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UB11e Chap003 TB

Chapter 03 - Doing Business in Global Markets

TEST PLANNING TABLE FOR CHAPTER 3

Learning Objective

LL:1
Knows Basic
Terms and Facts

LL:2
Understands
Concepts and
Principles

LL:3
Applies Principles

1. Discuss the
importance of the global
market and the roles of

comparative advantage
and absolute advantage
in global trade.

1,2,3,4,5,6,7,8,9,10,11,12,
13,14,
183,184,185,186,187,188,
189,190,191,192,193

15,16,17,18,19,20,
194,195,196,197,198,
199

21,22,23,
200,201,202,203,204,
205,206,207,208,
348

2. Explain the
importance of importing
and exporting, and
understand key terms
used in global business.

24,25,26,27,28,29,30,31,
32,33,34,35,36,37,38,39,
40,41,42,43,44,
209,210,211,212,213,214,
215,216,217,218,219

45,46,47,
220,221,222,

48,49,50,51,52,53,54,
223,224,225,226,227,
228,229,230,231

3. Illustrate the
strategies used in
reaching global markets
and explain the role of
multinational
corporations.

55,56,57,58,59,60,61,62,
63,64,65,66,67,68,69,70,
71,72,73,74,75,76,77,78,
232,233,234,235,236,237,
238,239,240,241,242,243,
244,245,246~,247,248

79,80,81,82,83,84,85,
86,
249,250,251,252,253,
254,255,256,257

4. Evaluate the forces
that affect trading in
global markets.

97,98,99,100,101,102,103,
104,105,106,107,108,109,
110,111,112,113,114,115,
269,270,271,272,273,274,
275,276,277,278,279,280,
281,282

116,117,118,119,120,
121,122,123,124,
283,284,285,286

5. Debate the
advantages and
disadvantages of trade
protectionism.

132,133,134,135,136,137,
138,139,141,142,143,144,
145,146,147,148,
302,303,304,305,306,307,
308,309,310,311,312,313,
314,315,316,317

149,150,151,152,153,
154,155,156,157,158,
159,160,161,
318,319,320,321

87,88,89,90,91,92,93,
94,95,96,
258,259,260,261,262,
263,264,265,266,267,
268,
349,
353*,356*,358*
125,126,127,128,129,
130,131,
287,288,289,290,291,
292,293,294,295,296,
297,298,299,300,301,
350,351,
354*,355*
162,163,164,
322,323,324,325,326,
327,328,329,330,331,
332,333,334,
357*

6. Discuss the
changing landscape of
the global market and the
issue of offshore
outsourcing.

165,166,167,168,169,170,
171,172,173,174,
335,336,337,338,339,340,
341

175,176,177,178,
342,343,344,345,346

179,180,181,182,
347
352

Total number of test items: 358
True/false questions are in plain text.
Multiple choice questions are in bold text.
Questions on boxed material are in bold text with a tilde~.
Essay questions are in bold underlined text.
Minicase questions are in bold with an asterisk*.

Chapter 03
3-1


Chapter 03 - Doing Business in Global Markets

Doing Business in Global Markets and Answer Key

True / False Questions

1. Today, over 90% of the companies doing business globally believe it is important for their
employees to have experience working in other countries.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

2. Importing is the selling of products to another country.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

3. Exporting is the selling of products to another country.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

4. The United States imports more products and services than any nation in the world.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

5. The United States is the largest exporter in the world.
Answer: False

3-2


Chapter 03 - Doing Business in Global Markets
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

6. Competition in exporting is very intense.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

7. One reason countries trade with other countries is that even technologically advanced
nations cannot produce all the products their people want and need.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

8. Free trade is the movement of goods and services between nations without political or
economic barriers.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

9. Global trade is the exchange of goods and services between countries.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

10. Global trade includes the exchange of art, sports, and cultural events.
Answer: True

3-3


Chapter 03 - Doing Business in Global Markets
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

11. Absolute advantage is the basis for most global trade today.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

12. Comparative advantage theory states that a country should sell to other countries those
products that it produces most efficiently and buy from other countries those products it
cannot produce as efficiently.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

13. A country has an absolute advantage if the production of a specific product is more
efficient than all other nations.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

14. Today, there are more countries that have some form of absolute advantage in a product or
service, than years ago.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

3-4


Chapter 03 - Doing Business in Global Markets

15. Free trade results in a mutually beneficial exchange between and among nations.

Feedback: Trading countries generally benefit from a free trade environment because global
trade enables a nation to produce what it is most capable of producing and to buy what it
needs from others in a mutually beneficial exchange relationship.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

16. With respect to free trade, many U.S. citizens prefer "fair trade, not free trade."

Feedback: Many in the U.S. take the position: "fair trade, not free trade." Free trade continues
to be a hotly debated topic. Figure 3.2 in the textbook provides common pros and cons on this
subject.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

17. Opportunities for college graduates in international business continue to decrease as it gets
more expensive to travel abroad.

Feedback: Business graduates today have many opportunities to work for companies that
participate in international trade. The consumer market for international trade is over 7 billion,
as opposed to the market of over 317 million people in the U.S.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

3-5


Chapter 03 - Doing Business in Global Markets

18. An example of a U.S. import would be the purchase of oil by U.S. companies from Saudi
Arabia.

Feedback: U.S. imports include goods and services that originate in another country
purchased by a U.S. citizen or government.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

19. According to the theory of comparative advantage, a country should buy from other
countries those goods it produces most efficiently.

Feedback: The theory of comparative advantage states that a country should produce and sell
to other countries those products that it produces most effectively and efficiently. Conversely,
a country should buy those products produced more efficiently by other countries.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

20. In order to enjoy the highest standard of living possible, comparative advantage theory
states that all nations should strive to become self-sufficient.

Feedback: The theory of comparative advantage states that a country should export those
goods that it produces most efficiently and import those goods that it cannot produce as
efficiently.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

3-6


Chapter 03 - Doing Business in Global Markets

21. Products made in Canada are sold in the U.S. because these two nations agree to eliminate
economic and political barriers between nations. They participate in free trade.

Feedback: Free trade is the buying and selling between and among nations without political
or economic barriers.
Answer: True
AACSB: Knowledge Applications
Bloom’s: Apply
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

22. After finishing college, Nathan joined his uncle's company in Miami, FL, a company that
buys bauxite, copper, and other minerals from the country of Chile, and brings them into
the U.S. Everyday, he brokers trades with mines in Chile. His uncle's company is in the
export business.

Feedback: The company is in the business of importing. They buy minerals from another
nation and bring the product into the U.S. Exporting is selling product to another country.
Answer: False
AACSB: Analytical Thinking
Bloom’s: Analyze
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

23. In southern California, there are banana plantations. These plantations cannot produce all
the bananas consumed by persons in the U.S. The fact that the U.S. grows and sells
bananas gives it a comparative advantage in bananas. It is not an absolute advantage and
that is why we choose to import bananas from other countries, as well.

Feedback: The U.S. does not have a comparable advantage or an absolute advantage in
bananas. We cannot produce bananas as efficiently as other nations (comparative advantage)
and we are not the only nation in the world that produces bananas (absolute advantage).
Answer: False
AACSB: Reflective Thinking
Bloom’s: Apply
Learning Objective: 03-01 Discuss the importance of the global market and the roles of comparative advantage and absolute advantage in
global trade
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

3-7


Chapter 03 - Doing Business in Global Markets

24. Small businesses are less involved in global trade today than in the past.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

25. Many foreign students in U.S. colleges and universities have discovered profitable
opportunities by importing goods from their home countries into the United States.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

26. International trade is not limited to multinational corporations. Small businesses do about
30% of all exporting out of the U.S.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

27. Just about anything that can be sold in the United States can also be sold to buyers in other
countries.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

28. Foreign travel can help in identifying global business opportunities.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

29. If your business has an outstanding product, exporting offers a quick, easy, no-hassle way
to improve your profitability.
Answer: False

3-8


Chapter 03 - Doing Business in Global Markets
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

30. U.S. exports boost the U.S. economy.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

31. A favorable balance of trade occurs when the value of a country's imports exceeds the
value of its exports.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

32. A favorable balance of trade occurs when the value of a country's exports exceeds the
value of its exports.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

33. The balance of payments measures the inflows and outflows of money from tourism,
foreign aid, military expenditures and foreign investments as well as flows resulting from
exports and imports.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

34. A trade deficit is the same as a favorable balance of trade.
Answer: False

3-9


Chapter 03 - Doing Business in Global Markets
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

35. The United States enjoys a trade surplus in the global market.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

36. Recently the United States has experienced its highest trade deficits with China.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

37. Even though the U.S. exports a vast amount of goods globally, it exports a much lower
percentage of its products than other countries do.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

38. Dumping is the practice of selling products in foreign markets at lower prices than what
domestic firms are charging for the same product.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

39. In order to prevent dumping, U.S. law stipulates that foreign firms selling similar products
as domestic firms to U.S. customers must charge at least 10% more than what U.S. firms
charge.
Answer: False

3-10


Chapter 03 - Doing Business in Global Markets
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

40. When trading in global markets, most countries prefer to import more than they export.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

41. Compared to many other industrialized countries, the United States has historically
exported a lower percentage of its products than other countries do.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

42. Compared to many other industrialized countries, the United States has historically
exported a much higher percentage of its products than other countries do.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

43. The United States currently enjoys a favorable balance of trade with the rest of the world.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

44. A favorable balance of trade occurs when the value of a nation's exports exceeds its
imports.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

3-11


Chapter 03 - Doing Business in Global Markets

45. In any given year, the United States' cash outflow to other nations exceeds its cash inflow
from other nations.

Feedback: The U.S. has bought more goods from other nations than it has sold to other
nations. Thus it owes more money to other nations than other nations owe the U.S. Its cash
outflow exceeds its cash inflow.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

46. Some firms will practice "dumping" in order to gain a foothold in a new market.

Feedback: By offering products at a cheaper price than in domestic markets, foreign-based
producers can attract customers who would have otherwise purchased domestically made
goods. This strategy is illegal in the United States.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

47. As the most powerful economy in the world, the United States does not need to concern
itself with having an unfavorable balance of payments.

Feedback: The balance of payments is the difference between money coming into a country
from exports and money leaving the county from imports plus money flows from other
sources, including foreign investments. The United States, like any other nation, can have an
unfavorable balance of payments.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

3-12


Chapter 03 - Doing Business in Global Markets

48. The country of Hasastan exports $250 of goods and services and imports $170 of goods
and services. Hasastan has an unfavorable balance of trade of $80.

Feedback: An unfavorable balance of trade, or trade deficit, occurs when the value of imports
exceeds that of exports. In this case, Hasastan has a favorable balance of trade of $80.
Answer: False
AACSB: Analytical Thinking
Bloom’s: Analyze
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

49. If visitors from Germany spend money at Florida's Walt Disney World, it will increase the
U.S.'s unfavorable balance of payments.

Feedback: An unfavorable balance of payments occurs when more money is flowing out of a
country than is flowing into that country. Foreign tourists spending money in the U.S. provide
an inflow of money.
Answer: False
AACSB: Knowledge Application
Bloom’s: Apply
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

50. A Chinese steel manufacturer is selling certain types of steel in the United States at a price
significantly lower than it sells the same steel in its home market. This practice may be a
violation of U.S. law.

Feedback: U.S. laws against dumping are specific and require foreign firms to price their
products to include 10% overhead costs plus an 8% profit margin, making the price of goods
in the U.S. at least the same as the price in the home market.
Answer: True
AACSB: Knowledge Application
Bloom’s: Apply
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

3-13


Chapter 03 - Doing Business in Global Markets

51. Japanese auto manufacturers, such as Toyota and Nissan, have invested billions of dollars
in the United States by building new factories, warehouses, and offices. These investments
increase favorably the balance of payments for the United States.

Feedback: The balance of payments is the difference between money coming into a country
from exports and money leaving the country from imports plus money flows from other
sources, including foreign investments.
Answer: True
AACSB: Knowledge Application
Bloom’s: Apply
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

52. When the U.S. provides foreign aid to Israel and Egypt, a balance of payments outflow
occurs.

Feedback: United States dollars spent elsewhere in the form of tourism, foreign aid, military
expenditures, and foreign investment are all examples of balance of payments outflows.
Answer: True
AACSB: Analytical Thinking
Bloom’s: Analyze
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

53. The value of Chinese exports coming to the United States is greater than the value of
goods China buys from the U.S. This results in a U.S. trade deficit with China.

Feedback: A trade deficit occurs when the value of the country's imports exceed that of its
exports.
Answer: True
AACSB: Knowledge Application
Bloom’s: Apply
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

3-14


Chapter 03 - Doing Business in Global Markets

54. The country of New Florentina mines more fluorite each year than it needs for its own
manufacturing purposes. Recently, a neighboring country complained that its
manufacturing sites could buy fluorite from New Florentina cheaper than they could buy it
from its own mines. A government trading expert's claim that New Florentina is dumping
fluorite onto its neighbor's market is probably accurate.

Feedback: Dumping is selling products in a foreign country at lower prices than what the
foreign country's own industries can sell the same product for. Most nations agree that this is
an illegal practice.
Answer: True
AACSB: Analytical Thinking
Bloom’s: Analyze
Learning Objective: 03-02 Explain the importance of importing and exporting, and understand key terms used in global business
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

55. When competing in global markets, business organizations utilize a variety of strategies to
reach foreign buyers.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

56. Through licensing, domestic firms give foreign manufacturers/producers the right to
produce their product and use their trademark in exchange for royalties.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

57. When a firm agrees to license its product, it gains notoriety but gives up all revenues.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

58. Franchising is popular both domestically and internationally.
Answer: True

3-15


Chapter 03 - Doing Business in Global Markets
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

59. An advantage of licensing is that licensors spend little or no money to produce and market
their products. These costs are born by the licensees.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

60. The U.S. government is reducing Export Assistance Centers due to businesses' lack of
interest in their support.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

61. Export trading companies assist businesses in reaching buyers, and dealing with customs,
documentation, and payment.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

62. One advantage of licensing is the relatively low cost of entering a foreign market.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

63. One advantage of licensing as a strategy to enter the global market is the sharing of trade
secrets.
Answer: False

3-16


Chapter 03 - Doing Business in Global Markets
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

64. While franchising is popular in the United States, it is not an accepted strategy for firms in
the global market.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

65. One advantage of franchising is that the parent corporation does not need to concern itself
with adapting to the culture of another country.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

66. Contract manufacturing is when a firm pays foreign manufacturers to produce its product.
The foreign manufacturer places the domestic company's label on the products.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

67. Contract manufacturing requires heavy start-up costs by the domestic company.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

68. Contract manufacturing is a form of outsourcing.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

3-17


Chapter 03 - Doing Business in Global Markets

69. A joint venture is a partnership in which two or more companies join to undertake a major
project. All parties commit financing and risk to the project.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

70. According to current U.S. laws, American firms are prohibited from participating in joint
ventures with foreign firms.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

71. The purpose of forming strategic alliances is to share the costs of marketing new products
and services to several countries.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

72. A disadvantage of creating a foreign subsidiary is the loss of control over technology and
expertise used in the production of the product.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

73. Foreign direct investment refers to the buying of goods produced in another country.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

74. Expropriation occurs when a host government takes over the assets of a foreign company.
Answer: True

3-18


Chapter 03 - Doing Business in Global Markets
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

75. Any corporation that exports at least 50% of its total output can be classified as a
multinational corporation.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

76. Firms with a physical presence in several different nations are considered multinational
corporations.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

77. Sovereign wealth funds (a form of foreign direct investment) are investment funds
controlled by governments that hold large stakes in foreign companies.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

78. As a form of franchising, sovereign wealth funds are getting very little attention as a
strategy for doing business in foreign markets.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Remember
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 1 Easy
Topic: Trade Strategies Used in Reaching Global Markets

3-19


Chapter 03 - Doing Business in Global Markets

79. One characteristic of an international joint venture is all parties sharing the risk of a major
project.

Feedback: Joint ventures create a partnership in which companies join to undertake a major
project. Benefits of international joint ventures are (1) shared technology and risk; (2) shared
marketing and management expertise; and (3) entry into markets where foreign companies are
often not allowed unless goods are produced locally.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

80. A firm desiring to enter a foreign market with a limited investment should consider
licensing.

Feedback: An advantage of licensing is that licensors spend little money to produce and
market their products. These costs come from the licensee's pocket.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

81. When Nestlé, a Swiss company, purchased Ralston Purina, a U.S. company, Ralston
Purina became a foreign licensee.

Feedback: When one firm purchases another firm in a foreign country the purchased firm is
called a foreign subsidiary.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

3-20


Chapter 03 - Doing Business in Global Markets

82. A firm may export everything it produces overseas and yet not be considered a
multinational.

Feedback: Only firms that have manufacturing capacity or other physical presence in various
nations can be called multinational.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

83. Contract manufacturing is a low-cost way for GAP to outsource the production of its
clothing designs.

Feedback: Contract manufacturing involves the production of private-label goods by a foreign
company to which a domestic company then attaches its brand name or trademark.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

84. Strategic alliances almost always result in one company taking over the financial interests
of another company.

Feedback: A strategic alliance represents a long-term partnership between two or more
companies established to help each firm build competitive market advantages. The firms
maintain separate financial management. Their purpose is to help each other develop new
market opportunities.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

3-21


Chapter 03 - Doing Business in Global Markets

85. Governments directly participate in global markets through sovereign wealth funds.

Feedback: Foreign investment in the U.S. indicates foreign investors' preferences over
investment in other countries by investing in permanent property and businesses in the U.S.
Answer: True
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

86. The appeal of global marketing strategies is that they all involve the same amount of risk.

Feedback: Licensing one's product, franchising, and contract manufacturing involve less risk
than foreign direct investment. Acquiring subsidiaries by directly purchasing assets and
property in another nation involves more risk. If political unrest should emerge in a nation
where your business owns substantial assets, the result could be loss of business, employees,
and even the loss of your property and assets. The challenge of global marketing strategies is
that they all do not involve the same amount of risk.
Answer: False
AACSB: Reflective Thinking
Bloom’s: Understand
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 2 Medium
Topic: Trade Strategies Used in Reaching Global Markets

87. Leigh has created a technique for drying flowers that retains the vibrant color of certain
flowering plants. Although out of style in the U.S., dried flower arrangements are still
highly sought after in several European and Asian nations. It is difficult to preserve the
ingredients that go into her formula for more than a month. She decides to partner with
firms in other nations to make and sell the formula, but you suggest she license the
formula to foreign companies and agree to royalties when they create the formula and sell
it. Your advice makes better sense.

Feedback: Often, a small domestic business can expand its market by going abroad. By
licensing her product to foreign firms, she can increase her market and potentially her
revenues and profits.
Answer: True
AACSB: Analytical Thinking
Bloom’s: Analyze
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

3-22


Chapter 03 - Doing Business in Global Markets

88. The Nissan automobile assembly plant in Tennessee is an example of foreign direct
investment in the United States.

Feedback: Foreign direct investment in the United States is the buying of permanent property
and businesses in the United States like the Nissan automobile plant.
Answer: True
AACSB: Knowledge Application
Bloom’s: Apply
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

89. Kodak contracts with a firm in Taiwan to manufacture Kodak digital cameras. This is an
example of a joint venture.

Feedback: The relationship described in this question refers to contract manufacturing, not a
joint venture.
Answer: False
AACSB: Knowledge Application
Bloom’s: Apply
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

90. The All-Sports Gaming Company has avoided contract manufacturing abroad due to the
significant start-up costs in buying land and setting up its own manufacturing plants.

Feedback: Contract manufacturing involves the production of goods by a foreign company.
The benefit is the avoidance of heavy start-up costs. The company entering into contract
manufacturing agreements does not purchase the foreign manufacturer.
Answer: False
AACSB: Analytical Thinking
Bloom’s: Analyze
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

3-23


Chapter 03 - Doing Business in Global Markets

91. The Tsingtao Brewing company pays a fee to AB-InBev for the right to brew and
distribute Budweiser in China. Tsingtao is the licensor and the fee paid is a royalty.

Feedback: In this licensing agreement, Tsingtao Brewing is the licensee and AB-InBev is the
licensor. The fee paid is indeed the royalty
Answer: False
AACSB: Knowledge Application
Bloom’s: Apply
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

92. The purchase of U.S.-based Anheuser-Busch by Belgian brewer InBev is an example of
foreign direct investment.

Feedback: Foreign direct investment involves the purchase of property, business(s), or
another form of investment by a foreign company in another nation other than where the
company originates. In this situation, a large Belgian company purchased the assets of another
company, in the same industry.
Answer: True
AACSB: Knowledge Application
Bloom’s: Apply
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

93. An example of foreign direct investment would be Pepsi granting a Japanese firm the use
of its formula and trademark, for a fee.

Feedback: Licensing allows one firm to manufacture another firm's product and use their
trademark for a fee. Foreign direct investment involves the purchase of property in a foreign
country.
Answer: False
AACSB: Analytical Thinking
Bloom’s: Analyze
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

3-24


Chapter 03 - Doing Business in Global Markets

94. General Electric's (GE) website noted, "Russia has been one European country in which
GE has made significant investments. GE is one of the largest foreign companies in
Russia, operating multiple businesses including an equipment fleet with more than 1,500
large units." With physical presence in Russia, Argentina, Australia, Belgium, Greece,
Kenya, Canada and other countries, GE is an example of a multinational company.

Feedback: A multinational corporation is a company with a physical presence in several
different nations.
Answer: True
AACSB: Knowledge Application
Bloom’s: Apply
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

95. Ozark Bikes, Inc., has information that its bicycles will sell in Vietnam. In order to sell its
products in Vietnam, the Vietnamese government requires Ozark Bikes to enter into a
partnership (also known as a joint venture) with a domestic firm. Both firms will assume
costs and risk in the venture.

Feedback: A joint venture is a partnership in which companies (often from two different
countries) join to undertake a major project. Governments sometimes require foreign firms to
enter into joint ventures as a condition of doing business in their countries.
Answer: True
AACSB: Analytical Thinking
Bloom’s: Analyze
Learning Objective: 03-03 Illustrate the strategies used in reaching global markets and explain the role of multinational corporations
Level of Difficulty: 3 Hard
Topic: Trade Strategies Used in Reaching Global Markets

96. In recent years, the government of Saudi Arabia has invested over $900 billion in foreign
companies, including several U.S. companies. This move constitutes the creation of a
sovereign wealth fund, an emerging type of foreign direct investment.

Feedback: Sovereign wealth funds are investment funds controlled by governments. These
funds purchase the bonds and stock of foreign companies. This is a fast-growing form of
foreign direct investment.
Answer: True

3-25


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