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Global Business

Answer each question in one complete paragraph. Make it complete and logical. This needs to be more than just a few words.

1. Professor Charles W.L. Hill says, "As used in this book, globalization refers to the shift toward a more integrated and interdependent world economy. Globalization has two main components: the globalization of markets and the globalization of production."
Without rewording Hill's statement, give your definition of the term Globalization.

2. In his book The Competitive Advantage of Nations, Michael Porter of the Harvard Business School tries to explain why certain nations have international success in selected industries. He does so by looking at four major attributes in a paradigm we now call "Porter's Diamond.
In your own words, tell what the four attributes are and then evaluate Porter's Diamond theory.

3. Shortly after World War I, the nations of the world returned to tracking the value of their currencies to the price of gold. This system lasted until the Great Depression era when nations suspended gold convertibility.
Why? And what role did the United States play in all of this?

4. Professor Hill speaks to several international trade theories. We have also addressed this in class. One of these is the Product Life Cycle theory, sometimes called the International Product Life Cycle Theory, or IPLC.
Define the IPLC in your own words and giving two examples of products that fit within this theory

5. Toward the end of World War II, with the world's economic system of trade in ruin, over 40 nations met in the United States at a resort in New Hampshire to create rules and organizations to govern the post-war international monetary system.
What was the name of the "system" that came out of this series of meetings, what were the two multinational institutions that were established, and explain the mission of one of these two organizations.

6. This question deals with the drivers of globalization. There are two main drivers of globalization.
Name both drivers of globalization then choose one of them and give specific examples of how it powers and drives the globalization process.

7. There are both advantages and disadvantages to entering into international business via a certain mode.
Name two different modes of entry and thoroughly discuss the advantages and disadvantages of each, identifying at least one product or service that would go with each of your two modes.

Section Two: True/False

1. In a country's balance of payments accounts, whenever a transaction resulting in a payment from another country is entered it is done so as a debit and given a negative (-) sign.

2. The EMU is the current currency of the European Union.

3. Barterlike agreements by which goods and services can be traded for other goods and services is called Intertrade.

4. The amount of local currency required to meet interest payments and retire principle on local debt obligations is highly affected when a country's currency depreciates.

5. High transportation costs and/or tariffs imposed on exports help explain why many firms prefer horizontal FDI or licensing over exporting.

6. Just-in-time inventory systems were pioneered by German software companies, such as SAP.

7. The theory of comparative advantage suggests that restricted free trade brings about trade in a positive-sum game.

8. A firm considering FDI usually must negotiate the terms of the investment with the host government.

9. Regional economic integration is an attempt to achieve economic gains from the free flow of trade and investment between neighboring countries.

10. Because there is a lack of governmental regulations, the eurocurrency market is unattractive to depositors and borrowers.

11. Vertical differentiation refers to how the firm is divided into subunits.

12. The most favorable aspect of the liquidity in one's own domestic market is that the cost of capital tends to be lower than it is in the international markets.

13. The effect of a tariff is to lower the costs on imported goods.

Section Three: Fill in the blank: Two points for each question (hint: you don't have to use just one word for each blank)

1. Countertrade is primarily used when a firm exports to a country whose currency is __________________________ and may __________________________ the foreign exchange reserves needed to purchase the imports.

2. The two factors that seem to underlie and drive the trend toward globalization are: _______________________________________________________ and


3. In order to protect newly-formed industry groups, some nations will charge duties on foreign goods from those sectors in order to allow them to get strong enough to compete internationally. This is called: ______________________________________________ argument.

4. Every nation levies taxes on imports to one extent or another. Generally speaking there are two types of these taxes and they are called:_________________________and_____________________________.

5. Speculative pressures on the US dollar occurred in 1971 when President Nixon closed the so-called gold window. There were two basic reasons for this speculation. They were______________________________ and _____________________

6. The problems resulting from mistrust between importers and exporters can be solved by using a third party, in whom both have ________. This function is usually performed by a __________.

7. In today's international monetary system, some countries have adopted ___________________ rates, while others have _________________ their currency to another, while others have _________________theirs to a basket of other currencies allowing their currency to _______________ within a zone around the basket.

8. Host nation economies can benefit from Foreign Direct Investment through __________________, ______________, and ______________ that would otherwise not be available.

9. Pressures for cost reductions are greatest in industries producing ______________________ products where _______________ is the main competitive weapon.

10. In order to minimize risk, letters of credit should always be ________________ and as such they may be done on either a __________ or ____________ basis.

11. It is _________________for American business to pay bribes to foreign officials where bribery is an accepted cultural tradition, as the ______________ does does not (pick one) cover this area.

Section Four: Matching: One point for each correct match

1. A theory of trade whose main emphasis was that it was in a country's best interest to export more than it imported.

2. The so-called "Uruguay Round" is associated with this group of agreements

3. The US government enacted this tariff in 1930 aimed at protecting domestic industries and diverting demand away from foreign products

4. When two parties agree to exchange currency and execute the deal immediately, the transaction is referred to as one of these.

5. One of these occurs when two parties agree to exchange currency and execute a deal at some specific date in the future.

6. A tariff levied as a proportion of the value of an imported good.

7. A document serving as a receipt, title document, and even a contract, it is issued to an exporter by a common carrier transporting merchandise.

8. The absence of barriers to the free flow of goods and services between countries.

9. The rate at which one country's currency is converted into another.

10. The role of this was to avoid a repetition of the competitive devaluations of the 1930s and to control price inflation by imposing monetary discipline on countries.

11. The process of identifying distinct groups of consumers whose purchasing behavior differs from others in important ways.

12. When a country's production of a particular good or product is more efficient than any other country producing that good.

13. A theory that countries should specialize in the production of goods and services that they can produce more efficiently.

Please put your answers for each of the 13 items in the Statement column of the Matching Key shown below.

In other words, if the match to Statement 1 were R then that entry would be 1 = R

Matching Key

Statement International Business Term
1 = A. Strategic Alliance
2 = B. Spot Rate
3 = C. Bill of Lading
4 = D. Absolute Advantage
5 = E. IMF
6 = F. Smoot-Hawley Tariff
7 = G. Ad Valorem Tariff
8 = H. Mercantilism
9 = I. Comparative Advantage
10 = J. Forward Exchange Rate
11 = K. GATT
12 = L. Free Trade
13 = M.WTO
N. Exchange Rate
O. Market Segmentation

Section Five: Multiple Choice: Two Points for Each Correct Answer

1. ________________________ predicts that countries will export those goods that make intensive use of locally abundant factors and import goods that make intensive use of factors that are locally scarce.
a. The theory of comparative advantage
b. The Heckscher-Ohlin theory
c. The new trade theory
d. The theory of absolute advantage
e. Porter's theory of national competitive advantage

2. The main disadvantages of using a _______________________ mode of entry into a foreign market is that the firm must bear all the costs and risks of opening a foreign market.
a. Licensing
b. Turnkey project
c. Franchising
d. Wholly-owned subsidiary
e. Joint Venture

3. The ________________ exchange rate is the exchange rate at which a foreign currency trader or dealer converts currency on a particular day.
a. Forward
b. Backward
c. Fair
d. Spot
e. Speculative

4. A country is in a balance of trade equilibrium when
a. The outflow of its currency is equal to the inflow of currency from other nations.
b. It has not had a revaluation of its currency of any kind for a period of one fiscal year.
c. The income its residents earn from exports is equal to the money paid to foreigners to purchase imports.
d. The capital account sum and the current account sum balance to zero.
e. Its products reach a price parity and can be sold overseas for the same price they are sold domestically.

5. Proponents of globalization believe all of the following except:

a. Falling barriers to international trade and investment drive the global economy toward greater prosperity.
b. Increased international trade and cross-border investment force businesses to move manufacturing jobs to countries where wages are lower.
c. Increased international trade and cross-border investment will result in lower prices for goods.
d. Globalization creates jobs in countries that choose to participate in the global trading systems
e. Globalization raises the incomes of consumers.

6. We generally speak of three categories of exposure to foreign exchange risk. These are:

a. Transition, domestic and natural
b. Translation, Economic, and transition
c. Domestic, International, and Transnational
d. Transaction, Economic, and Transition
e. Translation, Transaction, and Economic


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