INTB 200 Exam 2

Triple Root, Inc. a maker of high-end salon hair care products, plans to expand in the EU marketplace. To do so, the EU requires the company to
A) adopt techniques of total quality management.
B) achieve Six Sigma.
C) use just-in-time inventory system.
D) patent its designs and technology.
E) certify its products under ISO 9000.

E
The growth of international standards has also focused greater attention on the importance of product quality. In Europe, the European Union requires that the quality of a firm's manufacturing processes and products be certified under a quality standard known as ISO 9000 before the firm is allowed access to the EU marketplace.

Regional trade blocs in Africa have been slow to establish mostly because of
A) significant political turmoil.
B) inefficiencies in the economy.
C) a lack of willing participants.
D) an unwillingness to lower all nontariff barriers.
E) a lack of intellectual property rights.

A
African countries have been experimenting with regional trade blocs for half a century. Nominally there are now 19 trade blocs on the African continent. Many countries are members of more than one group. Although the number of trade groups is impressive, progress toward the establishment of meaningful trade blocs has been slow.
Many of these groups have been dormant for years. Significant political turmoil in several African nations has persistently impeded any meaningful progress.

The gold standard was adopted in response to the
A) expansion in the volume of international trade due to the Industrial Revolution.
B) inability of governments to convert gold into paper currency on demand at a fixed rate.
C) widening gap between the developed and the developing nations.
D) failure of the Bretton Woods fixed exchange rate system.
E) failure of the U.S. dollar to act as a reference currency.

A
As the volume of international trade expanded in the wake of the Industrial Revolution, a more convenient means of financing international trade was needed. Shipping large quantities of gold and silver around the world to finance international trade seemed impractical. The solution adopted was to arrange for payment in paper currency and for governments to agree to convert the paper currency into gold on demand at a fixed rate.

What are some automobile companies doing in situations where neither centralization nor decentralization of production is feasible?
A) outsourcing production to developing countries
B) inshoring production into the home country
C) selling product patents and technology to competitors
D) refraining from international trade
E) establishing top-to-bottom manufacturing operations

E
Although the availability of flexible manufacturing and cars' relatively high value-to-weight ratios suggest concentrated manufacturing, the combination of formal and informal trade barriers and the uncertainties of the world's current floating exchange rate regime have inhibited firms' ability to pursue this strategy. For these reasons, several automobile companies have established "top-to-bottom" manufacturing operations in three major regional markets: Asia, North America, and Western Europe.

All International Monetary Fund (IMF) loan packages come with conditions attached that limit
A) trade liberalization.
B) elimination of restrictive import licensing.
C) public spending.
D) privatization of state-owned assets.
E) deregulation of the economy to increase competition.

C
All International Monetary Fund (IMF) loan packages come with conditions attached. Until very recently, the IMF has insisted on a combination of tight macroeconomic policies, including cuts in public spending, higher interest rates, and tight monetary policy. It has also often pushed for the deregulation of sectors formerly protected from domestic and foreign competition, privatization of state-owned assets, and better financial reporting from the banking sector. These policies are designed to cool overheated economies by reining in inflation and reducing government spending and debt.

The expatriate managers of Vivant, an Italian leader in women's apparel, followed the same domestic marketing and management practices in foreign markets as their colleagues did in France. As a result, Vivant's international expansion failed because the company suffers from
A) a masculine culture.
B) cultural myopia.
C) power distance.
D) cultural toughness.
E) low ambiguity.

B
An ethnocentric policy can lead to cultural myopia, the firm's failure to understand host-country cultural differences that require different approaches to marketing and management. The adaptation of expatriate managers can take a long time, during which they may make major mistakes.

Assume that the yen/dollar exchange rate quoted in London at 3:00 p.m. is ¥115 = $1. Drew, a trader, finds out that the rate quoted in New York at 10:00 a.m. (3:00 p.m. London time) is ¥135 = $1. Drew decides to buy yen in New York and sell it in London. Drew is engaging in
A) currency swapping.
B) currency speculation.
C) carry trade.
D) arbitrage.
E) hedging.

D
Arbitrage is the purchase of securities in one market for immediate resale in another to profit from a price discrepancy. Because foreign exchange dealers are always watching their computer screens for arbitrage opportunities, the few that arise tend to be small, and they disappear in minutes.

The _________ states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.
A) bandwagon effect
B) law of one price
C) international Fisher effect
D) Helms-Burton Act
E) purchasing power parity (PPP) theory

C
The international Fisher effect states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.

What must occur for a firm to ensure profitable price discrimination?
A) The firm must sell a standardized product.
B) The firm must be able to keep its national markets separate.
C) The firm must encourage other firms and competitors to engage in arbitration.
D) Products sold by the firm must have same price elasticities of demand in different countries.
E) Products must be sold in countries where a small change in prices produces a large change in demand.

B
Two conditions are necessary for profitable price discrimination. First, the firm must be able to keep its national markets separate. The second necessary condition for profitable price discrimination is different price elasticities of demand in different countries

Which staffing policy is concerned with filling all key management positions by parent-country nationals?
A) ethnocentric
B) global
C) polycentric
D) geocentric
E) transnational

A
An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. This practice was widespread at one time. Firms such as Procter & Gamble, Philips, and Panasonic originally followed it.

What is an accurate depiction of Six Sigma?
A) The higher the number of "sigmas," the higher the number of errors.
B) When using Six Sigma, a production process would be 90 percent accurate.
C) Six Sigma work standards are based solely on numbers or quotas.
D) It is almost impossible for a company to achieve Six Sigma perfection.
E) Six Sigma is necessary to achieve balanced supply and demand.

D
Six Sigma, the modern successor to total quality management, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. At Six Sigma, a production process would be 99.99966 percent accurate, creating just 3.4 defects per million units. While it is almost impossible for a company to achieve such perfection, Six Sigma quality is a goal that several strive toward

In terms of the gold standard, gold par value referred to
A) the ability of a nation to exchange gold for imported goods.
B) pegging currencies to something other than gold, such as goods.
C) the amount of gold a government had to maintain in its reserves.
D) the amount of currency needed to purchase one ounce of gold.
E) the net worth of gold when used for trade.

D
The amount of a currency needed to purchase one ounce of gold was referred to as the gold par value. From the gold par values of pounds and dollars, we can calculate what the exchange rate was for converting pounds into dollars.

Which of these situations shows how concerns over national sovereignty can act as an impediment to regional economic integration?
A) Organization of the Petroleum Exporting Countries regulating the supply of petroleum as a cartel
B) Asia-Pacific Economic Cooperation failing to establish itself as a regional arrangement
C) admission of eastern European nations into the European Union
D) Great Britain refusing to adopt the common currency of the European Union, the euro
E) rise of the World Trade Organization

To achieve full economic union, the EU introduced a common currency, the euro, controlled by a central EU bank. Although most EU member-states have signed on, Great Britain remains an important holdout. A politically important segment of public opinion in that country opposes a common currency on the grounds that it would require relinquishing control of the country's monetary policy to the EU, which many British perceive as a bureaucracy run by foreigners.

Best Brooms Corp. ships its products to thousands of retail stores all across the United States. These retail stores are part of the __________ portion of the global supply chain.
A) upstream
B) horizontal
C) downstream
D) differential
E) process

C
The downstream supply chain includes all of the organizations (e.g., wholesaler, retailer) that are involved in the portion of the supply chain from the production facility to the end-customer (this is also sometimes called the outbound supply chain).

What factor contributes to greater retail concentration in developed countries?
A) number of households owning televisions
B) number of families with two or more children
C) increase in the currency value of the country
D) number of households with refrigerators and freezers
E) decrease in per capita income

D
There is a tendency for greater retail concentration in developed countries. Three factors that contribute to this are the increases in car ownership, number of households with refrigerators and freezers, and number of two-income households.

One function of the foreign exchange market is to
A) provide some insurance against foreign exchange risk.
B) protect short-term cash flow from adverse changes in exchange rates.
C) eliminate volatile changes in exchange rates.
D) reduce the economic exposure of a firm.
E) enable companies to engage in capital flight when countertrade is not possible.

A
One function of the foreign exchange market is to provide some insurance against the risks that arise from volatile changes in exchange rates, commonly referred to as foreign exchange risk. Although the foreign exchange market offers some insurance against foreign exchange risk, it cannot provide complete insurance. It is not unusual for international businesses to suffer losses because of unpredicted changes in exchange rates.

After the formation of a free trade area for its member countries, the United States found that its high-cost clothing producers in Ohio were replaced by low-cost producers from another country within the free trade area. This is an example of
A) value creation.
B) strategic pricing.
C) trade creation.
D) trade diversion.
E) economic exposure.

C
Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area. It may also occur when higher-cost external producers are replaced by lower-cost external producers within the free trade area.

What is a drawback of ISO 9000 certification?
A) It is bureaucratic and costly for many firms.
B) It is an impossible standard to achieve.
C) It is losing its prominence in international business.
D) It is ineffective in improving processes.
E) It is ineffective in bringing about quality improvement.

A
The European Union requires that the quality of a firm's manufacturing processes and products be certified under a quality standard known as ISO 9000 before the firm is allowed access to the EU marketplace. Although the ISO 9000 certification process has proved to be somewhat bureaucratic and costly for many firms, it does focus management attention on the need to improve the quality of products and processes.

Kendrik, a U.S. citizen, is the operations manager at the Middle East office of Creston Builders Inc., an American firm. In this situation, Kendrik is a(n) __________ manager.
A) repatriate
B) host-country
C) inpatriate
D) expatriate
E) virtual

D
An expatriate manager is a citizen of one country who is working abroad in one of the firm's subsidiaries. Human resource management must deal with a host of issues related to expatriate managers.

Which staffing policy is concerned with filling all key management positions by parent-country nationals?
A) ethnocentric
B) global
C) polycentric
D) geocentric
E) transnational

A
An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. This practice was widespread at one time. Firms such as Procter & Gamble, Philips, and Panasonic originally followed it.

What is one result of a banking crisis?
A) It leads to individuals and companies withdrawing their deposits from banks.
B) It results in a sharp appreciation in the value of the currency.
C) It creates an uptick in domestic borrowing.
D) It leads to price deflation.
E) It results in low government deficits.

A
A banking crisis refers to a loss of confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits. Currency crises, banking crises, and foreign debt crises tend to have common underlying macroeconomic causes: high relative price inflation rates, a widening current account deficit, excessive expansion of domestic borrowing, high government deficits, and asset price inflation (such as sharp increases in stock and property prices).

One reason for the establishment of the European Community in 1957 was the
A) pressing need to have a common currency that would make trade easier within Europe.
B) desire to suppress another war in Europe.
C) economic lessons from the Great Depression that hit the United States in the 1920s.
D) success of the European Free Trade Association formed by Western European countries.
E) fall of communism in Europe.

B
These considerations underlay the 1957 establishment of the European Community (EC), the forerunner of the EU. Europe had suffered two devastating wars in the first half of the twentieth century, both arising out of the unbridled ambitions of nation-states. Those who have sought a united Europe have always had a desire to make another war in Europe unthinkable.

While cultural differences should always be considered, which of these industries should be especially aware of traditions when trying to enter a foreign market?
A) healthcare
B) agriculture
C) furniture
D) food
E) paper

D
The most important aspect of cultural differences is probably the impact of tradition. Tradition is particularly important in foodstuffs and beverages.

When discussing exchange rate forecasting, the inefficient market school of thought would agree that
A) forward exchange rates are the best possible predictors of future spot exchange rates.
B) forward exchange rates represent market participants' collective predictions of likely spot exchange rates.
C) companies cannot beat the markets because forward rates reflect all available information about likely future changes in exchange rates.
D) investing in forecasting services can improve the foreign exchange market's estimate of future exchange rates.
E) the foreign exchange market is efficient at setting forward rates, which are unbiased predictors of future spot rates

D
A company's need to predict future exchange rate variations raises the issue of whether it is worthwhile for the company to invest in exchange rate forecasting services to aid decision making. The inefficient market school argues that companies can improve the foreign exchange market's estimate of future exchange rates (as contained in the forward rate) by investing in forecasting services. In other words, this school of thought does not believe the forward exchange rates are the best possible predictors of future spot exchange rates.

Some countries rely on the foreign exchange market to determine the relative value of its currency. This is called a __________ exchange rate system.
A) fixed
B) floating
C) forward
D) pegged
E) nominal

B
Floating exchange rate refers to a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand. Four of the world's major trading currencies—the U.S. dollar, the European Union's euro, the Japanese yen, and the British pound—are all free to float against each other.

Multipoint pricing occurs when a company
A) aggressively prices in one market to elicit a competitive response from a rival in another market.
B) prices its products at a loss in order to drive out competitors from the market.
C) buys products at a cheaper rate in one country to sell at a higher price in another country.
D) allows markets to determine the pricing of a product.
E) prices two similar products at low and high prices in order to boost sales of the lower priced products.

A
Multipoint pricing refers to the fact that a firm's pricing strategy in one market may have an impact on its rivals' pricing strategy in another market. Aggressive pricing in one market may elicit a competitive response from a rival in another market.

Under the gold standard, gold flows reduce the money supply in one nation when another nation experiences a trade surplus. The nation with a trade surplus has a swell in the money supply, which leads to price increases. At the same time, the nation with a reduction in the money supply will cause prices to fall. The lower prices create more demand for product from the nation with a reduction in the money supply, which leads to a
A) balance-of-trade.
B) facilitating payment.
C) tragedy of the commons.
D) floating exchange rate.
E) planned economy.

A
Under the gold standard, when Japan has a trade surplus, there is a net flow of gold from the United States to Japan. These gold flows automatically reduce the U.S. money supply and swell Japan's money supply. As we saw in Chapter 10, there is a close connection between money supply growth and price inflation. An increase in money supply will raise prices in Japan, while a decrease in the U.S. money supply will push U.S. prices downward. The rise in the price of Japanese goods will decrease demand for these goods, while the fall in the price of U.S. goods will increase demand for these goods. Thus, Japan will start to buy more from the United States, and the United States will buy less from Japan, until a balance-of-trade equilibrium is achieved.

In the context of barriers to international communication, __________ refers to the amount of other messages competing for a potential consumer's attention.
A) logistics
B) source effects
C) noise
D) standardized advertising
E) country of origin effects

C
Noise tends to reduce the probability of effective communication. Noise refers to the amount of other messages competing for a potential consumer's attention, and this too varies across countries.

One reason for the establishment of the European Community in 1957 was the
A) pressing need to have a common currency that would make trade easier within Europe.
B) desire to suppress another war in Europe.
C) economic lessons from the Great Depression that hit the United States in the 1920s.
D) success of the European Free Trade Association formed by Western European countries.
E) fall of communism in Europe.

B
These considerations underlay the 1957 establishment of the European Community (EC), the forerunner of the EU. Europe had suffered two devastating wars in the first half of the twentieth century, both arising out of the unbridled ambitions of nation-states. Those who have sought a united Europe have always had a desire to make another war in Europe unthinkable.

__________ is a pact that originated in 1988 to establish a free trade area now including Argentina, Brazil, Paraguay, and Uruguay.
A) ASEAN
B) NAFTA
C) Mercosur
D) CARICOM
E) CAFTA

C
Mercosur refers to a pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area. Mercosur originated in 1988 as a free trade pact between Brazil and Argentina. The modest reductions in tariffs and quotas accompanying this pact reportedly helped bring about an 80 percent increase in trade between the two countries in the late 1980s. This success encouraged the expansion of the pact in March 1990 to include Paraguay and Uruguay as full members. In 2012, the pact was further expanded when Venezuela joined Mercosur. However, in 2016 Venezuela was suspended from Mercosur for violating the pact's democratic principles and engaging in widespread human rights violations.

In theory, if inflation is at an all-time high in the United States, then its currency will
A) increase in value when trading with countries in a political union.
B) appreciate against that of other countries where inflation is lower.
C) not be affected.
D) depreciate against that of other countries where inflation is lower.
E) increase faster than the money supply.

D
In essence, PPP theory predicts that changes in relative prices will result in a change in exchange rates. Theoretically, a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower.

Pull strategies tend to be emphasized
A) for complex new products.
B) for consumer goods.
C) for industrial goods.
D) when distribution channels are short.
E) when few print or electronic media are available.

B
Pull strategies tend to be emphasized for consumer goods, when distribution channels are long, and when sufficient print and electronic media are available to carry the marketing message.

The goal of market segmentation is to
A) optimize the fit between the purchasing behavior of consumers in a given segment and the marketing mix.
B) increase participation in shared global conversations by drawing upon shared symbols that include global brands.
C) reduce cultural and economic differences which act as a barrier to the emergence of global trends.
D) standardize products, manufacturing, and the institutes of trade and commerce.
E) increase the costs of value creation and add value by better serving customer needs.

A
The goal of market segmentation is to optimize the fit between the purchasing behavior of consumers in a given segment and the marketing mix, thereby maximizing sales to that segment.

Within the EU, it is the responsibility of the __________ to debate legislation and forward it to the council.
A) Court of Justice
B) prime ministers
C) European Commission
D) European Parliament
E) European Community

D
As of 2020, the European Parliament has 705 members and is directly elected by the populations of the member states. The parliament, which meets in Strasbourg, France, is primarily a consultative rather than legislative body. It debates legislation proposed by the commission and forwarded to it by the council.

What is a characteristic of channel quality?
A) The quality of retailers is variable in developed nations.
B) The quality of retailers is more variable in emerging markets and less developed nations.
C) Channel quality refers to a measure of the number of intermediaries between the manufacturer and the consumer.
D) An international business cannot establish its own distribution channel when the existing channel quality is poor.
E) The lack of a high-quality channel does not impede market entry.

B
Channel quality refers to the expertise, competencies, and skills of established retailers in a nation and their ability to sell and support the products of international businesses. Although the quality of retailers is good in most developed nations, in emerging markets and less developed nations from Russia to Indonesia, channel quality is variable at best.

__________ is an association of English-speaking Caribbean states that are attempting to establish a customs union.
A) CARICOM
B) Central American Free Trade Agreement
C) Central American Common Market
D) Free Trade Area of the Americas
E) Caribbean Single Market and Economy

A
A customs union was to have been created in 1991 between the English-speaking Caribbean countries under the auspices of the Caribbean Community. Referred to as CARICOM, it was established in 1973. However, it repeatedly failed to progress toward economic integration.

One argument in favor of standardized advertising is that
A) consumer tastes and preferences are universal.
B) a message that works in one nation will invariably work in every other country.
C) advertising regulations always support standardized advertising.
D) it spreads the cost of developing advertising over many countries.
E) the costs of value creation may be increased by standardized advertising.

D
The support for global advertising is threefold. First, it has significant economic advantages. Standardized advertising lowers the costs of value creation by spreading the fixed costs of developing the advertisements over many countries.

What results when the retail sector is very concentrated?
A) It is more expensive for a firm to make contact with each individual retailer.
B) It makes sense for a firm to deal directly with retailers, cutting out wholesalers.
C) A relatively large sales force is required to deal with the retail sector.
D) The channels of distribution tend to be long.
E) The growth of wholesalers is promoted.

B
When the retail sector is very concentrated, it makes sense for the firm to deal directly with retailers, cutting out wholesalers. A relatively small sales force is required to deal with a concentrated retail sector, and the orders generated from each sales call can be large.

What is a characteristic associated with the price elasticity of demand?
A) The price elasticity of demand is unrelated to the competitive conditions in a country.
B) Demand is said to be inelastic when a small change in price produces a large change in demand.
C) Demand is said to be elastic when a large change in price produces a small change in demand.
D) Price elasticity tends to be greater in countries with low income levels.
E) The elasticity of demand is inversely proportional to the number of competitors offering a particular product.

D
The elasticity of demand for a product in a given country is determined by a number of factors, of which income level and competitive conditions are the two most important. Price elasticity tends to be greater in countries with low income levels. Consumers with limited incomes tend to be very price conscious; they have less to spend, so they look much more closely at price.

While cultural differences should always be considered, which of these industries should be especially aware of traditions when trying to enter a foreign market?
A) healthcare
B) agriculture
C) furniture
D) food
E) paper

D
The most important aspect of cultural differences is probably the impact of tradition. Tradition is particularly important in foodstuffs and beverages.

What trend contradicts Theodore Levitt's arguments for the globalization of world markets?
A) Consumers in most developed countries do not sacrifice preferred attributes for lower prices.
B) Tastes and preferences are becoming more cosmopolitan due to cultural convergence.
C) Similar product and technical standards across countries help a firm sell the same product worldwide.
D) The emergence of the global youth segment is evidence of market segments that transcend national borders.
E) The structure of market segments is extremely similar in various countries.

A
Contrary to Theodore Levitt's suggestions, consumers in the most developed countries are often not willing to sacrifice their preferred attributes for lower prices. Consumers in the most advanced countries often shun globally standardized products that have been developed with the lowest common denominator in mind.

What is a characteristic of an ethnocentric staffing policy?
A) It requires host-country nationals to be recruited to manage subsidiaries.
B) It is used when a firm places a low value on its corporate culture.
C) It increases advancement opportunities for host-country nationals.
D) It seeks the best people for key jobs throughout the organization, regardless of nationality.
E) It places parent-country nationals in key management positions.

E
An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. This practice was widespread at one time.

Running Creek Olive Oils, based in Georgia, is trying to enter the market in Italy. It quickly learned that the Italian olive oil distribution channel was difficult to access as an outsider. Based on this, the market must have a(n) __________ distribution channel.
A) exclusive
B) intensive
C) formal
D) concentrated
E) fragmented

A
An exclusive distribution channel is one that is difficult for outsiders to access. For example, it is often difficult for a new firm to get access to shelf space in supermarkets. This occurs because retailers tend to prefer to carry the products of established manufacturers of foodstuffs with national reputations rather than gamble on the products of unknown firms.

In the context of strategic pricing, __________ takes place whenever a firm sells a product for a price that is less than the cost of producing it.
A) inflation
B) dumping
C) arbitrage
D) speculation
E) outsourcing

B
A firm's freedom to set its own prices is constrained by antidumping regulations and competition policy. Both predatory pricing and experience curve pricing can run afoul of antidumping regulations. Dumping occurs whenever a firm sells a product for a price that is less than the cost of producing it.

Currency speculation takes place when
A) there is short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates.
B) the exchange rate at which a foreign exchange dealer will convert one currency differs on a particular day.
C) there is a simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.
D) the purchase of securities in one market are immediately resold in another to profit from a price discrepancy.
E) the growth in a country's money supply exceeds the growth in its output, leading to price inflation.

A
Currency speculation is one of the uses of foreign exchange markets. It typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates

The six member countries that have embraced a common market are disappointed with the outcome of their economic integration. They want something that entails a closer economic integration and cooperation than a common market and decide to pursue a common currency. They are forming a(n)
A) command economy.
B) customs union.
C) efficient market.
D) free trade area.
E) economic union.

E
An economic union entails even closer economic integration and cooperation than a common market. Like the common market, an economic union involves the free flow of products and factors of production among member countries and the adoption of a common external trade policy, but it also requires a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy.

The number of intermediaries between the product (or manufacturer) and the consumer is referred to as
A) channel length.
B) channel quality.
C) channel exclusivity.
D) channel fragmentation.
E) channel concentration.

A
Channel length refers to the number of intermediaries between the producer (or manufacturer) and the consumer. If the producer sells directly to the consumer, the channel is very short. If the producer sells through an import agent, a wholesaler, and a retailer, a long channel exists.

Many elderly travelers and those travelers with certain physical disabilities are unable to climb stairs to motel rooms that are not on the first floor. The Walk Right Inn has catered to this specific group of customers via its motels, all of which have one floor of rooms with no stairs to climb. What did Walk Right Inn use to identify these distinct groups of consumers whose needs, wants, and purchasing behavior differ from others in important ways?
A) market penetration
B) market development
C) market segmentation
D) product development
E) diversification

C
Market segmentation refers to identifying distinct groups of consumers whose needs, wants, and purchasing behavior differ from others in important ways. Markets can be segmented in numerous ways: by geography, demography (e.g., gender, age, income, race, education level), sociocultural factors (e.g., social class, values, religion, lifestyle choices), and psychological factors (e.g., personality).

A country in South America allows its currency to nominally float freely against other currencies, but the government has the right to intervene if it believes that the currency has deviated too far from its fair value. In this country, the value of currency is determined based on a __________ float system.
A) fixed
B) clean
C) pegged
D) dirty
E) capital

D
Dirty float refers to a system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value. It is a float because in theory, the value of the currency is determined by market forces, but it is a dirty float (as opposed to a clean float) because the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency.

The European Free Trade Association initially consisted of member nations that
A) were not interested in lifting trade barriers.
B) did not produce industrial goods.
C) wanted to form an agreement with the United States.
D) decided not to be part of the European Community.
E) imposed a common tariff, of 5 to 20 percent, on imported products.

D
The European Free Trade Association (EFTA) was founded by those Western European countries that initially decided not to be part of the European Community (the forerunner of the EU). Its original members included Austria, Great Britain, Denmark, Finland, and Sweden.

What is a characteristic of channel quality?
A) The quality of retailers is variable in developed nations.
B) The quality of retailers is more variable in emerging markets and less developed nations.
C) Channel quality refers to a measure of the number of intermediaries between the manufacturer and the consumer.
D) An international business cannot establish its own distribution channel when the existing channel quality is poor.
E) The lack of a high-quality channel does not impede market entry.

B
Channel quality refers to the expertise, competencies, and skills of established retailers in a nation and their ability to sell and support the products of international businesses. Although the quality of retailers is good in most developed nations, in emerging markets and less developed nations from Russia to Indonesia, channel quality is variable at best

Demand is labeled as __________ when a large change in price produces only a small change in demand.
A) flexible
B) consistent
C) inelastic
D) elastic
E) dynamic

C
The price elasticity of demand is a measure of the responsiveness of demand for a product to change in price. Demand is said to be elastic when a small change in price produces a large change in demand; it is said to be inelastic when a large change in price produces only a small change in demand.

Kendrik, a U.S. citizen, is the operations manager at the Middle East office of Creston Builders Inc., an American firm. In this situation, Kendrik is a(n) __________ manager.
A) repatriate
B) host-country
C) inpatriate
D) expatriate
E) virtual

D
An expatriate manager is a citizen of one country who is working abroad in one of the firm's subsidiaries. Human resource management must deal with a host of issues related to expatriate managers.

What is an advantage of a polycentric staffing approach?
A) It is less expensive to implement as compared to other staffing approaches.
B) It gives host-country nationals unlimited opportunities to gain experience outside their own country.
C) It increases career mobility.
D) It increases interaction between the headquarters of a firm and its foreign subsidiaries.
E) It bridges the gap between host-country managers and parent-country managers.

A
One advantage of adopting a polycentric staffing policy is that a polycentric approach may be less expensive to implement, reducing the costs of value creation.

What is a defining characteristic of a free trade area?
A) Factors of production are allowed to move freely between member nations.
B) Each member country is allowed to determine its own trade policies with regard to nonmembers.
C) Member nations are required to have a common currency.
D) Member nations are required to have a common monetary and fiscal policy.
E) Member nations are required to have a central political apparatus that coordinates economic, social, and foreign policy.

B
In a free trade area, each country is allowed to determine its own trade policies with regard to nonmembers. Thus, for example, the tariffs placed on the products of nonmember countries may vary from member to member.

Barbara, the international sales manager for Simpson Flooring, is trying to determine the channel length for Brazil, a market the company hopes to enter. What is the most important consideration she should take into account?
A) degree to which the retail system is fragmented
B) increase in car ownership and two-income households
C) level of consolidation in the global retail industry
D) amount of difference between product or technical standards
E) level of economic development of a country

A
The most important determinant of channel length is the degree to which the retail system is fragmented. Fragmented retail systems tend to promote the growth of wholesalers to serve retailers, which lengthens channels.

A __________ strategy relies primarily on mass media advertising as opposed to personal selling.
A) telemarketing
B) pull
C) push
D) customized
E) point-of-purchase

B
The main decision with regard to communications strategy is the choice between a push strategy and a pull strategy. A push strategy emphasizes personal selling rather than mass media advertising in the promotional mix. A pull strategy depends more on mass media advertising to communicate the marketing message to potential consumers.

The law of one price states that
A) by comparing the prices of identical products in different currencies, it would be possible to determine the "real" or PPP exchange rate that would exist if markets were efficient.
B) a country's "nominal" interest rate (i) is the sum of the required "real" rate of interest (r) and the expected rate of inflation over the period for which the funds are to be lent (I).
C) a country in which price inflation is running wild should expect to see its currency depreciate against that of countries in which inflation rates are lower.
D) when the growth in a country's money supply is faster than the growth in its output, price inflation is fueled.
E) in competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.

E
An economic proposition known as the law of one price can help to understand how prices are related to exchange rate movements. The law of one price states that in competitive markets free of transportation costs and barriers to trade (such as tariffs), identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.

What results when the retail sector is very concentrated?
A) It is more expensive for a firm to make contact with each individual retailer.
B) It makes sense for a firm to deal directly with retailers, cutting out wholesalers.
C) A relatively large sales force is required to deal with the retail sector.
D) The channels of distribution tend to be long.
E) The growth of wholesalers is promoted.

B
When the retail sector is very concentrated, it makes sense for the firm to deal directly with retailers, cutting out wholesalers. A relatively small sales force is required to deal with a concentrated retail sector, and the orders generated from each sales call can be large.

What is a drawback of longer distribution channels?
A) diminished product production
B) inability to enter exclusive distribution channels
C) lower selling costs in a concentrated retail sector
D) lower prices charged to consumers
E) higher aggregate markups

E
Because each intermediary in a channel adds its own markup to the products, there is generally a critical link among channel length, the final selling price, and the firm's profit margin. The longer a channel, the greater the aggregate markup, and the higher the price that consumers are charged for the final product.

Beauty for All Skincare Corp. has wide variety in its product line. A firm with a wide product variety will find it
A) difficult to achieve shorter product runs.
B) difficult to increase its product sales.
C) difficult to reduce its unit costs.
D) easy to realize economies of scale.
E) easy to reach optimum production efficiency.

C
Producing greater product variety from a factory implies shorter production runs, which in turn implies an inability to realize economies of scale. That is, wide product variety makes it difficult for a company to increase its production efficiency and thus reduce its unit costs. According to this logic, the way to increase efficiency and drive down unit costs is to limit product variety and produce a standardized product in large volumes.

Arbitrage occurs when a firm
A) offers a product at low prices through discount coupons and promotions.
B) sells a product at higher prices to make a profit from relatively fewer sales.
C) imports products from a manufacturer and distributes them directly through retail outlets.
D) purchases products in a country where prices are lower and resells them in a country where prices are higher.
E) prices its products at the least cost, risking losses, in order to grab market share.

D
Arbitrage occurs when an individual or business capitalizes on a price differential for a firm's product between two countries by purchasing the product in the country where prices are lower and reselling it in the country where prices are higher.

Which of these situations shows how concerns over national sovereignty can act as an impediment to regional economic integration?
A) Organization of the Petroleum Exporting Countries regulating the supply of petroleum as a cartel
B) Asia-Pacific Economic Cooperation failing to establish itself as a regional arrangement
C) admission of eastern European nations into the European Union
D) Great Britain refusing to adopt the common currency of the European Union, the euro
E) rise of the World Trade Organization

D
To achieve full economic union, the EU introduced a common currency, the euro, controlled by a central EU bank. Although most EU member-states have signed on, Great Britain remains an important holdout. A politically important segment of public opinion in that country opposes a common currency on the grounds that it would require relinquishing control of the country's monetary policy to the EU, which many British perceive as a bureaucracy run by foreigners.

What is one main impediment to regional economic integration?
A) identical political ideologies
B) reduced immigration
C) loss of national sovereignty
D) lack of popular support
E) difficult international policies

C
Despite the strong economic and political arguments in support, integration has never been easy to achieve or sustain for two main reasons. First, although economic integration aids the majority, it has its costs. While a nation as a whole may benefit significantly from a regional free trade agreement, certain groups may lose. A second impediment to integration arises from concerns over national sovereignty.

Two foreign nations decided to impose tariffs on imports from all countries. They set up a free trade area, removing all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Country A now begins to import wheat from Country B. Prior to this, Country A was producing wheat at a higher cost so it now benefits from this transaction. This is an example of
A) trade creation.
B) strategic pricing.
C) synergy.
D) trade diversion.
E) protectionism.

A
Trade creation occurs when high-cost domestic producers are replaced by low-cost producers within a free trade area. A regional free trade agreement will benefit the world only if the amount of trade it creates exceeds the amount it diverts.