International Marketing, 10th Edition solutions manual and test bank by Michael R. Czinkota | Ilkka A. Ronkainen

International Marketing, 10th Edition solutions manual and test bank by Michael R. Czinkota | Ilkka A. Ronkainen 

 

CHAPTER 2

INTERNATIONAL TRADE FRAMEWORKS AND POLICY

Chapter Outline

A. The Historical Dimension

1. Global Division

B. Transnational Institutions Affecting World Trade

1. World Trade Organization (WTO)

2. International Monetary Fund (IMF)

3. World Bank

4. Regional Institutions

C. Trade Positions Compared

1. A Diagnosis of the U.S. Trade Position

D. The Impact of Trade and Investment

1. The Effect of Trade

2. The Effect of International Investment

E. Policy Responses to Trade Problems

1. Restrictions of Imports

2. Export Promotion Efforts

F. A Strategic Outlook for Trade and Investment Policies

1. A U.S. Perspective

2. An International Perspective

Chapter Objectives

The chapter begins by discussing how trade has influenced human history. Recent trade developments are presented together with the role played by international institutions to regulate and facilitate trade. The chapter enumerates on the importance of world trade policy, with an analysis of the impact of changing positions in international trade. The chapter also includes various processes and strategies governments use to influence and manage trade.

Suggestions for Teaching

We find it very useful to spend some time on the historical dimension. An in‑class discussion of additional impacts of international marketing on our history is usually very stimulating, particularly when foreign students are present and bring into the discussion their viewpoints. The building of scenarios is also very useful here. For example, students can be asked how life in the United States would be today if there were no international marketing.

After having understood the role played by various transnational institutions in world trade, it would be a good idea to have students summarize the key benefits offered by the various institutions. This would help reiterate the focus area of each institution in world trade.

When reviewing policy developments, it would be a good idea to initiate a discussion on how policymakers have to trade off conflicting priorities, e.g., domestic unemployment vs. international security needs. Lively debate usually results when one asks different groups to participate in role playing with one group, for example, advocating the need for U.S. bases abroad, and an other group taking the position of the foreign government which wants to extract trade concessions in exchange for giving permission to maintain bases.

It is also very useful to show conflicting domestic priorities. One good example which always is enthusiastically responded to is the issue of import restrictions. Taken together with the issue on steel import restrictions in the US (students can be asked to search and bring at least one article on this subject to discuss), students quickly understand that rational economic decision making is not the only criterion for setting international trade policy. In all of these discussions it is very useful to have either one individual (the instructor) or one group consistently take the side of the U.S. consumer, since in heavy policy discussions this group is most easily forgotten.

Chapter Summary

A. The Historical Dimension

One of the major world powers in ancient history, the Roman Empire, placed primary emphasis on encouraging international business activities. The principal approaches used to implement this emphasis were the Pax Romana, or the Roman Peace, and the common coinage. Rome developed a systematic law, central market locations, and an excellent communication system—measures that contributed to the functioning of the international marketplace. Soon, city-nations and tribes that were not part of the empire wanted to share in the benefits of belonging. They joined the empire as allies and agreed to pay tribute and taxes. When “barbaric” tribes overran the empire, they were actually attacking an empire that was already substantially weakened because it could no longer offer the benefits of affiliation. Former allies no longer saw any advantage in being associated with the Romans and willingly cooperated with the invaders rather than face prolonged battles.

One can interpret the evolution of European feudalism to be a function of trade and marketing. Profits from the spice trade through the Middle East created the wealth of Venice and other Mediterranean ports. Western European merchants in turn exported timber, arms, and woolen clothing. A remaining legacy of this trade is found in the many English and French words of Arabic origin, such as divan, bazaar, artichoke, orange, jar, and tariff.

The effect of turning away from international trade was highlighted during the 1930s. The Smoot-Hawley Act raised duties to reduce the volume of imports into the United States in the hopes that this would restore domestic employment. The result, however, was an increase of duties and other barriers to imports by most other trading nations. These measures were contributing factors in the subsequent worldwide depression, which in turn set the scene for World War II.

International marketing and international trade have also long been seen as valuable tools for foreign policy purposes. The use of economic coercion—for example, by nations or groups of nations—can be traced back as far as the time of the Greek city-states.

1. Global Division

After 1945, the Soviet Union developed the Council for Mutual Economic Assistance (CMEA or COMECON), and the United States, in turn, created “Pax Americana,” or American peace, for the Western world. Many months of international negotiations in London, Geneva, and New York culminated in the signing of the charter for an International Trade Organization (ITO) on March 24, 1948.

Even though the ITO incorporated many farsighted notions, most nations refused to ratify it, fearing its power, its bureaucratic size, and its threat to national sovereignty. However, other organizations conceived at the time are still in existence and have made major contributions toward improving international trade.

B. Transnational Institutions Affecting World Trade

1. World Trade Organization

The World Trade Organization (WTO) has its origins in the GATT. GATT began in 1947 as a set of rules for nondiscrimination, transparent procedures, and settlement of disputes in international trade and evolved into an institution that sponsored successive rounds of international trade negotiations with a key focus on a reduction of high tariffs.

In spite of making impressive gains, GATT became less effective over time as duties had already been drastically reduced and further reductions were unlikely to have a major impact on world trade. Many nations developed new tools for managing and distorting trade flows that were not covered under GATT rules. Also, as membership grew, operating through consensus often led to a stalemate of many GATT activities. After many years of contentious negotiations, the Uruguay Round accord was ratified in January of 1995 and the WTO was created.

· The WTO is responsible for the General Agreement on Trade in Services (GATS), agreements on trade-related aspects of intellectual property rights (TRIPS), and trade-related investment measures (TRIMS) and a broad variety of international trade and investment accords.

· The creation of the WTO has greatly broadened the scope of international trade agreements.

· The WTO has made major contributions to improved trade and investment flows around the world. A successful WTO may infringe on the sovereignty of nations.

· Negative WTO decisions affecting large trading nations are likely to be received with resentment. Outside groups such as nongovernmental organizations and special interest alliances believe that international trade and the WTO represent a threat to their causes.

In 2001, a new round of international trade negotiations, the “Doha Round,” was initiated. The aim was to further hasten implementation of liberalization, particularly to help impoverished and developing nations. The negotiations have been largely marked by disagreement between developed and developing economies.

Unless trade advocates and the WTO are supported by their member governments and other outside stakeholders in trade issues, there is unlikely to be major progress on further liberalization of trade and investment. It will therefore be important to have the WTO focus on its core mission, which is the facilitation of international trade and investment.

2. International Monetary Fund

The IMF, conceived in 1944, was designed to provide stability for the international monetary framework. It obtained funding from its members and these funds were to be used to provide countries with protection against temporary fluctuations in the value of their currency. It was the original goal of the IMF to provide for fixed exchange rates between countries.

Over time, the IMF system has experienced substantial pressures. Major currency fluctuations among old customers have also stretched the resources of the IMF.

In view of the recent worldwide slowdown of economies and the financial crisis, the IMF needed to take on entirely new activities designed to stabilize the global financial system and to develop a global economic stimulus. Even already accomplished market economies required financial help. The overall goal of new short-term lending facilities changed to rapid establishment of liquidity and the development of new trust.

In her opening press conference in 2011, the managing director of the IMF, Christine Lagarde identified the sovereign debt issues facing euro-zone countries and the massive capital flows to emerging economies as investors were seeking higher rates of return than were available in the developed economies as the two most pressing issues for the IMF.

As a result of all these global financial needs, the future role of the IMF may be very different. New economic conditions that have not been experienced to date may require different types of approaches. Also, perhaps the link between economic and political stability will magnify but also change the mission of the IMF.

3. World Bank

The World Bank was formed in 1944 to aid countries suffering from the destruction of war. Since then, it has taken on the task of aiding world development. It has made major efforts to assist fledgling economies to participate in a modern economic trade framework. The bank has begun to participate actively with the IMF to resolve the debt problems of the developing world and to bring a market economy to the former members of the Eastern bloc.

Major debates surround the effectiveness of the bank’s expenditures. The World Bank has tried to reorient its outlook, focusing more on capacity building and the development of human capital through investments into education and health. Key performance criteria are now the sustainability of growth and development, addressing higher commodity prices, agricultural assistance in times of higher food prices, opening world trade to all countries, and greater participation of rising economic powers and developing nations in the bank’s governance.

4. Regional Institutions

Regional changes have taken place based on the notion that trade between countries needs to be encouraged. Of particular importance was the formation of economic blocs that integrated the economic and political activities of nations. The European Union (EU) now represents a formidable market size internally and market power externally, and the well-being of all EU members has increased substantially since the bloc’s formation.

Some examples of economic blocs are the North American Free Trade Agreement (NAFTA), the MERCOSUR in Latin America, and the Gulf Cooperation Council (GCC). These unions were formed for different reasons and operate with different degrees of cohesiveness as appropriate for the specific environment. They focus on issues such as forming a customs union, a common market, an economic union, or a political union.

The private sector has also begun to develop international trade institutions of its own. Particularly when governments are not quick enough to address major issues of concern to global marketers, business has taken the lead by providing a forum for the discussion of such issues. One example is the Transatlantic Business Dialogue (TBD), which is a nongovernmental organization composed of business leaders from Europe and the United States

The activities of all these institutions demonstrate that the joining of forces internationally permits better, more successful international marketing activities, results in an improved standard of living, and provides an effective counterbalance to large economic blocs.

C. Trade Positions Compared

Over the years, international trade positions have changed substantially when measured in terms of world market share. U.S. export growth was not able to keep pace with total world export growth as other trade partners entered the picture and aggressively obtained a larger world market share.

Exhibit 2.1 shows the world share of exports and imports of various trading countries and regions.

Another development is the rise of China’s trade position.

Exhibit 2.2 highlights the dramatic rise of China. In 2010, China was the number one trading partner of six of the G20 nations and the number two partner of five other G20 countries.

1. A Diagnosis of the U.S. Trade Position

The U.S. pursued a policy of continuing effort to aid countries abroad in their economic development while at the same time; no particular attention was paid to U.S. domestic firms. This policy was well conceived and well intentioned and resulted in spectacular successes.

The availability of a large U.S. domestic market and the relative distance to foreign markets resulted in U.S. manufacturers simply not feeling a compelling need to seek business beyond national borders. Subsequently, the perception emerged within the private sector that exporting and international marketing were too risky, complicated, and not worth it.

U.S. education did not make knowledge about the global business environment, foreign languages, and cultures an area of major priority. Lack of global interest, inadequacy of information, unfamiliarity with foreign market conditions, and complicated trade regulations made the private sector fearful of conducting international business activities.

However, conditions have changed. Most institutions have recognized the responsibilities and obligations that world leadership brings with it. Universities are emphasizing the international dimension, not only in theory but also in practice. Managers have also grown more intense in their international commitment. Many newly founded firms are global from very early on, giving rise to the term born global. In effect, the interest given to international markets as both an opportunity for finding customers and sources of supply is growing.

D. The Impact of Trade and Investment

1. The Effect of Trade

Exports are important in terms of balancing the trade account. Exports can affect currency values and the fiscal and monetary policies of governments, shape public perception of competitiveness, and determine the level of imports a country can afford. The steady erosion of the U.S. share of total world exports has resulted in a merchandise trade deficit, which has been continuous since 1975. These trade deficits indicate that a country, in its international activities, is consuming more than it is producing.

· One key way to reduce trade deficits is to increase exports. Such an approach is highly beneficial for various reasons.

· Exports can be instrumental in creating jobs. Through exporting firms can achieve economies of scale.

· By broadening its market reach and serving customers abroad, a firm can produce more and do so more efficiently. As a result, the firm may achieve lower costs and higher profits both at home and abroad.

· Through exporting, the firm also benefits from market diversification.

· Exporting also lets the firm learn from the competition, makes it sensitive to different demand structures and cultural dimensions, and proves its ability to survive in a less-familiar environment in spite of higher transaction costs.

On the import side, firms become exposed to new competition, which may offer new approaches, better processes, or better products and services. Consumers in turn receive more choices when it comes to their selection. The competitive pressures exerted by imports also work to keep quality high and prices low.

2. The Effect of International Investment

International direct investment activities can be crucial to a firm’s success in new and growing markets. Foreign direct investment is extensive in many U.S. industries. Almost one of every seven U.S. manufacturing employees works for a foreign affiliate. As a result of foreign investment, some individuals and policymakers may grow concerned about dependency on foreign owners even though firm proof for the validity of such concern has been difficult to establish.

To some extent, these foreign direct investments substitute for trade activities. As a result, firms operating only in the domestic market may be surprised by the onslaught of foreign competition and, unprepared to respond quickly, may lose their domestic market share. However, the substitution for trade is far from complete. In many instances, foreign affiliates themselves are major participants in trade.

Even then some degree of uneasiness exists about the rapid growth of such investment. In many countries the governments primarily scrutinize foreign investment activities from the standpoint of their impact on national security, and occasionally deny them.

While restrictions may serve national security or policy goals, they also impose a cost on society. Domestic industries may be preserved, but only at great peril to the free flow of capital and at substantial cost to consumers. A restriction of investments may permit more domestic control over industries, yet it also denies access to foreign capital and often innovation. This in turn can result in a tightening up of credit markets, higher interest rates, and a decrease in willingness to adapt to changing world market conditions.

 

Chapter 2: International Trade Frameworks and Policy

TRUE/FALSE

1. Common coinage was developed in ancient Rome to ensure that business transactions could easily be carried out throughout the empire.

ANS: T PTS: 1 DIF: Easy REF: p. 33

OBJ: LO: 2-1 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

2. The feudal system encouraged the development of an open-state economy.

ANS: F PTS: 1 DIF: Easy REF: p. 35

OBJ: LO: 2-1 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

3. The Smoot-Hawley Act reduced duties to increase the volume of imports into the United States.

ANS: F PTS: 1 DIF: Moderate REF: p. 35

OBJ: LO: 2-1 NAT: BUSPROG: Ethics

STA: DISC: International Perspective KEY: Bloom's: Knowledge

4. The belief that international trade was a key to worldwide prosperity led the United States to create a “Pax Americana.”

ANS: T PTS: 1 DIF: Easy REF: p. 36

OBJ: LO: 2-1 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

5. The MFN is the equal opportunity clause of international trade.

ANS: T PTS: 1 DIF: Easy REF: p. 36

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

6. In the sugar and confectionery industries, tariffs tend to decrease with the degree of processing.

ANS: F PTS: 1 DIF: Easy REF: p. 37

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

7. The WTO has ceased to exist as a separate institution and has become part of the GATT.

ANS: F PTS: 1 DIF: Easy REF: p. 37

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

8. The original goal of the International Monetary Fund (IMF) was to provide for variable exchange rates between member countries.

ANS: F PTS: 1 DIF: Easy REF: p. 39

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

9. The World Bank was initially formed in 1944 to aid countries suffering from the destruction of war.

ANS: T PTS: 1 DIF: Easy REF: p. 40

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

10. The Transatlantic Business Dialogue (TBD) is a nongovernmental organization composed of business leaders from Europe and the United States.

ANS: T PTS: 1 DIF: Easy REF: p. 41

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

11. Over the long term, the export activities of a nation are the key to the inflow of imports and therefore to the provision of choice, competition, and new insights.

ANS: T PTS: 1 DIF: Easy REF: p. 42

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

12. The availability of a large U.S. domestic market and the relative distance to foreign markets resulted in U.S. manufacturers simply not feeling a compelling need to seek business beyond national borders.

ANS: T PTS: 1 DIF: Easy REF: p. 44

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

13. One key way to reduce trade deficits is to decrease exports.

ANS: F PTS: 1 DIF: Easy REF: p. 45

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

14. The competitive pressures exerted by imports work to keep quality high and prices low.

ANS: T PTS: 1 DIF: Easy REF: p. 45

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

15. Foreign direct investments tend to be equally distributed across all industries.

ANS: F PTS: 1 DIF: Easy REF: p. 45

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

16. A restriction of foreign direct investments will result in less domestic control over industries.

ANS: F PTS: 1 DIF: Easy REF: p. 46

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

17. The United States often attempts to transfer its own trade laws abroad, resulting in bilateral conflicts.

ANS: T PTS: 1 DIF: Moderate REF: p. 47

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

18. Government support in the form of export promotion assistance is appropriate if it increases market transparency.

ANS: T PTS: 1 DIF: Easy REF: p. 51

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

19. The U.S. need is for reactive, ad hoc trade responses to specific situations.

ANS: F PTS: 1 DIF: Easy REF: p. 52

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

20. In order to be successful in international trade, policymakers must be willing to trade off long-term goals to achieve short-term objectives.

ANS: F PTS: 1 DIF: Easy REF: p. 54

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

MULTIPLE CHOICE

1. Which of the following measures by the Roman Empire contributed to the functioning of the international marketplace and to the reduction of business uncertainty?

a.	The marching of its legions and warfare
b.	An excellent communication system
c.	Provision of mixed aid credits by the empire
d.	Development of a closed-state economy in the empire

ANS: B PTS: 1 DIF: Moderate REF: p. 33

OBJ: LO: 2-1 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

2. The evolution of European feudalism was due to a function of _____.

a.	finance and banking
b.	trade and marketing
c.	environmental and cultural differences
d.	public administration and governance

ANS: B PTS: 1 DIF: Easy REF: p. 35

OBJ: LO: 2-1 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

3. Which act raised duties to reduce the volume of imports into the United States, in the hopes that this would restore domestic employment?

a.	The Export Trading Company Act
b.	The Gramm-Leach-Bliley Act
c.	The Sarbanes-Oxley Act
d.	The Smoot-Hawley Act

ANS: D PTS: 1 DIF: Easy REF: p. 35

OBJ: LO: 2-1 NAT: BUSPROG: Ethics

STA: DISC: International Perspective KEY: Bloom's: Knowledge

4. The Soviet Union, as the leader of the Eastern bloc, developed the _____, which focused on developing strong linkages among the members of the Soviet bloc and discouraged relations with the West.

a.	Gulf Cooperation Council
b.	Transatlantic Business Dialogue
c.	MERCOSUR
d.	Council for Mutual Economic Assistance

ANS: D PTS: 1 DIF: Moderate REF: p. 36

OBJ: LO: 2-1 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

5. The _____ has its origins in the GATT, to which it became the successor organization in January of 1995.

a.	IMF
b.	WTO
c.	World Bank
d.	MERCOSUR

ANS: B PTS: 1 DIF: Easy REF: p. 36

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

6. Which of the following began in 1947 as a set of rules for nondiscrimination, transparent procedures, and settlement of disputes in international trade?

a.	The Free Trade Area of the Americas
b.	The General Agreement on Tariffs and Trade
c.	The North American Free Trade Agreement
d.	The General Agreement on Trade in Services

ANS: B PTS: 1 DIF: Easy REF: p. 36

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

7. Which of the following statements about the GATT is true?

a.	Services and agriculture were the main areas covered by GATT.
b.	It began as a set of rules for settlement of disputes in domestic trade.
c.	It was designed to operate by consensus.
d.	Over time, it evolved into an institution that focused on increasing the prevailing low tariffs.

ANS: C PTS: 1 DIF: Moderate REF: p. 37

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

8. The WTO is responsible for all of the following except _____.

a.	GATS
b.	TRIPS
c.	TRIMS
d.	IMF

ANS: D PTS: 1 DIF: Easy REF: p. 37

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

9. Which of the following statements about the WTO is true?

a.	Provisions are made at the WTO for decisions to be made by majority vote if a consensus cannot be achieved.
b.	A successful WTO may well endorse the sovereignty of nations.
c.	The original goal of the WTO was to provide for fixed exchange rates between countries.
d.	Outside groups such as nongovernmental organizations believe the WTO will assist their causes.

ANS: A PTS: 1 DIF: Moderate REF: p. 37

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

10. What is the core mission of the WTO?

a.	To provide for general difficulties in the market entry of foreign products
b.	To provide preferential treatment to domestic bidders over foreign bidders
c.	To facilitate international trade and investment
d.	To deal with social causes and issues such as labor laws and competition

ANS: C PTS: 1 DIF: Moderate REF: p. 39

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

11. Which of the following statements about the IMF is true?

a.	The IMF contributed toward providing international liquidity and toward facilitating international trade.
b.	In light of the worldwide slowdown of economies and the financial crisis, the IMF focused on its traditional customers of the developed markets and economies.
c.	In order to ensure that a local stimulus would not be suffocated by global restrictions, the IMF minimized simultaneous expansions in economies.
d.	The original goal of the IMF ensured variable exchange rates between countries.

ANS: A PTS: 1 DIF: Challenging REF: p. 39

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

12. How much funding was required from members during the creation of the International Monetary Fund?

a.	Twenty-five percent in gold or dollars, the rest in the members’ local currency
b.	Twenty-five percent in commodities, the rest in American dollars
c.	Twenty-five percent in dollars, the rest in members’ local currency or gold
d.	Twenty-five percent in gold, the rest in American dollars or the members’ local currency

ANS: A PTS: 1 DIF: Challenging REF: p. 39

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

13. The International Bank for Reconstruction and Development is also known as the _____.

a.	Export-Import Bank
b.	UNDP
c.	World Bank
d.	IMF

ANS: C PTS: 1 DIF: Moderate REF: p. 40

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

14. The European Union is an example of a(n) _____.

a.	economic bloc
b.	export consortium
c.	multilateral negotiation
d.	nontariff barrier zone

ANS: A PTS: 1 DIF: Moderate REF: p. 41

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Application

15. Which of the following integrates the economic and political activities of nations?

a.	Political reforms
b.	Export consortia
c.	Economic blocs
d.	Born globals

ANS: C PTS: 1 DIF: Easy REF: p. 41

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

16. Which currency is most accepted worldwide?

a.	The euro
b.	The U.S. dollar
c.	The Japanese yen
d.	The British Pound

ANS: B PTS: 1 DIF: Easy REF: p. 42

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

17. What is the term used for a firm founded with a global scope in mind from the very beginning?

a.	Global
b.	Economic bloc
c.	Multinational
d.	Born global

ANS: D PTS: 1 DIF: Easy REF: p. 44

OBJ: LO: 2-2 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

18. _____ are special because they can affect currency values and the fiscal and monetary policies of governments, shape public perception of competitiveness, and determine the level of imports a country can afford.

a.	Protectionistic laws
b.	Mixed aid credits
c.	Exports
d.	Nontariffs

ANS: C PTS: 1 DIF: Easy REF: p. 45

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

19. Which of the following statements is true about foreign direct investment?

a.	Foreign investments may result in growing concern among policymakers about dependency on foreign owners.
b.	The United States is the sole foreign direct investor in the world.
c.	Foreign affiliates are not participants of trade.
d.	Foreign direct investment tends to be distributed equally across all industries.

ANS: A PTS: 1 DIF: Moderate REF: p. 46

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

20. When a company expands its market by offering its products to international customers, it can produce more of its products efficiently, thus reducing the overall cost of each individual unit. This is known as _____.

a.	product diversification
b.	product differentiation
c.	economies of scale
d.	monopolistic competition

ANS: C PTS: 1 DIF: Moderate REF: p. 45

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

21. Which of the following statements is true about exports?

a.	Exports are important in a microeconomic sense, in terms of balancing the trade account.
b.	Exporting ultimately leads to a firm achieving diseconomies of scale.
c.	Exporting results in a firm being overly dependent on a particular market.
d.	Exporting makes a firm sensitive to different demand structures and cultural dimensions.

ANS: D PTS: 1 DIF: Challenging REF: p. 45

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

22. Which of the following is the result of a country’s decision to impose restrictions on its foreign direct investments?

a.	Free access to foreign capital
b.	Lower interest rates
c.	Tightened credit markets
d.	Decreased domestic market share

ANS: C PTS: 1 DIF: Moderate REF: p. 46

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

23. How has the U.S. Congress responded in light of persistent trade deficits, growing foreign direct investment, and the tendency of some firms and industries to seek legislative redress for failures in marketplace?

a.	It left all trade decisions to be made by the WTO.
b.	It organized a ban of imported products which compete with longstanding companies.
c.	It provided more powers to the president to restrict trade.
d.	It declared “war” on countries that restricted foreign direct investments.

ANS: C PTS: 1 DIF: Moderate REF: p. 46

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

24. “Voluntary” import restraints have been used mainly in areas such as textiles, automobiles, and steel, and are intended to _____.

a.	help domestic companies regain their trade prominence of years past
b.	show good political citizenship by members
c.	penalize exporters of raw materials
d.	situate the imports as a political component as opposed to a trade embargo

ANS: A PTS: 1 DIF: Moderate REF: p. 47

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Comprehension

25. Meat-eats, a business entity located in Miami has recently started promoting “Buying U.S.A.,” a campaign that focuses on the purchase of meat products that are manufactured exclusively in the United States. This campaign would be projected as _____.

a.	a nontariff barrier to trade
b.	poor public relations
c.	significantly helping the international global market
d.	increasing the levels of global competition

ANS: A PTS: 1 DIF: Challenging REF: p. 50

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Application

26. Providing preferential treatment to domestic bidders over foreign bidders, using national standards that are not comparable to international standards, placing emphasis on design rather than performance, and providing for general difficulties in the market entry of foreign products are all examples of _____.

a.	import/export quotas
b.	protectionistic legislation
c.	mixed aid credits
d.	nontariff barriers

ANS: D PTS: 1 DIF: Moderate REF: p. 50

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Application

27. The Export-Import Bank of the United States gives loans known as _____ that are composed partially of commercial interest rates and partially of highly subsidized developmental aid interest rates.

a.	untied aid credits
b.	mixed aid credits
c.	payday loans
d.	title loans

ANS: B PTS: 1 DIF: Easy REF: p. 51

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

28. When U.S. firms work together to establish export promotion development, as allowed by the Export Trading Company Act of 1982, the companies are in effect forming a(n) _____.

a.	trading treaty
b.	trade promotion authority
c.	export consortia
d.	export diversification

ANS: C PTS: 1 DIF: Easy REF: p. 52

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

29. The disappointment with past trade negotiations is mainly the result of _____.

a.	lack of funds
b.	low global competitiveness
c.	excessive competitiveness
d.	overblown expectations

ANS: D PTS: 1 DIF: Easy REF: p. 53

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

30. The authority to negotiate international agreements with a reasonable certainty that the negotiation outcome will not be subject to minute amendments must be given by Congress to the _____.

a.	judiciary
b.	business leaders
c.	functional intermediaries
d.	executive branch

ANS: D PTS: 1 DIF: Moderate REF: p. 53

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

31. Trade negotiations that are conducted between two nations are known as _____.

a.	coalition pacts
b.	multilateral treaties
c.	bilateral negotiations
d.	negotiation frameworks

ANS: C PTS: 1 DIF: Easy REF: p. 53

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

32. Which of the following gave Congress the right to accept or reject trade treaties and agreements, but reduced the amendment procedures?

a.	Protectionistic legislation
b.	Trade promotion authority
c.	Judicial immunity
d.	Export consortia

ANS: B PTS: 1 DIF: Moderate REF: p. 53

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

33. What must policymakers do for trade and investment negotiations between countries to be long-lasting?

a.	Appoint taxing authority from an outside third nonexclusive country.
b.	Total cost of policy measures affecting trade and investment should be ignored.
c.	Trade off short-term achievements for long-term goals.
d.	Implement profit booking in the short term.

ANS: C PTS: 1 DIF: Moderate REF: p. 54

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Knowledge

34. When economic coordination between trading partners continues, leading trading nations will _____.

a.	propagate increased competitiveness
b.	exploit the dollar and devalue it in relation to the euro
c.	compromise the WTO charter
d.	lose their national sovereignty to some degree

ANS: D PTS: 1 DIF: Moderate REF: p. 55

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Comprehension

35. Policymakers will be sufficiently responsive in setting international trade policy objectives that increase opportunities for firms and choices for consumers when _____.

a.	the voices of retailers, consumers, wholesalers, and manufacturers are heard
b.	all nations adopt the IMF treaty
c.	the WTO imposes sanctions on nonresponsive countries
d.	a performance plan is developed to adhere to customer feedback

ANS: A PTS: 1 DIF: Moderate REF: p. 55

OBJ: LO: 2-3 NAT: BUSPROG: Analytic

STA: DISC: International Perspective KEY: Bloom's: Comprehension

ESSAY

1. How did international trade affect the rise and fall of the Roman Empire?

ANS:

One of the major world powers in ancient history was the Roman Empire. Its impact on thought, knowledge, and development can still be felt today. Even while expanding their territories through armed conflicts, the Romans placed primary emphasis on encouraging international business activities. The principal approaches used to implement this emphasis were the Pax Romana, or the Roman Peace, and common coinage. The Pax Romana ensured that merchants were able to travel safely on roads. The common coinage ensured that business transactions could be carried out easily throughout the empire. The immense growth of the Roman Empire occurred through the linkages of business rather than through the marching of its legions and warfare. When the outside tribes attacked the empire, the Roman empire was already substantially weakened, because former allies no longer saw any advantage in being associated with the Romans and willingly cooperated with the invaders. This indicates that international trade played a major role in world history, especially with the Roman Empire.

PTS: 1 DIF: Moderate REF: p. 33 | p. 35 OBJ: LO: 2-1

NAT: BUSPROG: Analytic STA: DISC: International Perspective

KEY: Bloom's: Knowledge

2. Explain the significance of the World Bank.

ANS:

The World Bank’s official name is the International Bank for Reconstruction and Development. It was formed in 1944 to aid countries suffering from the destruction of war. After completing this process most successfully, it has since taken on the task of aiding world development. With new nations emerging from the colonial fold of the world powers of the early twentieth century, the bank has made major efforts to assist fledgling economies to participate in a modern economic trade framework. More recently, the bank has begun to participate actively with the IMF to resolve the debt problems of the developing world and to bring a market economy to the former members of the Eastern bloc.Major debates surround the effectiveness of the bank’s expenditures.

The World Bank tries now to reorient its outlook, focusing more on capacity building and the development of human capital through investments into education and health. Key performance criteria are now the sustainability of growth and development, addressing higher commodity prices, agricultural assistance in times of higher food prices, opening world trade to all countries, and greater participation of rising economic powers and developing nations in the bank’s governance. As it approaches its major challenge of reducing global poverty, the World Bank “delivers technical, financial, and other assistance to those most in need and where it can have the greatest impact and promote growth: to the poorest countries, fragile states, and the Arab World; to middle-income countries; to solving global public goods issues; and to delivering knowledge and learning services.”

PTS: 1 DIF: Moderate REF: p. 40-41 OBJ: LO: 2-2

NAT: BUSPROG: Analytic STA: DISC: International Perspective

KEY: Bloom's: Comprehension

3. Describe the significance of export promotion efforts.

ANS:

Many countries provide export promotion assistance to their firms. Key reasons for such assistance are the national need to earn foreign currency, the encouragement of domestic employment, and the increase in domestic economic activity. Many forms of export promotion can be seen as government distortion of trade because government support simply results in a subsidization of profitability or reduction of risk. Yet there are instances where such intervention may be justified. Government support can be appropriate if it annuls unfair foreign practices, increases market transparency and therefore contributes to the better functioning of markets, or helps overcome, in the interest of long-term national competitiveness, the short-term orientation of firms.

The U.S. Department of Commerce provides companies with an array of data on foreign trade and marketing developments. Its Commercial Service provides a link with U.S. businesses in terms of information flow and market assistance. Efforts are made to coordinate the activities of diverse federal agencies. An official interagency advocacy network was created that helps U.S. companies win overseas contracts for large government purchases abroad. A variety of agencies now collaborate in order to continue to improve services to U.S. exporters.Many countries also provide substantial levels of private-sector support. A new focus has come about in the area of export financing. Policymakers have increasingly recognized that U.S. business may be placed at a disadvantage if it cannot meet the subsidized financing rates of foreign suppliers. The Export-Import Bank of the United States, charged with the mission of aggressively meeting foreign export-financing conditions, has in recent years even resorted to offering mixed aid credits. The bank has also launched a major effort to reach out to smaller-sized businesses and assist in their export success. Tax legislation that inhibited the employment of Americans by U.S. firms abroad has also been altered to be more favorable to U.S. firms. One other export-promotion development was the passage of the Export Trading Company Act of 1982. Intended to be the U.S. response to Japanese sogoshoshas, or international trading firms, this legislation permits firms to work together to form export consortia. The basic idea was to provide the foreign buyer with a one-stop shopping center in which a group of U.S. firms could offer a variety of complementary and competitive products. By exempting U.S. firms from current antitrust statutes, and by permitting banks to cooperate in the formation of these ventures through direct capital participation and the financing of trading activities, the government hoped that more firms could participate in the international marketplace.

PTS: 1 DIF: Challenging REF: p. 51-52 OBJ: LO: 2-3

NAT: BUSPROG: Analytic STA: DISC: International Perspective

KEY: Bloom's: Comprehension