 12—LABOR AROUND THE WORLD
TRUE/FALSE
1. The members of most early unions were skilled workers.
ANS: T
PTS: 1
2. The main reason for the decline of the Knights of Labor was loss of interest in unions among the
workers.
ANS: F
PTS: 1
3. The principal law that gave private sector workers in the United States the right to form unions and
bargain collectively is the Labor-Management Relations Act.
ANS: F
PTS: 1
4. Federal government employees generally do not have the right to strike.
ANS: T
PTS: 1
5. The Congress of Industrial Organizations broke away from the American Federation of Labor (AFL)
because the CIO favored industrial unions and the AFL did not.
ANS: T
PTS: 1
6. One of the reasons that union membership in the United States has declined is the loss of jobs in
manufacturing industries such as auto and steel.
ANS: T
PTS: 1
7. Injunctions have been used by employers to prevent or discourage union activity.
ANS: T
PTS: 1
8. Firefighters and police officers almost always have the right to strike included in their contracts
because it is the only way they can have any bargaining power with an employer the size of the
government.
ANS: F
PTS: 1
9. While union membership has declined in the United States, it has increased in all other developed
countries.
ANS: F
PTS: 1
10. A union of bricklayers is an example of a craft union.
ANS: T
PTS: 1
11. Today, closed shops are generally illegal.
ANS: T
PTS: 1
12. The topics of collective bargaining negotiations are legally restricted to wages and hours of work.
ANS: F
PTS: 1
13. In general, unions reduce a manager’s freedom to act and make decisions.
ANS: T
PTS: 1
14. Over the years, the number of strikes, the number of workers involved in strikes, and the number of
days lost due to strikes in the United States have increased.
ANS: F
PTS: 1
15. As the production process becomes more automated, the effectiveness of strikes declines.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. Compared to most developed countries in the world, union membership in the United States is
a. high.
b. low.
c. similar to other English-speaking countries.
d. about the same.
ANS: B
PTS: 1
2. A significant feature of unions in European countries is
a. their low level of membership.
b. their close relationship with political parties.
c. their lack of money and other resources.
d. their low level of strike activity.
ANS: B
PTS: 1
3. The most common way in which a union comes into existence at a workplace in the United States is
a. the workers approve the union by majority vote in an election.
b. the government orders the establishment of the union.
c. the union requests to expand to that workplace, and the employer agrees.
d. company asks the union to organize its workers.
ANS: A
PTS: 1
4. Injunctions were used widely in the past to
a. force employers to accept unions in the workplace.
b. enable unions to collect membership dues from workers.
c. stop or prevent union activity in the workplace.
d. enable employers to hire workers who were union members.
ANS: C
PTS: 1
5. The purpose of a grievance procedure is to
a. enable workers to give suggestions to management.
b. help workers cope with death in the family.
c. ensure that disputes are settled peacefully.
d. prevent lockouts from occurring.
ANS: C
PTS: 1
6. The final step in a grievance procedure is
a. a strike.
b. a lockout.
ANS: D
c. a representation election.
d. arbitration.
PTS: 1
7. Money in the union strike fund comes from
a. donations from the general public.
b. grants made by state and federal governments.
c. contributions made by employers.
d. dues paid by union members.
ANS: D
PTS: 1
8. A strike is likely to be effective if
a. the unemployment rate is very high.
b. the work process is highly automated.
c. it is very difficult to replace striking workers.
d. the employer has built up a large stock of nonperishable supplies.
ANS: C
PTS: 1
9. Unions do not favor multinational firms mainly because such firms
a. can shift jobs to other countries.
b. pay lower wages to their workers.
c. violate the labor laws of the country in which they operate.
d. are less likely to lock workers out in the event of a dispute.
ANS: A
PTS: 1
10. Of the following industries, the highest level of union membership occurs in
a. services.
c. agriculture.
b. real estate.
d. construction.
ANS: D
PTS: 1
11. The labor policy of codetermination means that
a. companies determine labor policies.
b. union members serve on the boards of directors of corporations.
c. union officers are determined by a company election.
d. none of the above
ANS: B
PTS: 1
12. In the United States the AFL-CIO
a. uses its size and resources to affect legislation that affects its members.
b. is an organization of many unions.
c. consists of most unions in the United States today.
d. all of the above
ANS: D
PTS: 1
13. All of the following are reasons why union membership has declined in most countries except
a. manufacturing industries are such a large part of a country’s economy.
b. service businesses have become a larger part of most economies and unions have little
experience in organizing service industry workers.
c. working conditions in service businesses are very different from those in manufacturing
businesses.
d. governments have enacted legislation that protects workers.
ANS: A
PTS: 1
14. All of the following are legal ways an employer can discourage unions except
a. increase worker satisfaction with fair wages and safe working conditions.
b. enforce a lockout.
c. discipline union sympathizers.
d. prolong collective bargaining to discredit the union.
ANS: C
PTS: 1
15. In recent years there has been a trend for unions and employers to cooperate because
a. trained and experienced workers are an asset.
b. employees can demand better wages and conditions if the company is successful.
c. increased productivity tends to save jobs.
d. all of the above
ANS: D
PTS: 1
COMPLETION
1. A court order that immediately stops a person or group from carrying out a specific action is an
____________________.
ANS: injunction
PTS: 1
2. Negotiation between union workers and their employers on issues of wages, benefits, and working
conditions is ____________________ bargaining.
ANS: collective
PTS: 1
3. By law, German unions have representatives on the boards of directors of companies; this policy is
known as ____________________.
ANS: codetermination
PTS: 1
4. A workplace in which all workers must pay either union dues or a fee is a(n) ____________________
shop.
ANS: union
PTS: 1
5. A workplace in which workers are required to join a union before they are hired is a(n)
____________________ shop.
ANS: closed
PTS: 1
6. A workplace in which workers may choose to join the union or not is a(n) ____________________
shop.
ANS: open
PTS: 1
7. The steps that must be followed to resolve a complaint by an employee, the union, or the employer is a
____________________ procedure.
ANS: grievance
PTS: 1
8. ____________________ are unbiased third parties who are called in to resolve problems.
ANS: Arbitrators
PTS: 1
9. A ____________________ occurs when employers prevent employees from entering the workplace in
order to force a union to agree to certain demands.
ANS: lockout
PTS: 1
10. A ____________________ occurs when employees refuse to work to force an employer to agree to
certain demands.
ANS: strike
PTS: 1
SHORT ANSWER
1. How did the Industrial Revolution lead to the rise of unions?
ANS:
Working conditions were so bad that workers formed unions to try to improve the conditions.
PTS: 1
2. Why do U.S. national unions try to establish relationships with unions in other countries?
ANS:
Multinational unions may try to escape unions by transferring production to other countries.
Coordinated responses between these countries’ unions and U.S. unions is seen as a way to keep job
security of union members in the U.S.
PTS: 1
3. Why are supervisors and managers generally not included in union membership?
ANS:
Because unions exist to gain concessions from management on issues such as wages and working
conditions, they must negotiate with the supervisors and managers who are agents of the company.
PTS: 1
4. What are two reasons union membership is declining in the U.S.?
ANS:
Increase in service industry which has very different working conditions than manufacturing and the
increase in government legislation that protects workers’ rights make unions less necessary to protect
workers.
PTS: 1
5. Why do unions try to increase their membership?
ANS:
Union members pay dues, so the more union members there are, the more resources the union has to
work with.
PTS: 1
6. In what situation would a union probably be unnecessary?
ANS:
In a company in which workers feel secure in their jobs, believe their wages are fair, and enjoy safe
working conditions, there is probably no need for a union.
PTS: 1
ESSAY
1. Briefly describe the evolution of labor unions in the United States.
ANS:
Answers should include the following points:
(1) The first unions were of skilled workers trying to protect wage rates by preventing workers who
asked for low wages from getting hired. The AFL combined these craft unions to form a huge
national union.
(2) Large unions began in the 19th century during the Industrial Revolution when workers tried to
improve conditions in factories.
(3) The CIO was formed when the AFL wouldn’t admit unskilled factory workers to join.
(4) In 1955, the AFL and CIO merged to form the AFL-CIO. Most U.S. unions are members of this
organization.
PTS: 1
2. Describe three tools of labor negotiations.
ANS:
Answers should include the following:
(1) Grievance procedure: the process that must be followed to resolve a complaint by an employee,
the union, or the employer. It usually begins at the lowest level and moves to higher levels until
the two sides reach an agreement.
(2) Arbitration: An unbiased third party is called in to resolve problems and the decision is generally
final and binding on the union and the company.
(3) Strikes: In a strike, employees refuse to work to try to force an employer to agree to union
demands.
(4) Students may also refer to pickets, boycotts, and union campaigns to pressure employers.
PTS: 1
3. Explain why strikes have declined in the United States.
ANS:
Answers should include most of the following points:
(1) Decreasing union membership.
(2) Reluctance to risk loss of income and benefits.
(3) Arbitration is more common.
(4) Employers are better prepared for strikes and can continue to operate without the workers for a
period of time.
(5) Increased automation of manufacturing processes.
(6) More workers are available to defy a strike.
(7) Increased worker fear of permanent job loss.
PTS: 1
4. Would you would join a union or not? Explain your reasons.
ANS:
Because this question calls for an opinion, there is not a right or wrong answer; however, students are
required to provide reasons for their opinions.
(1) Reasons against joining a union could include: government laws protect workers, students have
an orientation favoring business management, fear of losing jobs or wages, unpleasant family
history of union experiences.
(2) Reasons in favor of joining a union could include: distrust of management, family background
favorably disposed toward unions, feelings that workers need to have some power, opinions that
the workplace is generally hostile.
PTS: 1
CHAPTER 13—INTERNATIONAL CAREER PLANNING
TRUE/FALSE
1. A career is an employment commitment to a profession that requires continued training and has a clear
path for advancement.
ANS: T
PTS: 1
2. The domestic job market refers to careers within the country in which a person lives.
ANS: T
PTS: 1
3. Geographic factors commonly influence the types of jobs available in a country.
ANS: T
PTS: 1
4. Visits to companies can reveal available jobs that are not advertised to the general public.
ANS: T
PTS: 1
5. A passport is used to prove the bearer’s citizenship in a country.
ANS: T
PTS: 1
6. The only reason for working is to earn money to pay for the physical necessities of living and for
desired luxuries.
ANS: F
PTS: 1
7. When faced with several job offers, the best offer to accept may not be the one that pays the most.
ANS: T
PTS: 1
8. A resume should list all of the classes you have taken.
ANS: F
PTS: 1
9. A passport allows a person to work in another country.
ANS: F
PTS: 1
10. Business attire, such as a suit, is almost always the most appropriate attire to wear to a job interview.
ANS: T
PTS: 1
11. Interviewers do not usually want job applicants to ask questions during an interview.
ANS: F
PTS: 1
12. The purpose of a follow-up letter after an interview is to resell yourself and stand out in a positive way
from others who were interviewed.
ANS: T
PTS: 1
13. As careers develop, people seek new challenges, increased responsibility, and greater rewards.
ANS: T
PTS: 1
14. Most people only have one or two different jobs in their entire lives.
ANS: F
PTS: 1
15. General education courses such as geography, history, and mathematics are important to succeed in a
career in international business.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. An example of a career rather than a job is
a. part-time employment after school with an exporting company.
b. a summer internship with a multinational company that sells food products in 56 countries.
c. a regional sales manager position for a health care company.
d. summer work as an office clerk for an importing business.
ANS: C
PTS: 1
2. The Occupational Outlook Handbook is designed to
a. inform people of jobs available with the federal government.
b. provide information about jobs in various career areas.
c. explain the process of working for a multinational company.
d. assist students who wish to obtain a summer internship.
ANS: B
PTS: 1
3. The purpose of an informational interview is to
a. gather information about a career or organization.
b. obtain a part-time job.
c. acquire on-the-job training.
d. review the performance of a worker.
ANS: A
PTS: 1
4. Job creation refers to
a. inventing an employment position based on your skills.
b. new jobs resulting from technology.
c. employment based on trade among countries.
d. hiring a person from one country to work in another country.
ANS: A
PTS: 1
5. Items that are least likely to be included on a resume are
a. school activities.
c. school grades.
b. community service projects.
d. career-oriented classes completed.
ANS: C
PTS: 1
6. An example of on-the-job training would be
a. a summer Asian politics course at a local college.
b. a global economics seminar with employees from several companies.
c. an internship program with an exporting company.
d. an international company tour for students from different nations.
ANS: C
PTS: 1
7. All of the following are steps in the career planning process except
a. obtaining additional education and training after you begin a career to prepare for possible
career or company changes.
b. determining what kinds of jobs are available.
c. creating an Internet web site to promote a personal interest.
d. assessing your abilities.
ANS: C
PTS: 1
8. Using the Internet to search for a job
a. never costs anything.
b. includes posting your resume for employers to review.
c. only applies to technical or computer-related jobs.
d. all of the above
ANS: B
PTS: 1
9. Career choice and the availability of different kinds of jobs are affected by several factors including
a. demographics, such as an increase in average life span.
b. economic conditions such as changing consumer demands.
c. personal factors such as the education and experience required for a specific job.
d. all of the above
ANS: D
PTS: 1
10. The experience section of a resume should include all of the following except
a. a description of the major job duties of past jobs held.
b. the salary earned in past jobs held.
c. employers’ names and addresses for current and past jobs.
d. community service activities that were similar to a job.
ANS: B
PTS: 1
11. A resume should include all of the following information except
a. past job duties described using action verbs.
b. awards and honors.
c. specific courses that are relevant to the job.
d. marital background.
ANS: D
PTS: 1
12. It is useful to bring a personal data sheet to an employment interview because
a. the information can be used to fill out a job application form accurately.
b. you might not have prepared a resume.
c. the employer may ask for one.
d. none of the above
ANS: A
PTS: 1
13. The chances of having a successful employment interview are increased if you
a. do practice interviews to improve your skills.
b. arrive early and try to relax.
c. research the company and prepare questions to ask the interviewer.
d. all of the above
ANS: D
PTS: 1
14. People can prepare for international careers by
a. strengthening their foundational skills.
b. traveling in foreign countries.
c. improving leadership and administration skills.
d. all of the above
ANS: D
PTS: 1
15. Networking with international professionals can be achieved by
a. joining a professional organization that has members with international experience.
b. talking with expatriates who have recently returned from international assignments.
c. interact with people from other countries who live and work in the immediate area.
d. all of the above
ANS: D
PTS: 1
COMPLETION
1. A ____________________ is an employment position obtained mainly for money.
ANS: job
PTS: 1
2. A ____________________ is a commitment to a profession that requires continuing education and
training and has a clear path for advancement.
ANS: career
PTS: 1
3. The ____________________ employment market consists of the jobs that are within one country.
ANS: domestic
PTS: 1
4. An ____________________ interview is a meeting with another person to gather information about a
career or organization.
ANS: informational
PTS: 1
5. A ____________________ is a meeting at which employers pay for time and space to provide
information about jobs available at their companies.
ANS: job fair
PTS: 1
6. A ____________________ is a written summary of a person’s education, training, work experience,
and other job qualifications.
ANS: resume
PTS: 1
7. People who can report to a prospective employer about your abilities and work experience are your
____________________.
ANS: references
PTS: 1
8. A ____________________ letter should be sent with your resume to communicate your interest in a
specific employment position.
ANS: application
PTS: 1
9. A ____________________ interview is an initial meeting to select finalists from the applicant pool for
an available position.
ANS: screening
PTS: 1
10. A ____________________ interview is a meeting where a person is asked a series of in-depth
questions designed to help employers select the best person for a job.
ANS: selection
PTS: 1
SHORT ANSWER
1. List five sources of career information.
ANS:
Answers should include five of the following: library materials, media, personal and business contacts,
informational interviews, job fairs, professional associations, community organizations, the Internet.
PTS: 1
2. List five factors that influence the availability of jobs.
ANS:
Personal factors, demographic trends, geographic influences, economic conditions, and industry
trends.
PTS: 1
3. What information about previous work experience should be included on a resume?
ANS:
Position titles, major job duties, employment dates, and employers; names and addresses for current
and past jobs.
PTS: 1
4. Distinguish between a passport, a visa, and a work visa.
ANS:
A passport proves citizenship and a visa stamped on a passport allows entry into a country. A work
visa allows a person to enter a country for the purpose of employment.
PTS: 1
5. Why is it important to be sure your resume and application letter are well-printed and proofread?
ANS:
Your resume and application letter represent you to the prospective employer. Poorly prepared
documents would suggest that you are a careless worker.
PTS: 1
6. What are some sources for networking with people about international careers?
ANS:
People from other countries who live and work in the immediate area, employees of companies with
international operations, professional organizations, and expatriates who have recently returned from
international assignments.
PTS: 1
ESSAY
1. How does a person plan for personal career development?
ANS:
Answers should include the following points:
(1) Workers should continually evaluate their future.
(2) Personal goals and employment opportunities change.
(3) Workers may want to obtain further education and training for advancement and other career
opportunities.
(4) Certain jobs may be eliminated by technology, economic conditions, or other factors, requiring
finding a new career.
PTS: 1
2. Describe three ways the Internet can be used to explore career information or obtain a job.
ANS:
Answers should include three of the following:
(1) Company web sites include current job openings and career information.
(2) Job search engines can give career information or allow applicants to post their resumes.
(3) Professional associations can be located.
(4) Newsgroups for particular professions may provide career information.
PTS: 1
3. What is the purpose of a job application letter and what should it include?
ANS:
Answers should include the following points:
(1) Purpose is to communicate interest in a specific position and create enough interest that you obtain
an interview.
(2) First paragraph should get the reader’s attention, express interest, and communicate why the
employer should consider you.
(3) Second paragraph should highlight qualifications for the position.
(4) Third paragraph should ask for a meeting and give specific contact information.
PTS: 1
4. What should you do after a selection interview for a job is completed?
ANS:
Answers should include the following points:
(1) Write a follow-up letter to resell yourself and let the employer know that you are interested.
(2) Evaluate your interview performance by considering ways you can improve and prepare answers
for questions you did not expect to be asked to be ready for future interviews.
PTS: 1
CHAPTER 14—INFORMATION NEEDS FOR GLOBAL BUSINESS ACTIVITIES
TRUE/FALSE
1. An extensive information system can give a business a competitive advantage over competitors.
ANS: T
PTS: 1
2. Information systems are the same in domestic and international businesses.
ANS: F
PTS: 1
3. The two kinds of data inputs in an information system are internal organization inputs and external
environment inputs.
ANS: T
PTS: 1
4. Statistical analysis and forecasting are examples of application systems.
ANS: T
PTS: 1
5. System outputs consist of the data put into an information system.
ANS: F
PTS: 1
6. Product management outputs in an information system are important because they help managers share
information more effectively.
ANS: F
PTS: 1
7. Top-level managers should be involved in planning global information systems because they
contribute a vision of the organizational future and can support the development of the system so that
the whole organization understands its value.
ANS: T
PTS: 1
8. A global information system usually evolves over time and requires continual maintenance and
refinement.
ANS: T
PTS: 1
9. Language differences between different countries do not create a problem for a global information
system as long as the languages are translated correctly.
ANS: F
PTS: 1
10. Obtaining information from workers in other countries about the effectiveness of a company’s
management may be difficult due to cultural attitudes toward criticizing authority.
ANS: T
PTS: 1
11. Managers in different countries all need the same financial statements so an information system only
needs to provide one set of the statements for each manager.
ANS: F
PTS: 1
12. Secondary data are data that are collected by the user for a specific purpose.
ANS: F
PTS: 1
13. When one country measures a wheat crop by the truckload and another country measures the wheat
crop by the ton, data comparability exists.
ANS: F
PTS: 1
14. Technology issues are generally not a concern if a company has total control over the process.
ANS: T
PTS: 1
15. Differing attitudes toward privacy rights can affect the quality of data gathered.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. External data inputs include all of the following except
a. market research.
c. inventory records.
b. economic trends.
d. information about competitors.
ANS: C
PTS: 1
2. A global information system must be designed so that it
a. operates for all the languages in the countries involved.
b. considers cultural differences.
c. adjusts to different currencies.
d. all of the above
ANS: D
PTS: 1
3. Operational components of an information system include
a. database management, user interface systems, application systems, and reporting systems.
b. product management, communication, sales management, and senior management outputs.
c. data inputs, data outputs, and icons.
d. all of the above
ANS: A
PTS: 1
4. The information needs of an international business can be different in different locations because
a. the countries may have different tax systems.
b. currency exchange rates may fluctuate.
c. governments may regulate international businesses in different ways.
d. all of the above
ANS: D
PTS: 1
5. Systems controls, application systems, and reporting systems are types of
a. data inputs.
c. user interface systems.
b. operational components.
d. none of the above
ANS: B
PTS: 1
6. The roles of managers regarding a global information system include
a. stressing to the management information systems department the urgency in completing
the global information system.
b. understanding that a global information system evolves over time and requires continual
maintenance and refinement.
c. completing a system that meets all information needs when the system is launched.
d. none of the above
ANS: B
PTS: 1
7. One branch manager uses informal interviews with selected customers and another branch manager
uses a written questionnaire to gather data about customer satisfaction. The data gathered by the two
managers
a. probably does not pass the test of data reliability.
b. probably does not pass the test of data validity.
c. probably does not pass the test of data comparability.
d. none of the above
ANS: C
PTS: 1
8. When a host country does not have sufficient technological infrastructure to support a global
information system
a. a technology issue is involved.
b. a company may have to transmit less information to that country.
c. a company may have to transmit information to that country more slowly.
d. all of the above
ANS: D
PTS: 1
9. A common roadblock to technological advancement in another country is
a. unemployment.
c. overpopulation.
b. inadequate telephone systems.
d. reengineering.
ANS: B
PTS: 1
10. An example of an external environment input is
a. customer records.
c. market research.
b. shipping records.
d. bank account records.
ANS: C
PTS: 1
11. Businesses often use secondary data because
a. it is usually better than primary data.
b. it may not be feasible to gather certain information firsthand.
c. if it is from a government agency it is better than what the organization can collect itself.
d. because it has data validity.
ANS: B
PTS: 1
12. One problem with a global information system is the communication technology; communication
technology worldwide can be a problem when
a. a country’s communications infrastructure does not support high-speed data transmission.
b. a country insists that guest companies use only locally-manufactured computers.
c. the organization does not have full control of the information systems process in a
country’s office.
d. all of the above
ANS: D
PTS: 1
13. When a multinational organization encounters unusually high costs for transmitting data to and from a
particular country, the best strategy is to
a. increase product costs to cover the communications cost.
b. pay the cost to keep that country’s part of the system as good as all other countries.
c. consider sacrificing some parts of the system to be cost-effective.
d. none of the above
ANS: C
PTS: 1
14. Two teams of census takers in a country are measuring what percentage of the population is literate.
One team just asks people if they can read. The other team asks each person to read a paragraph and
answer a question about it. The data gathered will not pass the quality test of
a. reliability.
c. validity.
b. comparability.
d. all of the above
ANS: A
PTS: 1
15. Many countries have passed or are considering regulations about data transfers across their borders
because of concerns about
a. privacy rights.
c. national sovereignty.
b. national security.
d. all of the above
ANS: D
PTS: 1
COMPLETION
1. A ____________________ information system is a computer-based system that provides information
about company operations around the world to managers of a multinational organization.
ANS: global
PTS: 1
2. A global information system includes data inputs, operational components, and
____________________.
ANS: system outputs
PTS: 1
3. Data inputs are those pieces of ____________________ that feed the global information system
database.
ANS: information
PTS: 1
4. The parts of an information system that manage the database and system operations are the
____________________ components.
ANS: operational
PTS: 1
5. ____________________ are symbols that are meaningful across cultures.
ANS: Icons
PTS: 1
6. ____________________ occurs in an organization when managers at company headquarters make
most of the major decisions.
ANS: Centralization
PTS: 1
7. Data that are collected by the user firsthand for a specific purpose are ____________________ data.
ANS: primary
PTS: 1
8. Data that are not collected by the user but that are available for his or her use are
____________________ data.
ANS: secondary
PTS: 1
9. Data ____________________ exists if both the data gatherer and the data user define the things that
are measured in the same way.
ANS: validity
PTS: 1
10. Data ____________________ refers to the extent to which secondary data from different sources are
measured, computed, and reported in the same ways.
ANS: comparability
PTS: 1
SHORT ANSWER
1. Distinguish between internal organization inputs and external environment inputs.
ANS:
Internal organization inputs are information from company records such as transactions, shipping
records and customer and inventory records; external environment inputs include information outside
the company such as market research, industry and economic trends, and competitor information.
PTS: 1
2. What is the relationship between the data inputs and the operational components of an information
system?
ANS:
The data inputs and the operational components work together to generate the system outputs.
PTS: 1
3. What is the purpose of user interface systems?
ANS:
To allow access to data and analytical tools.
PTS: 1
4. What are system outputs and how are they used?
ANS:
System outputs are the various types of data generated from an information system. Managers in
different areas of the organization use the data to make decisions.
PTS: 1
5. What does "garbage in and garbage out" mean in regards to a global information system?
ANS:
"Garbage in" refers to system inputs (data) that are of low quality so that the system outputs ("garbage
out") is also of low quality.
PTS: 1
6. What is the advantage of decentralization in a global business?
ANS:
Decentralization means that local managers make most major decisions; therefore decentralization
favors the effects of local conditions when making decisions.
PTS: 1
ESSAY
1. Why is information valuable?
ANS:
Answers should include the following concepts:
(1) Good information is necessary for making good decisions.
(2) Information is a strategic resource that allows businesses to position themselves favorably in the
international marketplace to attain their goals and objectives.
(3) Information provides a competitive advantage if it is the right information in the right form and at
the right time.
PTS: 1
2. Why is a global information system more difficult to develop than a domestic system?
ANS:
Answers should include most of the following points:
(1) Multiple languages.
(2) Significantly different cultures.
(3) Unique governments and business regulations.
(4) Different currencies.
(5) Multiple infrastructures.
(6) Multiple countries on multiple continents.
(7) Multiple time zones.
PTS: 1
3. How do different languages, cultures, and business environments affect the system outputs of a global
information system?
ANS:
Answers should include the following points:
(1) Managers in different countries will have different information needs.
(2) System outputs need to reflect the languages, cultures, and business environments of managers in
different countries.
(3) The same or similar reports will have to be prepared different units, languages, and currencies,
increasing the volume and redundancy of information that must be generated.
PTS: 1
4. Explain the problems with relying on secondary data.
ANS:
Answers should include the following concepts:
(1) Secondary data may be gathered by a variety of different organizations using different
measurements, definition of the problem and different ways of reporting.
(2) Users have more faith in the quality of the information they gather themselves because they know
its strengths and weaknesses.
(3) There is more risk from using inaccurate information than from primary data.
PTS: 1
CHAPTER 15—PRODUCTION SYSTEMS FOR GLOBAL BUSINESS
TRUE/FALSE
1. The three phases of the production process are forecasting, scheduling, and inventory control.
ANS: F
PTS: 1
2. Just-in-time (JIT), a method of inventory control, allows companies to respond quickly to changes in
the marketplace.
ANS: T
PTS: 1
3. Total quality control often results in an increase in the work ethic of employees as well as improved
product quality.
ANS: T
PTS: 1
4. Goods produced by manual production, such as handmade sweaters and quilts, are sometimes more
valuable than the same items made by machine.
ANS: T
PTS: 1
5. Schools, hospitals, and restaurants are examples of service industries.
ANS: T
PTS: 1
6. A country’s monetary system, tax structure, economic conditions, and availability of materials affect
the capital resources of a company.
ANS: T
PTS: 1
7. Forecasting is often based on previous sales figures.
ANS: T
PTS: 1
8. In some cases, manual production is necessary because machines cannot do the work and in other
cases machines are necessary because people cannot do the work.
ANS: T
PTS: 1
9. It is safer and more efficient to have humans, rather than robots, perform very repetitious or very
dangerous tasks.
ANS: F
PTS: 1
10. Manual production is still used in many parts of the world—especially in less developed countries.
ANS: T
PTS: 1
11. The two measures of production output are productivity and quality control.
ANS: T
PTS: 1
12. Industries establish standards for their products to maintain quality control.
ANS: T
PTS: 1
13. People working in teams need to safeguard and emphasize their own individual accomplishments to be
successful.
ANS: F
PTS: 1
14. The main advantage of a cross-functional team approach to problem-solving is that multiple points of
view are brought to solving the problem.
ANS: T
PTS: 1
15. A grocery store that provides stations at which customers scan and pay for their own groceries is using
tailored logistics.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. Transformation occurs when
a. a restaurant chef cooks a gourmet meal for a customer.
b. a robot tightens a bolt on a nut on an assembly line.
c. a doctor gives a physical examination.
d. all of these
ANS: D
PTS: 1
2. Producing a good or service at the lowest cost while maintaining high quality is the goal of
a. forecasting.
c. operations management.
b. a product standard.
d. tailored logistics.
ANS: C
PTS: 1
3. Industry uses computerized production to
a. increase the efficiency of transformation.
b. decrease employees’ work ethic.
c. spy on competitors.
d. market products.
ANS: A
PTS: 1
4. The amount of work that can be accomplished in a unit of time is
a. synchronized manufacturing.
c. forecasting.
b. the production process.
d. productivity.
ANS: D
PTS: 1
5. A company that monitors work flow and distributes it as needed throughout the production cycle
according to output demands is using
a. synchronized manufacturing.
c. forecasting.
b. the production process.
ANS: A
d. productivity.
PTS: 1
6. A strategy for meeting consumers’ needs that combines services with a product is called
a. the service industry.
c. tailored logistics.
b. total quality control (TQC).
d. quality control.
ANS: C
PTS: 1
7. The trend toward using electronic devices that are smaller, faster, more complete, and more connected
is characteristic of
a. manual production.
c. synchronized manufacturing.
b. input.
d. office production.
ANS: D
PTS: 1
8. Resources that are input to the transformation process include
a. schedules and forecast.
b. machines, processes, and facilities.
c. natural, human, and capital resources.
d. manual, automated, and computerized resources.
ANS: C
PTS: 1
9. An area of evolving production in which computers guide the entire manufacturing process, from
product design through packaging, is called
a. computer-integrated manufacturing (CIM).
b. synchronized manufacturing.
c. transformation.
d. just-in-time (JIT) systems.
ANS: A
PTS: 1
10. The technology involved in the use of machines to perform work that is extremely precise, repetitive,
or dangerous is called
a. tailored logistics.
c. computerized production.
b. manual production.
d. robotics.
ANS: D
PTS: 1
11. The major elements of the production process are
a. natural resources, human resources, and capital resources.
b. forecasting, scheduling, and inventory control.
c. resources, transformation, and final goods and services.
d. none of these
ANS: C
PTS: 1
12. Many developing countries must continue to use manual production systems because
a. handmade items are considered more valuable than machine-made items.
b. machines would replace workers and lead to high unemployment.
c. it was the earliest means of production.
d. they may not be able to afford the initial cost of machinery.
ANS: D
PTS: 1
13. The manufacturing system in which computers are used to run production equipment is called
a. computer-assisted manufacturing (CAM).
b. robotics.
c. automated warehouses.
d. computer-integrated manufacturing (CIM).
ANS: A
PTS: 1
14. Productivity can be increased by
a. replacing an older, slower machine with a newer, faster one.
b. using just-in-time inventory control.
c. distributing the workflow as needed throughout the production cycle.
d. all of these
ANS: D
PTS: 1
15. An automated warehouse
a. uses computers to store large databases of inventory information.
b. may use robots to disperse merchandise to trucks for delivery.
c. often has bar codes on products so that items can be scanned.
d. all of the above
ANS: D
PTS: 1
COMPLETION
1. Raw materials are turned into finished goods in the ____________________ process.
ANS: production
PTS: 1
2. An operations manager uses ____________________ to determine how much of a product to produce.
ANS: forecasting
PTS: 1
3. The funds and materials necessary to produce a good or service is known as ____________________
resources.
ANS: capital
PTS: 1
4. A method of monitoring the amount of raw materials and completed goods on hand is called
____________________ control.
ANS: inventory
PTS: 1
5. A ____________________ is a computerized output device that can perform difficult, repetitive, or
dangerous work in industrial settings.
ANS: robot
PTS: 1
6. ____________________ manufacturing involves distributing the workflow as needed throughout the
production cycle according to output demands.
ANS: Synchronized
PTS: 1
7. The process of measuring goods and services against a product standard is called
____________________.
ANS: quality control
PTS: 1
8. A _________________________ team is one with members from various aspects of an organization,
such as marketing, finance, and production.
ANS: cross-functional
PTS: 1
9. Combining services with a product to better serve consumers is known as
_________________________.
ANS: tailored logistics
PTS: 1
10. An approach to quality control that requires every employee, not just the quality-control inspectors, to
take responsibility for high-quality production is known as _________________________.
ANS: total quality control
PTS: 1
SHORT ANSWER
1. How does the production process continue even after the transformation of resources into a product?
ANS:
Consumer response and external factors such as the economy affect input as the production cycle
continues.
PTS: 1
2. What are the advantages when machines perform work instead of humans?
ANS:
A machine can perform tasks quickly and precisely without becoming bored by repetition. Machines
may be able to do some work that humans cannot do. Machines also allow workers to shift to more
complex tasks.
PTS: 1
3. Distinguish between computer-assisted and computer-integrated manufacturing.
ANS:
Computer-assisted manufacturing uses computers to run production equipment while
computer-integrated manufacturing uses computers to guide the entire manufacturing process.
PTS: 1
4. Describe the production process in one sentence.
ANS:
Natural, human, and capital resources are transformed by machines, processes, or facilities into goods
and services.
PTS: 1
5. What is the relationship between the development status of a country and manual and automated
production systems?
ANS:
The less developed the country, the more manual production systems are used. Developing countries
may also depend heavily on manual production because of the initial cost of equipment.
PTS: 1
6. What is meant by an "integrated system" in an office?
ANS:
An integrated system consists of numerous pieces of equipment, such as a computer, the Internet, and
a scanner, linked together to improve the efficiency of office workers.
PTS: 1
ESSAY
1. What are natural resources and why are they important to the production process?
ANS:
Answers should include the following concepts:
(1) Natural resources are what come from the air, water, or earth, such as fish, minerals, and
agricultural products.
(2) Companies need natural resources to manufacture products.
(3) The availability of natural resources should be researched before choosing a site for manufacturing
facilities.
(4) Some countries, concerned about depletion of resources, may place restrictions on the use of
natural resources.
PTS: 1
2. Describe four ways productivity can be increased.
ANS:
Answers should include:
(1) Making a change in the work pattern or process, such as using boilerplate text in word processing
programs to create similar documents.
(2) Making a capital investment such as buying a faster or newer machine to replace an outdated one.
(3) Using just-in-time inventory control to limit product inventory.
(4) Using synchronized manufacturing to distribute workflow as it is needed.
PTS: 1
3. Describe four skills that are necessary to successfully work on a team.
ANS:
Answers should include four of the following:
(1) Ability to work with others who have different experiences and come from different cultural
settings.
(2) Enthusiasm to focus on team needs rather than individual accomplishments.
(3) Readiness to cooperate with shared leadership roles.
(4) Competency to participate in group decision making and divide tasks among team members.
(5) Willingness to compromise for the benefit of the team’s goals.
PTS: 1
4. How can production output be measured in the service industry?
ANS:
Student answers should include most of the following points:
(1) Production output should be measured the same way in the service industry as in manufacturing:
by productivity and quality control.
(2) Productivity: the number of times a service is provided or the number of customers to whom a
service is provided could be measured.
(3) Quality control: customer satisfaction and quality of service can have set standards for measuring
the quality, although it is less tangible than for manufactured goods. Customers can be surveyed,
the number of customers served counted, or the number of repeat customers can be measured.
Students may have additional suggestions.
PTS: 1
CHAPTER 16—GLOBAL MARKETING AND CONSUMER BEHAVIOR
TRUE/FALSE
1. A person’s income is an example of an emotional need that influences consumer behavior.
ANS: F
PTS: 1
2. Production is an example of a marketing activity.
ANS: F
PTS: 1
3. Businesses often expand into other countries to develop new markets to maintain and expand profits.
ANS: T
PTS: 1
4. Computer networks, the Internet, video teleconferencing, and other advances in communications
systems have had little impact on international business.
ANS: F
PTS: 1
5. Automated production systems usually make it more difficult for a company to set up a manufacturing
plant in another country.
ANS: F
PTS: 1
6. Several countries that used to have communist governments are interested in new trading partners in
other parts of the world in order to achieve economic growth.
ANS: T
PTS: 1
7. A person’s age and income are examples of demographic data.
ANS: T
PTS: 1
8. Advertising, pricing, and distribution of services are the same as for the marketing of goods.
ANS: F
PTS: 1
9. A product is usually sold at the same price everywhere in the world, although the price is converted to
the local currency.
ANS: F
PTS: 1
10. The infrastructure of a country can affect the marketing plan.
ANS: T
PTS: 1
11. Usually, advertising for a product can be the same in every country as long as the language is changed.
ANS: F
PTS: 1
12. Food is a physical need that influences consumer behavior.
ANS: T
PTS: 1
13. Consumer demand can be affected by high inflation.
ANS: T
PTS: 1
14. Consumers in different countries may have different personality and psychographic factors, but
consumer physical and emotional needs are the same in all countries.
ANS: F
PTS: 1
15. A company frequently defines a target market for its products and then attempts to meet the specific
needs of the customers in that target market.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. Marketing includes each of the following activities, except
a. advertising.
c. manufacturing.
b. packaging.
d. shipping.
ANS: C
PTS: 1
2. An example of a commercial market is
a. a family.
b. a student.
ANS: C
c. a hospital.
d. a household.
PTS: 1
3. A factor that could describe a nation’s demographics is
a. educational level.
c. social values.
b. political system.
d. technology.
ANS: A
PTS: 1
4. An example of a distribution activity of a business is
a. advertising.
c. pricing.
b. wholesaling.
d. sales promotions.
ANS: B
PTS: 1
5. A political influence of the marketing environment would be a nation’s
a. population distribution.
c. type of government.
b. religious beliefs.
d. system of schools.
ANS: C
PTS: 1
6. Acceptance by others is
a. a demographic influence on consumer behavior.
b. an emotional influence on consumer behavior.
c. a political influence on consumer behavior.
d. a geographic influence on consumer behavior.
ANS: B
PTS: 1
7. Buying influences, such as hobbies, family activities, interests, and opinions, are called
a. psychographics.
c. personality traits.
b. demographics.
d. physical needs.
ANS: A
PTS: 1
8. All of the following would be included in a person’s psychographic profile except
a. climate.
c. hobbies.
b. political opinions.
d. leisure activities.
ANS: A
PTS: 1
9. Economic conditions in a country can affect a product’s
a. selling price.
c. profits.
b. consumer demand.
d. all of the above
ANS: D
PTS: 1
10. A person’s psychographic profile may include information about
a. food preferences, age, gender, and education level.
b. hobbies, family activities, work interests, and social opinions.
c. political opinions, attitudes about risk and change, and climate.
d. none of the above
ANS: B
PTS: 1
11. A market segment can be defined by
a. psychographics and demographics.
b. hobbies, family activities, work interests, or social opinions.
c. product benefits.
d. all of the above
ANS: D
PTS: 1
12. In the marketing mix, the element of product involves all of the following considerations except
a. whether the product is a good or a service.
b. how local customs or attitudes affect the popularity of the product.
c. how the product will be shipped to the customer.
d. whether the product can be sold in a standardized form or will need to be adapted to local
situations.
ANS: C
PTS: 1
13. In the marketing mix, the element of distribution involves all of the following considerations except
a. where the product will be stored prior to shipping to another country.
b. how the retailer will display the product after it is received from the wholesaler.
c. how to send products ordered from the company’s web site on the Internet.
d. whether to sell the product directly to wholesalers, retailers, or consumers.
ANS: B
PTS: 1
14. The marketing of services is usually similar to the marketing of goods except for
a. price.
c. promotion.
b. distribution.
d. technological trends.
ANS: B
PTS: 1
15. An example of a consumer market is
a. people who like to buy expensive sports cars.
b. people who want to rent office space to start a business.
c. wholesalers who purchase goods to resell to retailers.
d. companies that purchase parts for making radios.
ANS: A
PTS: 1
COMPLETION
1. Likely customers for a good or service in a certain geographic location are known as a
____________________.
ANS: market
PTS: 1
2. The monetary value of the product agreed upon by a buyer and a seller is the ____________________.
ANS: price
PTS: 1
3. When a company does ____________________, it engages in marketing efforts that inform and
persuade customers.
ANS: promotion
PTS: 1
4. The particular market segment that a company plans to serve is the ____________________ market.
ANS: target
PTS: 1
5. The buyers who purchase items for resale or for additional production make up the
____________________ market.
ANS: organizational
PTS: 1
6. Individuals and households who are the final users of goods and services make up the
____________________ market.
ANS: consumer
PTS: 1
7. Product, price, distribution, and promotion are the four major elements of the
_________________________.
ANS: marketing mix
PTS: 1
8. A distinct subgroup of customers who share certain personal or behavioral characteristics is known as
a market ____________________.
ANS: segment
PTS: 1
9. The marketing function that includes the activities needed to physically move and transfer ownership
of goods and services to a consumer is called ____________________.
ANS: distribution
PTS: 1
10. ____________________ refers to the traits of a country’s population, such as birthrate, education, and
gender distribution.
ANS: Demographics
PTS: 1
SHORT ANSWER
1. Why are organizational markets important to a country?
ANS:
Organizational markets create more factories and start companies, creating jobs. Income earned by
employees contributes to increased consumer spending, resulting in economic expansion.
PTS: 1
2. What must a product be able to do to be accepted by consumers?
ANS:
A product must be able to satisfy a want or need of consumers to be accepted.
PTS: 1
3. How do promotional activities vary in global marketing from those in domestic marketing?
ANS:
In global marketing, promotion must consider different languages and customers in the countries being
targeted.
PTS: 1
4. How does the distribution of services differ from the distribution of goods?
ANS:
Services are generally produced at the time of consumption while goods are usually produced and then
marketed for consumption.
PTS: 1
5. How do the physical needs of consumers affect marketing in countries at different stages of economic
development?
ANS:
Consumers in less developed countries may be able to focus only on goods and services that fulfill
basic physical needs such as air, water, food, and shelter. In developed countries, consumers may more
easily meet basic physical needs and be able to purchase products that appeal to other kinds of needs.
PTS: 1
6. Distinguish between demographics and psychographics.
ANS:
Demographics is concerned with population characteristics such as location, age, and education while
psychographics deals with emotional and psychological elements.
PTS: 1
ESSAY
1. Describe three trends that are increasing global marketing opportunities.
ANS:
Answers should include three of the following trends:
(1) Expanded communications with computer networks, Internet, video teleconferencing and so on
allow companies to respond to requests from customers all over the world quickly.
(2) Technology advances in production and distribution facilitate shipment of goods all over the
world.
(3) Changing political situations have made most countries welcome business firms looking for new
markets.
(4) Increased competition requires companies to be creative and efficient when selling around the
world.
(5) Changing demographics create new and different marketing opportunities.
PTS: 1
2. Describe the four main elements of the marketing environment.
ANS:
Answers should include the following points:
(1) Geography is the climate and terrain of a country that affects the types of products sold and how
they can be delivered.
(2) Economic conditions refer to the rate of inflation and value of a country’s currency because both
affect selling price, consumer demand, and profits.
(3) Social and cultural influences, such as tastes, habits, customs, and religious beliefs can affect how
products are promoted and how they are accepted by consumers in different countries.
(4) Political and legal factors can affect what kinds of marketing activities are permitted in a country.
PTS: 1
3. Describe the concept of a market segment and explain why companies target specific market segments.
ANS:
Answers should include the following points:
(1) A market segment is a distinct subgroup of customers who share certain personal or behavior
characteristics.
(2) Companies target specific market segments in order to focus their marketing efforts on the
particular needs, wants, attitudes, and buying habits of one group. The marketing plan for one
group can be more carefully focused than trying to market to a wider group with varying needs,
wants, attitudes, and buying habits.
PTS: 1
4. What should the time line section of a marketing plan include and why is it important?
ANS:
Answers should include the following points:
(1) A time line should describe when each part of the marketing effort should occur.
(2) Timing is important because a product can be launched too early or too late, such as when
promotion builds demand for a product that is not yet ready or when products are launched too late
and competitors or other products fill the demand.
PTS: 1
CHAPTER 17—DEVELOPING GOODS AND SERVICES FOR GLOBAL
MARKETS
TRUE/FALSE
1. Specialty goods are unique products that consumers are willing to make a special effort to obtain.
ANS: T
PTS: 1
2. Because services are intangible, consumers find it more difficult to compare quality.
ANS: T
PTS: 1
3. More than half of all new products fail within one year.
ANS: T
PTS: 1
4. A focus group may be used for qualitative research.
ANS: T
PTS: 1
5. A product that is a convenience good in one country could be a shopping good in another country.
ANS: T
PTS: 1
6. Packaged frozen foods that include vegetables, desserts, entrees, and complete meals are an example
of a product line.
ANS: T
PTS: 1
7. In the United States, more people work in service industries than in manufacturing industries.
ANS: T
PTS: 1
8. Primary data are always a better source of marketing information than secondary data.
ANS: F
PTS: 1
9. Marketing reports in a company library are examples of secondary data.
ANS: T
PTS: 1
10. A test market is a type of experimental research.
ANS: T
PTS: 1
11. It is common to use a brand for a product that is a good, but it isn’t possible to give a service a brand
name.
ANS: F
PTS: 1
12. Sometimes a national brand can become a global brand.
ANS: T
PTS: 1
13. Companies are usually more concerned with making the package of a product easy to use than to
capture the attention of customers.
ANS: F
PTS: 1
14. Most products can expect a product life cycle of several years or more, but electronic products
frequently have a life cycle that can be measured in months.
ANS: T
PTS: 1
15. Companies frequently discontinue a product when sales continue to decline in order to focus on more
profitable products.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. An example of a specialty good is
a. toothpaste.
b. jewelry from well-known firms.
ANS: B
c. a camera.
d. a candy bar.
PTS: 1
2. Of the following items, the one that is not an example of secondary data is a
a. consumer behavior survey you will conduct.
b. library index.
c. published government report.
d. computerized database available on the software market.
ANS: A
PTS: 1
3. Qualitative research is best conducted with
a. a focus group.
b. an observational study.
ANS: A
c. an experiment.
d. secondary data.
PTS: 1
4. The stages a product goes through from the time it is introduced until it is taken off the market is
called the
a. new-product development process.
c. marketing research process.
b. product line assortment.
d. product life cycle (PLC).
ANS: D
PTS: 1
5. The stage of the product life cycle in which sales are increasing and profits are starting is the
a. maturity stage.
c. growth stage.
b. introduction stage.
d. decline stage.
ANS: C
PTS: 1
6. In the maturity stage of the product life cycle,
a. sales start to level off.
c. new competitors enter the market.
b. profits decline sharply to zero.
ANS: A
d. profits are starting to grow.
PTS: 1
7. The marketing goal of satisfying needs that have not been met can be achieved in all of the following
ways except
a. by selling the product in a country in which it has never been sold before.
b. by adding a new variation to an existing product.
c. by changing the price of a product.
d. by promoting a new use for an existing product.
ANS: C
PTS: 1
8. A personal computer for home use is
a. a convenience good.
b. a shopping good.
ANS: B
c. a specialty good.
d. an intangible good.
PTS: 1
9. All of the following are examples of the special marketing efforts required for services except
a. convenience of location.
b. the business’s image.
c. the uniformity of the product.
d. the clothing or uniforms worn by employees.
ANS: C
PTS: 1
10. Companies produce new products for all of the following reasons except
a. old products become unpopular with customers.
b. competitors enter the market and attract customers.
c. sales decline because the product becomes obsolete.
d. all of these are reasons for producing new products.
ANS: D
PTS: 1
11. In the second step in the new-product development process, evaluating product ideas,
a. marketing research is conducted to measure customer attitudes and potential sales.
b. new technology is examined to determine whether new products can be created.
c. managers determine whether the new product can be sold at an acceptable price.
d. none of the above
ANS: C
PTS: 1
12. A research method that measures consumer behavior is
a. conducting a survey or interview.
c. referring to computerized databases.
b. holding a focus group session.
d. observational research.
ANS: D
PTS: 1
13. A product that has no brand name, usually comes in a plain package or wrapper, and is often sold for
less than a name brand product is a
a. regional brand.
c. manufacturer’s brand.
b. store brand.
d. generic.
ANS: D
PTS: 1
14. Kodak and Sony are examples of
a. global brands.
b. national brands.
ANS: A
c. manufacturer’s brands.
d. generics.
PTS: 1
15. The stage of the product life cycle in which the product has few competitors and marketing activities
should create consumer awareness is the
a. introduction stage.
c. decline stage.
b. growth stage.
d. none of the above
ANS: A
PTS: 1
COMPLETION
1. Inexpensive items that require little shopping effort, such as snacks and soft drinks, are known as
____________________ goods.
ANS: convenience
PTS: 1
2. Items that are purchased after consumer compare brands and stores are known as
____________________ goods.
ANS: shopping
PTS: 1
3. Unique products that consumers make a special effort to obtain are known as ____________________
goods.
ANS: specialty
PTS: 1
4. Marketing ____________________ is the orderly collection and analysis of data that is used to obtain
information about a specific marketing concern.
ANS: research
PTS: 1
5. Data that have already been collected and published are ____________________ data.
ANS: secondary
PTS: 1
6. Data that are collected expressly to solve a specific research problem are ____________________
data.
ANS: primary
PTS: 1
7. A ____________________ is a name, symbol, or design that identifies a product.
ANS: brand
PTS: 1
8. Non-name brand, plain wrapper products that can provide a bargain in some situations are known as
____________________.
ANS: generics
PTS: 1
9. A complex type of data collection which involves a statistical comparison of two or more very similar
situations is the ____________________.
ANS: experiment
PTS: 1
10. An experimental research study that measures the likely success of a new product by trying it out in
one or two cities is referred to as a ____________________.
ANS: test market
PTS: 1
SHORT ANSWER
1. What are four ways marketing can satisfy needs that have not been met?
ANS:
A new product, an improved product, an existing product with a new use, or an existing product sold
in a new market.
PTS: 1
2. Distinguish between organizational products and consumer goods.
ANS:
Organizational products are used to produce other goods and services, while consumer goods are
completed goods sold to consumers.
PTS: 1
3. What are three ways services can be marketed?
ANS:
(1) Convenience location; (2) image of the business; and (3) personalization.
PTS: 1
4. What is a focus group and what is its purpose?
ANS:
A focus group is a directed discussion with eight to twelve people. This group interview obtains
information about opinions, buying habits, and knowledge of the members.
PTS: 1
5. Distinguish between qualitative and quantitative research.
ANS:
Quantitative research collects numeric data about opinions, behaviors, and knowledge while
qualitative research collects comments from consumers about their attitudes and behaviors.
PTS: 1
6. What are the three main functions of packaging?
ANS:
Protect the product, capture attention, and make the product easy to use.
PTS: 1
ESSAY
1. Describe the characteristics of services.
ANS:
Answers should include most of the following points:
(1) Intangible.
(2) Difficult to judge the quality of services.
(3) Difficult to maintain consistent quality, except when computers and technology perform most of
the service.
(4) Consumed as they are produced; mass production often not possible.
(5) No inventory.
PTS: 1
2. Describe the four steps in the new product development process.
ANS:
Answers should include the following points:
(1) Generating product ideas: new product ideas are based on customer comments, other companies,
and new technology.
(2) Evaluating product ideas: Ideas are evaluated based on cost, production, and marketplace
acceptance.
(3) Researching product ideas: Customer attitudes and potential sales of the new product are
researched.
(4) Marketing product ideas: The item is produced, distributed, and sold in one or more countries.
PTS: 1
3. Explain how the marketing effort is different for convenience goods, shopping goods, and specialty
goods.
ANS:
Answers should include the following points:
(1) Convenience goods: marketing involves offering an item in many locations rather than just
specialty stores.
(2) Shopping goods: consumers take some time comparing alternatives so marketing must
communicate differences in price, quality, and features of various brands.
(3) Specialty goods: marketing requires high brand recognition.
PTS: 1
4. Describe what happens to sales in the four stages of the product life cycle.
ANS:
Answers should include the following points:
(1) Introduction: the product is new with few competitors and sales are low.
(2) Growth: increasing sales, and profits are beginning.
(3) Maturity: sales level off.
(4) Decline: sales start to decline.
PTS: 1
CHAPTER 18—GLOBAL PRICING AND DISTRIBUTION STRATEGIES
TRUE/FALSE
1. Increased competition tends to result in higher prices.
ANS: F
PTS: 1
2. Higher incomes in a country usually result in lower demand and lower prices for products.
ANS: F
PTS: 1
3. Products with an inconsistent demand, such as jewelry, will often have higher markups because the
product has higher carrying costs than products that have consistent demand.
ANS: T
PTS: 1
4. When a company wants many customers for its new product, it will usually set a relatively low price.
ANS: T
PTS: 1
5. Two ways to minimize the effect of fluctuating currency exchange rates when setting prices are to use
countertrade and to set prices high enough to offset changing exchange rates.
ANS: T
PTS: 1
6. An indirect distribution channel uses agents, wholesalers, and/or retailers.
ANS: T
PTS: 1
7. Companies use wholesalers to distribute their products to retailers because wholesalers specialize in
transporting, storing, and ordering goods.
ANS: T
PTS: 1
8. A form of direct distribution that is expected to increase for many years is online selling.
ANS: T
PTS: 1
9. International shippers recommend that exporters label packages with the brand names and contents.
ANS: F
PTS: 1
10. Symbols instead of words are frequently used on packages being shipped internationally because they
are universally recognized.
ANS: T
PTS: 1
11. Motor carriers are a form of shipping that is available in nearly every country and quickly delivers
shipments of many sizes to nearly anywhere.
ANS: T
PTS: 1
12. Intermodal shipping methods ship goods by transferring them between different kinds of carriers.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. A loss leader is
a. a very low-priced item used to attract customers.
b. an attempt to create a quality image for a product.
c. an item sold at a discount during certain seasons.
d. used to match the price of competitors.
ANS: A
PTS: 1
2. The most exporting assistance is provided by
a. a customs broker.
b. an export management company (EMC).
c. a freight forwarder.
d. an export trading company (ETC).
ANS: D
PTS: 1
3. Movement of liquids between two connecting countries would be performed best by
a. pipeline.
c. railroad.
b. air carrier.
d. waterway.
ANS: A
PTS: 1
4. Skim pricing occurs when
a. a new product has competition and the price is set at a price similar to the competing
products.
b. a new product is introduced and managers set a relatively high introductory price.
c. a new product is introduced at a relatively low price to skim customers from the
competitors.
d. a new product is introduced at a price that includes a specific markup percentage over the
cost of the product.
ANS: B
PTS: 1
5. When terms of sale are expressed as 1/10, net 20,
a. customers may deduct one-tenth if they pay within 20 days of the sale.
b. customers may deduct 1 percent if they pay within 20 days of the sale.
c. customers may deduct one-tenth if they pay within 10 days of the sale and must pay the
full amount within 20 days.
d. none of the above
ANS: D
PTS: 1
6. All of the following are examples of a direct distribution channel except
a. a company sells its goods through its web site on the Internet.
b. a company sells goods to a wholesaler.
c. a company sells its goods in its own retail outlets.
d. all of these are examples of a direct distribution channel.
ANS: B
PTS: 1
7. All of the following are examples of specialty stores except
a. jewelry store.
c. department store.
b. toy store.
d. camera store.
ANS: C
PTS: 1
8. All of the following are examples of retailers except
a. a family sells its own produce at a sidewalk stand in Costa Rica.
b. a man sells fish he has caught from his boat in the bay in Hong Kong.
c. a woman sells cosmetic products for a large manufacturer at private theme parties.
d. a paper manufacturer sells paper to printers for printing books for publishing companies.
ANS: D
PTS: 1
9. A document that accompanies international shipments that shows the country in which the goods being
shipped were produced is a
a. bill of lading.
c. export declaration.
b. certificate of origin.
d. destination control statement.
ANS: B
PTS: 1
10. Piggyback operations refer to goods that are shipped
a. in containers and stacked on top of each other.
b. by railroads because they are stacked on flat cars to cross countries.
c. over the long haul by railroad and then loaded into trucks for door-to-door delivery.
d. on the decks of ocean-going ships or inland waterway barges.
ANS: C
PTS: 1
11. All of the following are criteria for packing goods for international shipments except
a. maintaining the company’s image.
b. minimizing theft.
c. maintaining the lowest possible weight and volume to minimize shipping costs.
d. providing moisture-proof conditions.
ANS: A
PTS: 1
12. A global intermediary that buys and sells products and distributes those goods to markets in other
countries is
a. an export management company.
c. a freight forwarder.
b. an export trading company.
d. a customs broker.
ANS: B
PTS: 1
NUMERIC RESPONSE
1. A Mexican store marks up its prices 40 percent. What would be the selling price for a sweater that cost
the store $50 (pesos)?
ANS:
$70.00
$50 + ($50 × .40)
PTS: 1
2. A Japanese company offers a 4 percent discount to a customer to pay for a 12,000 yen purchase within
10 days. What amount would the customer pay if paying within 10 days?
ANS:
11,520 yen
12,000 yen – (12,000 yen × .04)
PTS: 1
3. A French computer manufacturer sells to retailers with a trade discount of 40 percent. If a notebook
computer has a list price to consumers of Fr8,000, what would be the cost of the item to the store?
ANS:
Fr4,800
Fr8,000 – (Fr8,000 × .40) = Fr2,200
PTS: 1
4. A Danish customer makes a purchase of Kr$1,500 on April 15, with terms of 3/10, net/30. How
much should the customer pay on April 22?
ANS:
Kr$1,455
Kr$1,500 – (Kr$1,500 × .03) = Kr$1,455
PTS: 1
NARRBEGIN: Table 18-1
Table 18-1
QUANTITY DISCOUNTS
FOR BAGS OF WHEAT IN BOLIVIA
Number of Bags
Price Per Bag
1-4 Bags
B7.00
5-8 Bags
B6.50
9-10 Bags
B6.00
More than 10 bags
B5.00
NARREND
5. Using the price schedule in Table 18-1, what is the cost of 6 bags?
ANS:
B39.00
6 × B6.50
PTS: 1
6. Using the price schedule in Table 18-1, what is the cost of 16 bags?
ANS:
B80.00
16 × B5.00
PTS: 1
COMPLETION
1. ____________________ is an amount added to the cost of a product to determine the selling price.
ANS: Markup
PTS: 1
2. When a company sets a relatively high introductory price to try to quickly cover the research and
development costs of a new product, it is using ____________________ pricing.
ANS: skim
PTS: 1
3. When a company sets a relatively low introductory price for a new product to gain strong acceptance
in the market, it is using ____________________ pricing.
ANS: penetration
PTS: 1
4. When a company intentionally sets prices for foreign trade at a lower price than asked in the
company’s home country, it is using the practice of ____________________.
ANS: dumping
PTS: 1
5. A business that buys large quantities of an item and resells them to a retailer is a
____________________.
ANS: wholesaler
PTS: 1
6. A store or other business that sells directly to the final user is a ____________________.
ANS: retailer
PTS: 1
7. A very low-priced item used to attract customers into a store is a ____________________.
ANS: loss leader
PTS: 1
8. An intermediary that specializes in moving goods through the customs process is a customs
____________________.
ANS: broker
PTS: 1
9. The three main factors that influence the price a company charges for goods and services are costs,
consumer demand, and ____________________.
ANS: competition
PTS: 1
10. Using more than one mode of transportation when shipping to another country is called
____________________ movements.
ANS: intermodal
PTS: 1
SHORT ANSWER
1. Why don’t companies sell their products for the price it costs to manufacture them?
ANS:
There are additional costs than manufacturing costs, such as transportation, taxes, and currency
fluctuations, plus the companies also have to add a profit percentage to the price.
PTS: 1
2. What are two potential problems with skim pricing?
ANS:
High prices might quickly attract competitors to the market and there is the risk of setting the price too
high and selling very few products.
PTS: 1
3. Distinguish between cash discounts and trade discounts.
ANS:
Cash discounts are discounts offered to charge customers to pay their bills quickly while trade
discounts are offered to distributors and stores as a discount on the suggested retail price.
PTS: 1
4. Distinguish between a direct and an indirect distribution channel.
ANS:
In a direct distribution channel, producers sell goods or services directly to the final user of the
product; an indirect distribution channel has one or more intermediaries between the producer and the
final user of the product.
PTS: 1
5. Briefly explain why producers often use intermediaries such as wholesalers to distribute their products
to retailers?
ANS:
Wholesalers and other intermediaries have specialized knowledge about products, distribution, and
retail outlets that producers may not have; therefore, producers often use these specialists to efficiently
distribute their products.
PTS: 1
6. What are the five main transportation systems used for shipping goods?
ANS:
Motor carrier, railroad, waterway, pipeline, and air carrier.
PTS: 1
ESSAY
1. Explain why some products have prices like $7.95 and $99.99 while other products have prices like
$6.50 and $25.00.
ANS:
These products are using the psychological pricing method of odd-even pricing. The prices ending in
5 or 9 (odd numbers) present a bargain image while the prices ending in an even number of given in a
whole dollar amount generally give an impression of quality. The price depends on the pricing
strategy.
PTS: 1
2. Describe four kinds of retailers and give an example of the products they sell.
ANS:
Answers should include four of the following:
(1) Convenience stores sell a limited number of items, are usually located near homes of potential
customers or with gas stations; they typically sell snacks, beverages, and limited kinds of
household supplies and food.
(2) General merchandise retailers sell a large variety of products and brands; they include
supermarkets, discount stores, and department stores.
(3) Specialty stores sell a limited product line of related items, such as a shoe store, book store, or
bakery.
(4) Direct sellers sell by mail order, telephone contacts, and other methods involving direct contact
between the seller and buyer; cosmetics, books, and windows and carpet cleaning services are
frequently sold by this method.
(5) Online retailers sell on web sites on the Internet; nearly anything can be bought online.
(6) Automatic vending is selling with vending machines; soft drinks and snack food have been vended
by machine for a long time, but offerings are expanding; ATMs are a type of automatic vending.
PTS: 1
3. How does a company decide which methods of transportation to use to distribute goods to other
countries? Which methods are the fastest and which are the slowest?
ANS:
Answers should include the following points.
(1) Companies need to weight both the cost of shipping, the speed required, and any special
considerations such as the perishability of the product.
(2) If speed is not critical, lower cost methods such as waterway and pipeline may be used.
(3) If speed is critical, air transport may be used but it is the most costly.
(4) Railroad and motor carrier are intermediate in speed and cost.
(5) In many cases, a combination of methods may be used.
PTS: 1
4. Explain why containerization is important in global distribution.
ANS:
Containerization involves packing cargo in large standardized containers. This makes for efficient
shipping and handling and minimizes damage and delays. New containerization methods also make it
possible to ship goods that require refrigeration.
PTS: 1
CHAPTER 19—GLOBAL PROMOTIONAL STRATEGIES
TRUE/FALSE
1. The audience in the communication process is also known as the receiver of the message.
ANS: T
PTS: 1
2. Feedback refers to communication from the audience back to the sender.
ANS: T
PTS: 1
3. Publicity is an example of paid promotions.
ANS: F
PTS: 1
4. Radio advertising is a significant communication medium in most less developed economies.
ANS: T
PTS: 1
5. The personal selling process ends when the sale is made.
ANS: F
PTS: 1
6. Contests and sweepstakes are examples of sales promotions.
ANS: T
PTS: 1
7. Noise helps improve the effectiveness of the communication process.
ANS: F
PTS: 1
8. Toll-free telephone numbers, e-mail, and web sites encourage customers to complete the
communication process by giving feedback.
ANS: T
PTS: 1
9. The promotional mix may be different in different countries due to social, legal, and economic
environments.
ANS: T
PTS: 1
10. Once a target market is analyzed, the advertising message should be tailored to that target market.
ANS: T
PTS: 1
11. In less-developed countries with a low per capita income and literacy rate, direct mail advertising is
probably more suitable than other communication methods for advertising.
ANS: F
PTS: 1
12. Most multinational companies have their own advertising departments and do not use advertising
agencies.
ANS: F
PTS: 1
13. Telemarketing is used in selling because it often provides fast, low-cost contacts.
ANS: T
PTS: 1
14. One way to overcome customer objections in a personal selling presentation is to offer a lower price to
compromise some feature the customer does not like.
ANS: T
PTS: 1
15. Companies may use public relations to gain or maintain a favorable public image.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. In the communication process, putting a message in a form that the audience will understand is
a. feedback.
c. encoding.
b. decoding.
d. noise.
ANS: C
PTS: 1
2. Noise in the communication process refers to
a. the intended receiver of a message.
b. anything that can interfere with the communication process.
c. communication from the audience back to the source.
d. putting an idea into words and symbols.
ANS: B
PTS: 1
3. An example of publicity is a
a. television commercial.
b. newspaper article about a new product.
c. contest to win a trip to another country.
d. telephone sales message.
ANS: B
PTS: 1
4. An example of a push promotion would be
a. a television commercial.
b. a contest for customers.
c. telephone calls to offer customers a special discount.
d. a discount for retailers.
ANS: D
PTS: 1
5. An example of standardized advertising would be
a. maintaining the same ads for many years to help customers understand the benefits of a
product.
b. advertising agencies that help small companies plan ads for different countries.
c. television commercials created to communicate different messages for different target
markets.
d. the use of one promotional approach in all geographic regions.
ANS: D
PTS: 1
6. Identifying potential customers is commonly called
a. closing the sale.
c. handling objections.
b. obtaining feedback.
d. prospecting.
ANS: D
PTS: 1
7. The final action in the personal selling process is to
a. handle objections.
c. close the sale.
b. provide follow-up service.
d. revise the sales presentation.
ANS: B
PTS: 1
8. A company that desires salespeople who are most familiar with the culture of a nation would hire
a. local nationals.
c. import brokers.
b. expatriates.
d. third-country nationals.
ANS: A
PTS: 1
9. The four main promotional activities are
a. coupons, contests, free samples, and in-store displays.
b. television, radio, newspaper, and magazine advertisements.
c. advertising, personal selling, publicity, and sales promotion.
d. none of the above
ANS: C
PTS: 1
10. An advertising message that presents the quality, brand, price, or features of a product is
a. a product quality ad.
c. a lifestyle ad.
b. a comparative ad.
d. an endorsement ad.
ANS: A
PTS: 1
11. An example of a lifestyle advertising approach would be a television commercial
a. that uses a famous suspense movie actor to recommend a product.
b. that shows a young married couple using their microwave oven to cook popcorn.
c. that emphasizes puppies and kittens while describing the product.
d. none of the above
ANS: B
PTS: 1
12. In ad advertising agency, the department that is the link between the agency and the client is the
a. research department.
c. account services department.
b. creative department.
d. media department.
ANS: C
PTS: 1
13. All of the following could be used in an effective personal selling presentation except
a. offering a test drive of a new automobile to demonstrate its features.
b. presenting a chart listing well-known people who use the product.
c. demonstrating how to use the word processing software product to create a document.
d. advertising the product in a community newspaper.
ANS: D
PTS: 1
14. Follow-up contacts, advance notices of special sales, and frequent-buyer programs are examples of
a. a personal selling sales presentation.
c. relationship marketing.
b. public relations.
d. closing a sale.
ANS: C
PTS: 1
15. All of the following are examples of sales promotions except
a. sponsoring a Little League team.
b. offering a toy with a purchase of the company’s product.
c. attaching coupon dispensers on grocery store shelves.
d. distributing calendars that describe the company and its products.
ANS: A
PTS: 1
COMPLETION
1. Any form of paid, nonpersonal sales communication is ____________________.
ANS: advertising
PTS: 1
2. Direct communication between sellers and potential customers is known as ____________________
selling.
ANS: personal
PTS: 1
3. Any form of unpaid promotion, such as newspaper articles or television news coverage is known as
____________________.
ANS: publicity
PTS: 1
4. The particular combination of advertising, personal selling, publicity, and sales promotion used by an
organization is its promotional ____________________.
ANS: mix
PTS: 1
5. Marketing efforts directed at the final consumers of a product are called ____________________
promotions.
ANS: pull
PTS: 1
6. Marketing efforts directed at members of the distribution channel are called ____________________
promotions.
ANS: push
PTS: 1
7. Using one promotional approach in all geographic regions is ____________________ advertising.
ANS: standardized
PTS: 1
8. Using promotions that are customized for various target markets is ____________________
advertising.
ANS: localized
PTS: 1
9. Using computerized information systems to identify customers with specific demographic traits and
buying habits is called ____________________ marketing.
ANS: database
PTS: 1
10. A company that specializes in planning and implementing advertisements for other companies is an
____________________.
ANS: advertising agency
PTS: 1
SHORT ANSWER
1. What are some examples of noise the can disrupt the international business communication process?
ANS:
Language differences, varied cultural meanings for words and gestures, and the setting in which
communication takes place.
PTS: 1
2. What are the seven major advertising media?
ANS:
Newspaper, television, radio, magazine, direct mail, outdoor, and the Internet.
PTS: 1
3. What are the four steps in the advertising planning process?
ANS:
Analyze target market, create advertising message, select media, and execute and evaluate.
PTS: 1
4. Why would a large multinational company use an advertising agency in place of planning and
executing its own advertising?
ANS:
To benefit from the agency’s experience in promoting different kinds of products and services in
varied markets.
PTS: 1
5. Why is it important to obtain feedback during a personal selling presentation?
ANS:
If customers express objections or opposition to the product, the sales person can provide additional
information or change the conditions of the sale in order to close the sale.
PTS: 1
6. List five types of sales promotions.
ANS:
Coupons, premiums, contests and sweepstakes, point-of-purchase promotions, and specialty
advertising.
PTS: 1
ESSAY
1. Describe examples of the four main promotional activities.
ANS:
Answers could include the following examples:
(1) Advertising: television commercials, newspaper or magazine ads, ads on a web site.
(2) Personal selling: telephone sales, in-person sales presentations, door-to-door selling.
(3) Publicity: newspaper articles or television news coverage.
(4) Sales promotion: coupons, contests, free samples, in-store displays.
PTS: 1
2. Describe three social, legal, or economic environment factors that need to be considered when
planning an international promotional mix.
ANS:
Answers could include the following, but additional answers could also be correct:
(1) Literacy rate: In countries with low literacy rates, newspaper, magazine, and direct mail
advertising would not be effective.
(2) Communications infrastructure: Countries with less-developed or inefficient telephone or postal
services would make telemarketing, direct mail, and Internet/email advertising ineffective.
(3) Legal restrictions in a country can limit what can be claimed or stated in an advertisement.
(4) Cultural attitudes, especially religious and moral ones, can make some kinds of themes in
advertising ineffective or even illegal, such as showing people drinking alcohol at a party in an ad
in a country with religious restrictions on alcohol.
(5) Radio is very popular in some countries and would be the best media for advertising in those
countries.
PTS: 1
3. Why is evaluation of advertising an important step in the advertising planning process and how can it
be achieved?
ANS:
Answers should include the following points:
(1) Advertising should be evaluated for effectiveness to determine whether advertising should be
changed for the future and to be able to plan more effective advertising.
(2) Advertising effectiveness can be evaluated with surveys to test product awareness or product use
and sales figures can be analyzed to determine whether the advertising caused an increase in sales.
PTS: 1
4. Choose one of the following advertising techniques, describe the technique, and then describe an
example of an actual advertisement that uses that technique: product quality, comparative, emotional,
humorous, lifestyle, or endorsement.
ANS:
Student examples will vary, but one of the following descriptions should be included:
(1) Product quality: presents quality, brand, price, or features.
(2) Comparative: contrasts competing brands.
(3) Emotional: elicits response by appealing to feelings.
(4) Humorous: draws attention with comedy.
(5) Lifestyle: presents product or service in a situation to which people can relate.
(6) Endorsement: uses people as spokespersons.
PTS: 1
CHAPTER 20—GLOBAL FINANCIAL ACTIVITIES
TRUE/FALSE
1. Debt refers to capital invested by the owners of a business.
ANS: F
PTS: 1
2. Debt capital has fewer advantages than equity capital.
ANS: F
PTS: 1
3. Countries may borrow money to cover operating expenses just as companies do.
ANS: T
PTS: 1
4. Global mutual funds allow investors to own the stock of companies in many countries.
ANS: T
PTS: 1
5. Life insurance companies are a source of capital for businesses.
ANS: T
PTS: 1
6. Capital projects refer to long-term assets such as buildings or equipment.
ANS: T
PTS: 1
7. Banks traditionally offer the widest range of financial services.
ANS: T
PTS: 1
8. Credit unions are nonprofit financial institutions.
ANS: T
PTS: 1
9. A central bank makes loans to companies to expand international trade.
ANS: F
PTS: 1
10. Cell phones are making banking services available to consumers in developing economies.
ANS: T
PTS: 1
11. The primary role of a central bank is to provide financial services to governments.
ANS: T
PTS: 1
12. A regional development bank regulates the currency supply of a country
ANS: F
PTS: 1
13. Life insurance companies are deposit-type financial institutions.
ANS: F
PTS: 1
14. Borrowing money to buy a business is an example of participation in the financial system.
ANS: T
PTS: 1
15. Credit unions traditionally specialized in savings accounts and home mortgages.
ANS: F
PTS: 1
MULTIPLE CHOICE
1. Equity capital consists of funds provided by
a. a company’s owners.
b. sales tax refunds.
ANS: A
PTS: 1
2. A source of debt capital would be
a. the sale of stock.
b. reinvested profits.
ANS: D
c. bonds.
d. borrowing from a financial institution.
c. investments by owners.
d. the sale of bonds.
PTS: 1
3. The widest range of financial services is usually offered by
a. a credit union.
c. a life insurance company.
b. a commercial bank.
d. an investment company.
ANS: B
PTS: 1
4. The purpose of a credit union is to
a. make loans to businesses.
b. serve the financial needs of its members.
c. provide funds for international business activities.
d. sell life insurance.
ANS: B
PTS: 1
5. A mutual fund provides diversification, which means
a. earning high returns on invested funds.
b. being a part owner of foreign companies.
c. spreading risk over many investments.
d. saving for future financial goals.
ANS: C
PTS: 1
6. An example of a capital project is
a. office supplies.
b. a repair to a company truck.
ANS: C
PTS: 1
c. a new factory.
d. a training program for employees.
7. People who desire to have their funds managed by a professional investment manager would open an
account with a
a. credit union.
b. mutual fund.
c. savings and loan association.
d. a commercial bank.
ANS: B
PTS: 1
8. All of the following are examples of current expenses EXCEPT
a. rent paid for office space.
b. wages and salaries paid to employees.
c. construction costs of a new building.
d. supplies for the office.
ANS: C
PTS: 1
9. All of the following are sources of equity capital EXCEPT
a. investments from owners.
b. mortgage loans on buildings.
c. profits that are put back into the business.
d. stock offerings that are sold to the public.
ANS: B
PTS: 1
10. All of the following are types of deposit-type financial institutions EXCEPT
a. commercial banks.
c. credit unions.
b. mutual funds.
d. savings and loan associations.
ANS: B
PTS: 1
11. Providing financial services for governments in the primary function of a
a. credit union.
c. development bank.
b. commercial bank.
d. central bank.
ANS: D
PTS: 1
12. Promoting economic development in a region is the major purpose of a
a. central bank.
b. development bank.
c. savings and loan association.
d. mutual fund.
ANS: B
PTS: 1
13. Which of the following is an example of payment services offered by commercial banks?
a. money market accounts
c. credit cards
b. letters of credit
d. trusts
ANS: B
PTS: 1
14. A major benefit of a mutual fund is
a. diversification.
b. high interest rates.
c. no-risk savings.
d. steady income for retirement.
ANS: A
PTS: 1
15. Licensing commercial banks within a country is commonly the function of
a. a central bank.
c. the World Bank.
b. a development bank.
d. none of the above.
ANS: A
PTS: 1
COMPLETION
1. Funds provided by a company’s owners are ____________________ capital.
ANS: equity
PTS: 1
2. Funds obtained by borrowing are ____________________ capital.
ANS: debt
PTS: 1
3. A ____________________ bank is a business organized to accept deposits and to make loans and
provide other financial services.
ANS: commercial
PTS: 1
4. An investment company that manages a pool of funds from many investors is a
____________________.
ANS: mutual fund
PTS: 1
5. A ____________________ is organized to provide financial services to its members.
.
ANS: credit union
PTS: 1
6. A ____________________ bank has the role of managing a country’s money supply.
ANS: central
PTS: 1
7. Promoting economic development in a region is the major role of a ____________________ bank.
ANS: development
PTS: 1
8. A ____________________ is a long-term cost for a company, such as a building or machinery.
ANS: capital project
PTS: 1
9. Short-term investments are bought and sold in a ____________________ market.
ANS: money
PTS: 1
10. A ____________________ market is where companies and other organizations obtain funds for
long-term use.
.
ANS: capital
PTS: 1
SHORT ANSWER
1. How do life insurance companies benefit other companies?
ANS:
Aside from providing insurance coverage, life insurance companies invest the money received from
insurance premiums by lending to large corporations and investing in commercial real estate, making
capital available to companies.
PTS: 1
2. Who are the main participants in a financial system?
ANS:
The main participants are individuals, businesses, governments, and non-governmental organizations.
PTS: 1
3. Distinguish between equity capital and debt capital.
ANS:
Equity capital is obtained from owners; debt capital is obtained through borrowing.
PTS: 1
4. What is a credit union?
ANS:
A credit union is a nonprofit financial cooperative.
PTS: 1
5. What is a central bank?
ANS:
A central bank is a state-owned agency that provides governments with banking services.
PTS: 1
6. What is the main function of a regional development bank?
ANS:
A regional development bank is created to promote economic development in a region.
PTS: 1
ESSAY
1. What are the advantages and disadvantages of debt equity?
ANS:
Answers should include the following points:
(1) Advantages: Allows expansion when equity funds are not available. Has tax advantages. Doesn’t
affect control of the company.
(2) Disadvantage: If a company cannot make its payments, creditor might take control of the
company.
PTS: 1
2. Explain how interest is paid on U.S. savings bonds.
ANS:
U.S. savings bonds are bought at one-half their face value. At their maturity date, the face value is
paid. The time it takes for a savings bond to grow to the maturity value varies depending on the current
interest rate paid by the U.S. Treasury Department.
PTS: 1
3. Describe the main functions of a central bank.
ANS:
Answers should include the following points:
(1) Maintain a stable money supply using monetary policy tools.
(2) Issue an appropriate amount of currency to facilitate business activities.
(3) Manage receipts and payments for government agencies.
(4) Provide loans to government agencies and other enterprises.
(5) License commercial banks operating in the country.
PTS: 1
4. Describe the difference between a money market and a capital market.
ANS:
A money market is where short-term investments are bought and sold. A capital market is where
companies and other organizations obtain funds for long-term use.
PTS: 1
CHAPTER 21—GLOBAL FINANCIAL MARKETS
TRUE/FALSE
1. A share of stock represents ownership in a company.
ANS: T
PTS: 1
2. Stock exchanges are provided so companies borrow money for international business activities.
ANS: F
PTS: 1
3. A mortgage bond is secured by collateral.
ANS: T
PTS: 1
4. The rate of return on a bond is calculated by adding the interest earned to the cost of the bond.
ANS: F
PTS: 1
5. The foreign exchange market sets the value of a country’s currency.
ANS: T
PTS: 1
6. A full-service stockbroker usually charges a higher fee than a discount broker or online trading
service, but offers more service in the form of investment advice.
ANS: T
PTS: 1
7. Stock prices usually go up when investors believe a company will have good current and future
profitability.
ANS: T
PTS: 1
8. The purpose of the bond market is to help organizations raise debt capital.
ANS: T
PTS: 1
9. Tax deferred income is income on which tax does not have to be paid.
ANS: F
PTS: 1
10. Investing money usually has higher risks than saving money, but can result in greater returns.
ANS: T
PTS: 1
11. Two common goals of investors are current income and long-term growth.
ANS: T
PTS: 1
12. Antiques and works of art are very liquid investments.
ANS: F
PTS: 1
MULTIPLE CHOICE
1. The major factors that affects the value of a share of stock is
a. supply and demand.
c. bond prices.
b. government regulation.
d. the value of the country’s currency.
ANS: A
PTS: 1
2. A corporate bond without collateral is called a
a. mortgage bond.
c. savings bond.
b. municipal bond.
d. debenture bond.
ANS: D
PTS: 1
3. Borrowing by a state or local government occurs with the use of a
a. treasury bond.
c. mortgage bond.
b. municipal bond.
d. debenture bond.
ANS: B
PTS: 1
4. The purpose of a futures market is to
a. make loans to businesses.
b. buy and sell commodities contracts.
c. provide funds for local and state governments.
d. set the value of foreign currencies.
ANS: B
PTS: 1
5. A foreign exchange market involves the buying and selling of
a. stocks.
b. bonds.
c. currencies.
d. commodities.
ANS: C
PTS: 1
6. A stock that ended the previous trading day at $96 a share and was + 1/2 would have a current closing
price of
a. $95.50.
c. $96.50.
b. $96.25.
d. $97.00.
ANS: C
PTS: 1
7. The purpose of the over-the-counter (OTC) market is to allow investors to
a. invest in companies that are active in international business.
b. buy and sell stocks not regularly traded on a stock exchange.
c. obtain current rates for currencies of different countries.
d. buy agricultural products now for delivery in the future.
ANS: B
PTS: 1
8. A foreign government bond aimed at investors around the world is a
a. municipal bond.
c. external bond.
b. mutual fund.
ANS: C
d. internal bond.
PTS: 1
9. Taxes on tax-deferred income are paid
a. when the income is received.
b. at a later date.
c. when the investment is sold.
d. never.
ANS: B
PTS: 1
10. The earnings on a bond is measured by the
a. exchange rate.
b. rate of return.
ANS: B
PTS: 1
11. Stock prices can be affected by
a. investor demand.
b. economic conditions.
ANS: D
c. maturity date.
d. tax rate.
c. changing trends.
d. all of these.
PTS: 1
12. People who depend on investment income for current living expenses receive earnings from their
investments in all of the following forms EXCEPT
a. dividends from stocks.
b. increases in the value of investments.
c. interest from bonds.
d. rent from real estate.
ANS: B
PTS: 1
NUMERIC RESPONSE
1. If a company pays an annual dividend of $3 per share and the stock sells for $54 a share, what is the
yield percentage?
ANS:
5.6%
$3 ÷ $54
PTS: 1
2. What is the annual rate of return, or yield, on a $10,000 municipal bond that earns 8% interest
annually?
ANS:
8%
($10,000 × .08) ÷ $10,000
PTS: 1
3. What is the annual rate of return, or yield, on a $5,000 bond that earns 6.4% annually?
ANS:
6.4%
($5,000 × .064) ÷ $5,000
PTS: 1
4. What is the annual rate of return, or yield, on a building that cost $250,000 and can be rented for
$1,500 a month?
ANS:
7.2%
($1,500 × 12) ÷ $250,000
PTS: 1
5. What is the annual rate of return, or yield, on 10,000 shares of stock that costs $16 per share and pays
an annual dividend of $1.80 each?
ANS:
11.3%
$1.80 ÷ $16
PTS: 1
6. What is the annual rate of return, or yield, on a new company in which you have invested $60,000 and
is expected to earn a first-year profit of $15,000? Your share is 35%.
ANS:
9.3%
($16,000 × .35) ÷ $60,000
PTS: 1
COMPLETION
1. The value of currencies is set in the ____________________ market.
ANS: foreign exchange
PTS: 1
2. A ____________________ bond is backed by collateral.
ANS: mortgage
PTS: 1
3. ____________________ income is not subject to taxes.
ANS: Tax-exempt
PTS: 1
4. A ____________________ bond is issued by a state or local government.
ANS: municipal
PTS: 1
5. A location where stocks are bought and sold is called a ____________________.
ANS: stock exchange
PTS: 1
6. A ____________________ is a person who buys and sells stocks and other investments for customers.
ANS: stockbroker
PTS: 1
7. A debt certificate issued by a multinational company or other corporate enterprise to borrow money for
a period of time greater than a year is a ____________________.
ANS: corporate bond
PTS: 1
8. A U.S. dollar deposited in a bank outside of the United States and used in the money markets of
Europe is a ____________________.
ANS: Eurodollar
PTS: 1
9. Profit made from the resale of investments is called a ____________________.
ANS: capital gain
PTS: 1
10. The characteristic of an asset that means it can be easily converted into cash without a loss in value is
called ____________________.
ANS: liquidity
PTS: 1
SHORT ANSWER
1. How do mortgage bonds differ from debenture bonds?
ANS:
Mortgage bonds are backed by collateral; debenture bonds are unsecured.
PTS: 1
2. What are four factors that affect the price of a company’s stock?
ANS:
Demand for ownership in a company based on its current and future profitability, economic
conditions, the political situation, and social trends.
PTS: 1
3. Distinguish between tax-exempt and tax-deferred income.
ANS:
There is no tax on tax-exempt income; if income is tax-deferred, the tax is paid at some later date.
PTS: 1
4. What is an over-the-counter market?
ANS:
A network of stockbrokers who buy and sell stocks not listed on a stock exchange, usually companies
that are too new or too small to be listed stocks.
PTS: 1
5. What two factors distinguish between full-service brokers, discount brokers, and online trading
services?
ANS:
The commission fees charged and the amount of investment information provided.
PTS: 1
6. What are four sources of information about investments?
ANS:
News media, Internet, financial experts, and investment information services.
PTS: 1
ESSAY
1. How do external and internal bonds differ?
ANS:
External bonds are intended for investors in other countries; interest and principal are paid in the
currency of the country in which an investor lives. Internal bonds are aimed at investors in the
country issuing the bond and payable in the native currency.
PTS: 1
2. Describe three types of financial markets other than stock exchanges and bond markets.
ANS:
(1) The over-the-counter (OTC) market is a network of stockbrokers who buy and sell stocks of
companies not listed on a stock exchange, and use a computerized trading system.
(2) The foreign exchange market involves the buying and selling of currencies needed to pay for
goods and services bought from companies in other countries.
(3) The futures market allows investors and others to buy or sell contracts on the future prices of
commodities, metals, and financial instruments. Futures markets involve contracts on corn, oats,
soybeans, wheat, cattle, cocoa, sugar, oil, natural gas, gold, silver, treasury bonds, and
currencies—yen, pound, euro, and Eurodollars.
PTS: 1
3. Describe the differences between the two common goals of investing.
ANS:
Answers should include the following points:
(1) Current income: Current income is used for current living expenses and is a common goal for
retired people and others who need income from investments.
(2) Long-term growth: Long-term growth is experienced when investments grow over time. People
may want long-term growth for retirement, college for children.
PTS: 1
4. Describe the four major factors usually used to evaluate investment opportunities.
ANS:
Answers should include the following points:
(1) Rate of return: This is the percentage of the investment cost that is earned in a year.
(2) Liquidity: Liquidity is how quickly an asset can be converted into cash without a loss in value;
stocks, bonds, and mutual funds are usually very liquid, while real estate and collectibles have
lower liquidity.
(3) Taxes: Investment earnings usually have tax consequences; taxes are a cost of earning the return.
Tax-deferred investments postpone taxes to a later date while tax-exempt investments have no tax
liability.
(4) Safety: People want investments that are safe, that minimize the risk of losing the investment.
PTS: 1
CHAPTER 22—MANAGING INTERNATIONAL BUSINESS RISK
TRUE/FALSE
1. Government instability affects the political risk of a nation.
ANS: T
PTS: 1
2. A country with high inflation would have a low economic risk.
ANS: F
PTS: 1
3. A mutual insurance company distributes any money left over after expenses to policyholders.
ANS: T
PTS: 1
4. A high deductible usually will result in a lower insurance premium.
ANS: T
PTS: 1
5. Involving host country owners can help to reduce risk for a multinational company.
ANS: T
PTS: 1
6. Business should constantly monitor conditions in a country because the ability to anticipate and act
early can reduce risk and lessen the chances of poor business decisions.
ANS: T
PTS: 1
7. When the business environment in a country changes, the change affects all companies doing business
in that country in the same way.
ANS: F
PTS: 1
8. In order to calculate the cost of providing insurance coverage, an insurance company must be able to
calculate the probability that the risk will occur.
ANS: T
PTS: 1
9. An insurable risk must be able to be documented.
ANS: T
PTS: 1
10. An insurance policy is a contract.
ANS: T
PTS: 1
11. A deductible is property or a risk that is not covered by an insurance policy.
ANS: F
PTS: 1
12. When goods are shipped overseas, the ship owner is responsible for the goods and any insurance
against their loss or damage.
ANS: F
PTS: 1
13. The most expensive type of marine insurance is all-risk coverage.
ANS: T
PTS: 1
14. OPIC insurance can protect a company from a foreign government’s refusal to convert its currency to
dollars.
ANS: T
PTS: 1
15. Not receiving payment for merchandise is a risk of doing business.
ANS: T
PTS: 1
MULTIPLE CHOICE
1. An example of an economic risk for a multinational company would be
a. currency value.
c. family structure in a country.
b. government regulations.
d. political instability.
ANS: A
PTS: 1
2. The first step of the risk management process is to
a. evaluate risks.
c. identify potential risks.
b. implement the action.
d. select a risk management method.
ANS: C
PTS: 1
3. Taking precautionary actions is risk
a. avoidance.
b. sharing.
ANS: D
c. assumption.
d. reduction.
PTS: 1
4. Self-insurance is considered to be a method of risk
a. sharing.
c. reduction.
b. assumption.
d. avoidance.
ANS: B
PTS: 1
5. If a policyholder has a $9,000 claim with an insurance policy that has a $1,000 deductible, what
amount must the insurance company pay to the insured in the event of a total loss?
a. $8,000
c. $9,000
b. $1,000
d. cannot be determined
ANS: A
PTS: 1
6. An exporting company wants to add fire coverage for a warehouse in Egypt. The certificate that would
be needed to make this change to the insurance policy is called an
a. exclusion.
c. insurance certificate.
b. endorsement.
d. equity clause.
ANS: B
PTS: 1
7. Property insurance would not provide coverage for
a. real property.
c. inconvertibility.
b. personal property.
d. liability.
ANS: C
PTS: 1
8. The Overseas Protection Investment Corporation covers financial losses resulting from
a. fire damage to factories.
b. seizure of assets by a host government.
c. losses due to nonpayment for delivered goods.
d. goods lost or damaged during shipment on inland waterways.
ANS: B
PTS: 1
9. Protection from losses resulting from nonpayment for delivered goods is provided by
a. credit risk insurance.
c. inland marine insurance.
b. OPIC coverage.
d. liability insurance.
ANS: A
PTS: 1
10. Packaging laws, antidumping laws, and currency exchange controls are examples of
a. social risks.
c. political risks.
b. economic risks.
d. all of the above
ANS: C
PTS: 1
11. Implementing a risk management program involves
a. selecting a risk management method.
b. executing the risk management methods selected and measuring the success of the actions.
c. analyzing the potential risks that have been identified.
d. none of the above
ANS: B
PTS: 1
12. If a company wishes to remove a factory that has been sold from its insurance policy, the insurance
policy would need to have
a. an exclusion.
c. a premium.
b. a deductible.
d. an endorsement.
ANS: D
PTS: 1
13. All of the following risks would be considered insurable risks except
a. injury to a customer on company property.
b. damage to computer equipment from an office fire.
c. an unexpected increase in the cost of office supplies.
d. death of company executives in an airplane crash.
ANS: C
PTS: 1
14. OPIC insurance can cover financial losses due to all of the following except
a. inconvertibility.
c. political unrest.
b. shipping losses.
d. expropriation.
ANS: B
PTS: 1
15. Global businesses can reduce business risk by all of the following methods except
a. operate in many different countries to spread the risk around.
b. offer one standardized product to reduce development and promotion investments.
c. offer many different goods and services.
d. employ local managers.
ANS: B
PTS: 1
COMPLETION
1. The uncertainty of an event or outcome is called ____________________.
ANS: risk
PTS: 1
2. When a company sets funds aside to cover losses from various kinds of risk, the company is using
____________________ as a risk management policy.
ANS: self-insurance
PTS: 1
3. ____________________ is a way to plan protection for risk by sharing economic losses among many
people.
ANS: Insurance
PTS: 1
4. A ____________________ insurance company is owned by stockholders and operated for profit.
ANS: stock
PTS: 1
5. A ____________________ insurance company is owned by its policyholders and returns any surplus
to policyholder after paying claims and operating expenses.
ANS: mutual
PTS: 1
6. A ____________________ is the portion of an insurance claim that is paid by the insured before the
insurance company begins to pay.
ANS: deductible
PTS: 1
7. An ____________________ is a certificate that adds to or changes the coverage of an insurance
policy.
ANS: endorsement
PTS: 1
8. ____________________ marine insurance protects goods during shipment overseas or while
temporarily in port.
ANS: Ocean
PTS: 1
9. ____________________ marine insurance protects goods during shipment on inland waterways,
railroad lines, truck lines, and airlines.
ANS: Inland
PTS: 1
10. ____________________ insurance provides coverage for loss from nonpayment for delivered goods.
ANS: Credit risk
PTS: 1
SHORT ANSWER
1. What are the three main categories of risk faced by multinational companies?
ANS:
Political risk, social risk, and economic risk.
PTS: 1
2. What are the four methods used to manage risk?
ANS:
Risk avoidance, risk reduction, risk assumption, and risk sharing.
PTS: 1
3. What are the disadvantages of risk avoidance as a risk management method for international business?
ANS:
Total risk avoidance in international business would mean not participating in international business at
all. Companies that use this method risk the potential for expansion when their domestic business
matures.
PTS: 1
4. What are the three main risks property owners face?
ANS:
Loss of real property, loss of personal property, and financial responsibility for injuries or damage.
PTS: 1
5. How does conducting business in many countries reduce the risk for global business?
ANS:
Operating in many countries spreads the risk to many countries so that when there is a problem in one
country, sales and profits can still be kept high because of operations in other countries.
PTS: 1
6. How does the Foreign Credit Insurance Association (FCIA) encourage international business?
ANS:
The FCIA insures exporters for the risk of extending credit to overseas buyers, making it safer to
participate in exporting.
PTS: 1
ESSAY
1. Describe the four steps in the risk management process.
ANS:
Answers should include the following concepts:
(1) Identify potential risks: List the factors that might affect a company’s operations, identifying all
the risk-causing elements.
(2) Evaluate risks: Analyze the potential effect of the risks identified. Decide how and to what extent
the risks will influence sales and profits.
(3) Select a risk management method: Decide which of the four risk management methods will be
used, or which combination of methods.
(4) Implement the risk management program: Take relevant action and also measure the success of the
action to be prepared if risk factors change.
PTS: 1
2. Describe three elements of insurable risk and explain why they are necessary.
ANS:
Answers should include three of the following:
(1) Common to many people: The risk must be faced by many people or businesses so that many
people with the same risk can share the cost.
(2) Definite: The risk must be something that can be documented so the insurer can determine that a
loss has actually occurred.
(3) Not excessive in magnitude: The loss cannot be so enormous that no insurance company would be
able to compensate for it.
(4) Not trivial: The risk was be large enough to be worth the time, effort, and expense to provide
coverage.
(5) Able to be calculated: The insurer must be able to calculate the probability that the risk will occur
to be able to plan what to charge for the insurance.
PTS: 1
3. Name three factors that can affect the premium charged for marine insurance and explain why the
factors increase or decrease the premium.
ANS:
Answers should include three of the following:
(1) Value of the goods: The more valuable the goods the higher the premium because loss would be
expensive to the insurer.
(2) Destination: Premiums could increase or decrease depending on safety of the destination.
(3) Age of the ship: Newer ships might be considered safer and reduce premiums.
(4) Storage location on the ship: Some locations might be more secure than others. On deck storage,
for example, might expose goods to the elements justifying higher risk and premiums.
(5) Packaging: The more secure the packaging the less change of damage and the lower the premium
should be. Standard containerization might also decrease premiums.
(6) Size of the shipment: A large shipment might provide some volume discounts.
PTS: 1
4. Explain the three types of risk OPIC provides coverage for.
ANS:
Answers should include the following concepts:
(1) Inconvertibility: This is an inability to convert foreign currency into U.S. dollars.
(2) Expropriation: This occurs when a host government seizes the assets of a business.
(3) Political unrest: This includes losses due to war, revolution, or civil conflicts.
PTS: 1
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