Chapter 02 - International Trade and Foreign Direct Investment
Chapter 02 International Trade and Foreign Direct Investment
True / False Questions
1. American FDI, used primarily for establishing foreign production plants, increased so much from 1996 to 2007 that, as a result, U.S. exports decreased during that period. True False
2. Supplying overseas markets via exporting to them and producing in them is essential to most major U.S. corporations. True False
3. International trade includes exports, imports and foreign direct investment. True False
4. International firms must export their products or services in order to establish and expand their overseas operations. True False
5. Foreign sourcing, exporting, and foreign production comprise the three ways that firms engage in international business. True False
6. Foreign sourcing is the overseas procurement of financial support. True False
2-1 Chapter 02 - International Trade and Foreign Direct Investment
7. Nearly three-quarters of American companies that exported goods in 2006 were small and medium-sized enterprises. True False
8. The dollar value of total world exports in 2007 was greater than the gross national product of every nation in the world except Japan. True False
9. The magnitude of international trade and how it has grown are reflected in that one-fourth of everything grown or made in the world is now exported. True False
10. The exports of most of the major exporting nations have increased at about the same rate as the world average although Japan, the E.U., and the developing nations as a whole surpassed the world average between 1992 and 2007. True False
11. The proportion of manufacturing value added that is located in developed countries has been roughly stable since 1995. True False
12. South and East Asia's share of the world's manufacturing value added has nearly tripled since 1980. True False
13. In 2006, the top 20 nations accounted for nearly 75 percent of all exports and imports of merchandise worldwide. True False
2-2 Chapter 02 - International Trade and Foreign Direct Investment
14. More than half the exports from developing nations go to developed countries, and this proportion is increasing. True False
15. Both developed nations and developing nations tend to trade more with developed nations. True False
16. The extensive distribution system based on general trading companies (sogo shoshain Japanese) is one reason Japan sells more to developed nations than do most developed nations. True False
17. Japanese companies have significantly more subsidiaries in developing nations than American companies do; these subsidiaries provide captive customers for their owners. True False
18. Expanded regional trade agreements can substantially alter the level and proportion of trade flows within and across regions, and the share of world trade accounted for by members of regional trade agreements has increased from 37 to over 70 percent. True False
19. International companies' choices of locations for their plants and other operations are influenced by the fact that members of trade groups are increasingly selling more to each other. True False
20. An analysis of the major trading partners of the firm's home country and those of the nations where it has affiliates that export is of limited value to management. True False
2-3 Chapter 02 - International Trade and Foreign Direct Investment
21. There are a number of advantages in focusing attention on a nation that is already a sizable purchaser of goods coming from the would-be exporter's country. True False
22. China, Mexico, and Japan are the three largest trading partners of the U.S., in terms of the total volume of imports and exports. True False
23. Foreign investment can be divided into two components: promotion investment and direct investment. True False
24. Portfolio investment is the purchase of sufficient stock in a firm to obtain significant management control. True False
25. Direct investment is the purchase of stocks and bonds to obtain a return on the funds invested. True False
26. The United States accounts for more outward foreign direct investment than any other nation. True False
27. The proportion of the outstanding stock of foreign direct investment accounted for by the United States declined by two-thirds between 1985 and 2006. True False
2-4 Chapter 02 - International Trade and Foreign Direct Investment
28. The proportion of the outstanding stock of foreign direct investment accounted for by Japan declined from 12 percent to 4.0 percent between 1990 and 2006. True False
29. The proportion of the outstanding stock of foreign direct investment that comes from developing nations decreased from 14 percent in 1980 to 10 percent in 2006. True False
30. Industrialized nations invest primarily in one another just as they trade more with one another. True False
31. Although annual flows of foreign direct investment still come primarily from developed countries, the proportion of worldwide outward FDI that comes from developing nations increased to over 20 percent in 2006. True False
32. The position of China and its territories as an increasingly larger destination for inward foreign direct investment from 1995 to 2004 represents a threat to other Asian economies. True False
33. If a nation is continuing to receive appreciable amounts of foreign investment, its investment climate must be favorable. True False
34. Historically, foreign direct investment has followed foreign trade, and one reason is that foreign trade is typically less costly and less risky than making a direct investment into foreign markets. True False
2-5 Chapter 02 - International Trade and Foreign Direct Investment
35. Although the countries of sub-Saharan Africa have largely missed out on the trend of increasing international flows of foreign direct investment over the past two decades, the majority of African nations have introduced legislation liberalizing foreign direct investment. True False
36. The new business environment of fewer government barriers to trade, increased competition from globalizing firms, and new production and communications technology is causing many international firms to disperse the activities of their production systems to locations close to available resources, and then integrate the entire production process either regionally or globally. True False
37. The size, growth, and direction of U.S. foreign direct investment has been much more in the developing countries than in the developed countries. True False
38. The 30 highest-ranked nations in the Trade and Development Index are all developed countries. True False
39. Asian nations account for over one quarter of the total foreign direct investment in the United States. True False
40. Firms from just eight nations, the UK, Japan, Netherlands, Germany, Canada, Switzerland, China, and France own approximately 84 percent of the total foreign direct investment in the United States. True False
2-6 Chapter 02 - International Trade and Foreign Direct Investment
41. Since 1986, there has been more foreign investment in the United States than the level of American foreign direct investment abroad. True False
42. Most of the foreign direct investment in the United States has been spent on establishing new companies. True False
43. International firms enter foreign markets to increase profits and sales or protect markets from competition. True False
44. One problem with using GDP per capita in developing nations as a basis for comparing economies is that statistical systems in many developing nations are deficient and the reliability of the data is questionable. True False
45. Many developing markets are growing at faster rates than is the U.S. market. 69 of 171 countries in the World Bank database had GDP per capita growth rates exceeding that of the U.S. True False
46. The maquiladora sector in Mexico is undergoing a major shift toward activities that are highly labor-intensive, due to increased competition from China and other nations. True False
47. The means for supplying foreign markets may be summarized in two activities: exporting to them or manufacturing in them. True False
2-7 Chapter 02 - International Trade and Foreign Direct Investment
48. The seven dimensions along which management can globalize include products, markets, labor, and government. True False
49. The seven dimensions along which management can globalize include products, promotion, competitive strategy, and extent of global ownership in the firm. True False
Multiple Choice Questions
50. One measure of the magnitude of international trade and how it has grown is ______of everything grown or made in the world is now exported. A. 10% B. 25% C. 32% D. 45%
51. The dollar value of total world exports in 2004 was greater than the gross national product of every nation in the world except the A. People's Republic of China B. Germany C. Japan D. United States
52. The quadrupling of world exports between 1990 and 2007 demonstrates that ______. A. businesspeople must be prepared to meet increased competition B. domestic business cannot compete with cheap imports C. the opportunity to increase sales by exporting is a viable growth strategy D. A, B, and C E. A and C
2-8 Chapter 02 - International Trade and Foreign Direct Investment
53. More than half of the exports from developing nations go to developed nations and A. this proportion has been declining over the past 35 years. B. over 70 percent of exports from developed economies also go to other industrialized nations. C. Japan, the European Union, Australia and New Zealand each sends a larger portion of its exports to developing nations than do other developed economies. D. all of the above E. A and B
54. When considering where to export, advantages to managers of focusing on a nation that is already a sizable purchaser of goods coming from the home country include: A. The cultures of the two countries should be relatively similar and compatible. B. The climate for foreign direct investment in the importing nation is relatively favorable. C. Export and import regulations are not insurmountable. D. All of the above E. A and B
55. Many of the same Asian countries that are major exporters to the United States are also significant importers of American goods because: A. their rising standards of living enable their people to afford more imported products. B. they are purchasing large amounts of capital goods to further their industrial expansion. C. they are importing raw materials and components that will be assembled and subsequently be exported, often to the U.S. D. All of the above. E. A and B
56. The three largest markets for American exports of goods in 2007 were: A. Japan, the U.K., and China. B. Japan, Mexico, and the U.K. C. Canada, Mexico, and China. D. Canada, Japan, and the U.K. E. Japan, Mexico, and China.
2-9 Chapter 02 - International Trade and Foreign Direct Investment
57. The three nations that exported the largest amount of goods to the United States in 2007 were: A. Japan, Canada, and China. B. China, Mexico, and the U.K. C. Japan, China, and Saudi Arabia. D. Canada, Japan, and Mexico. E. Canada, Mexico, and China.
58. Foreign investment includes the following components: A. portfolio investment. B. joint venture investments. C. direct investment. D. A and C. E. A, B, and C.
59. Firms from ______had the largest total outstanding stock of direct overseas investment at the end of 2006. A. Germany B. the United States C. the United Kingdom D. Japan E. France
60. At the end of 2006, the value of the outstanding stock of foreign direct investment of all nations totaled more than: A. 500 billion dollars B. 1 trillion dollars C. 6 trillion dollars D. 12 trillion dollars E. 18 trillion dollars
2-10 Chapter 02 - International Trade and Foreign Direct Investment
61. Regarding the annual outflows of foreign direct investment, A. the proportion that came from developing nations in 207 was nearly double the average from those nations from 1985 to 1995. B. the proportion that came from the United States and Europe was nearly 30 percent. C. much of the recent increase has been associated with mergers, acquisitions, and other international investments made by companies in industries facing increased competition and global consolidation. D. nearly half went to China and its territories in 2007. E. All of the above.
62. From 1985 to 2006, the highest proportion of foreign direct investment from the United States has gone to ______. A. Mexico B. Japan C. the European Union D. Canada E. China
63. Firms from which countries are the major investors in the United States? A. Industrialized nations of Europe. B. Oil-rich Middle East nations. C. Japan. D. Canada.
64. In using GNP per capita as a basis for making comparisons of nations' economies, A. extreme care must be exercised to avoid drawing unwarranted conclusions. B. realize statistical systems in many developing countries are deficient. C. realize the reliability of the data provided is often questionable. D. All of the above. E. B and C.
2-11 Chapter 02 - International Trade and Foreign Direct Investment
65. GDP/capita: A. is an excellent tool for comparing the market potential of different nations. B. takes into consideration the distribution of income. C. is an arithmetic mean obtained by dividing GDP by the population. D. all of the above. E. A and B.
66. These are reasons to enter foreign markets: A. to increase profits, protect foreign markets, guarantee market share B. to protect foreign markets, maintain access to raw materials, and establish geographic diversification C. to increase profits D. B and C
67. In-bond plants (maquiladoras): A. are allowed to import parts and finished products without any import duties. B. are located on the border between Mexico and the U.S. C. provide competitive production sites due to lower cost labor. D. All of the above. E. None of the above.
68. Increasing wage rates in Mexico have affected maquilas in the following ways: A. encouraged Mexican firms to establish U.S. plants to supply the Mexican market. B. encouraged higher value work in the Mexican maquila plants. C. encouraged American plants in Mexico to supply the Mexican market. D. A and B. E. A, B and C.
69. When foreign exchange is scarce, governments usually give preference to the importation of: A. B and C. B. capital goods. C. raw materials. D. consumer goods. E. all of the above.
2-12 Chapter 02 - International Trade and Foreign Direct Investment
70. Methods for supplying foreign markets may be categorized in just two activities: A. exporting to a foreign market and manufacturing in it. B. exporting goods to a foreign market and exporting services to it. C. manufacturing in a foreign market and licensing technology. D. establishing joint ventures and wholly-owned production facilities.
71. According to the text, there are ______dimensions along which management can globalize. A. at least seven B. no more than two C. over twelve D. A and C
Essay Questions
72. Discuss the importance of small and medium-sized enterprises in generating export sales.
73. According to the text, discuss the importance of international trade and investment to companies.
2-13 Chapter 02 - International Trade and Foreign Direct Investment
74. Discuss the main trends in the level of international trade in the past 20 years.
75. Discuss the main trends in the direction of international trade in the past 20 years.
76. Discuss the advantages in focusing attention on a nation that is already a sizable purchaser of goods coming from the exporter's home country.
77. Discuss the main trends in the level and direction of foreign investment in the past 20 years.
2-14 Chapter 02 - International Trade and Foreign Direct Investment
78. Identify and discuss the nations that invest the most in the United States, and how trends in the level of investments they make in that country.
79. Does trade lead FDI or does FDI lead trade? Please explain your reasoning.
80. How do trade and investment affect economic and social development?
81. Why have more of the investment outlays made in the United States by foreign firms been spent on acquiring going companies rather than establishing new ones?
2-15 Chapter 02 - International Trade and Foreign Direct Investment
82. Explain the levels of foreign direct investment into Africa.
83. Discuss the various reasons international firms enter foreign markets.
84. Describe the in-bond plant concept. Of what interest is this to the Mexican and American manufacturers?
85. The text identifies at least seven dimensions along which management can globalize. What are these dimensions?
Fill in the Blank Questions
2-16 Chapter 02 - International Trade and Foreign Direct Investment
86. Most major U.S. corporations supply their overseas markets by ______and ______. ______
87. ______and ______are two approaches to meeting overseas demand. ______
88. ______refers to the overseas procurement of raw materials, components, and products. ______
89. One measure of the significance or international trade is that ______of everything grown or made in the world is now exported. ______
90. More than one-half of the exports from developing countries go to ______countries, and this proportion has been ______over the past 35 years. ______
91. The three largest trading partners for the U.S., in imports and exports for the year 2007, included ______, ______, and ______. ______
92. Foreign investment may be divided into two components: ______and ______. ______
93. _____ refers to overseas purchases of stocks and bonds to gain a return on the funds invested. ______
2-17 Chapter 02 - International Trade and Foreign Direct Investment
94. The purchase of sufficient stock in a firm to obtain significant control is called ______. ______
95. Developed by the United Nations Conference on Trade and Development, the ______is a tool whose goal is to assist efforts "to systematically monitor the trade and development performance of developing countries with a view to facilitating national and international policies and strategies that would ensure that trade serves as a key instrument of development." ______
96. Historically, approximately ______of the value of corporate investments made in the United States from abroad have been spent to acquire going companies rather than to establish new ones. ______
97. An agreement by a small group of nations to establish free trade among themselves while maintaining trade restrictions with all other nations is called ______. ______
98. A government-designated zone in which workers are permitted to import parts and materials without paying import duties, as long as these imported items are then exported once they have been processed or assembled, is a(n) ______. ______
99. ______are production facilities in Mexico that temporarily import raw materials, components, or parts duty-free to be manufactured, processed or assembled with less expensive local labor, after which the finished or semifinished product is exported. ______
2-18 Chapter 02 - International Trade and Foreign Direct Investment
100. There are at least seven dimensions along which management can globalize, including ______, ______, ______, ______, ______, ______, and ______. ______
2-19 Chapter 02 - International Trade and Foreign Direct Investment
Chapter 02 International Trade and Foreign Direct Investment Answer Key
True / False Questions
1. (p. 33) American FDI, used primarily for establishing foreign production plants, increased so much from 1996 to 2007 that, as a result, U.S. exports decreased during that period. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Large International Firms Invest Overseas, and They Also Export
2. (p. 34) Supplying overseas markets via exporting to them and producing in them is essential to most major U.S. corporations. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 1 Topic: Large International Firms Invest Overseas, and They Also Export
3. (p. 34) International trade includes exports, imports and foreign direct investment. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Large International Firms Invest Overseas, and They Also Export
2-20 Chapter 02 - International Trade and Foreign Direct Investment
4. (p. 35) International firms must export their products or services in order to establish and expand their overseas operations. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Large International Firms Invest Overseas, and They Also Export
5. (p. 35) Foreign sourcing, exporting, and foreign production comprise the three ways that firms engage in international business. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 1 Topic: Large International Firms Invest Overseas, and They Also Export
6. (p. 35) Foreign sourcing is the overseas procurement of financial support. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Large International Firms Invest Overseas, and They Also Export
7. (p. 35) Nearly three-quarters of American companies that exported goods in 2006 were small and medium-sized enterprises. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 2 Topic: How Important are Small and Medium-Sized Enterprises in Generating Export Sales
2-21 Chapter 02 - International Trade and Foreign Direct Investment
8. (p. 36) The dollar value of total world exports in 2007 was greater than the gross national product of every nation in the world except Japan. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: International Trade
9. (p. 36) The magnitude of international trade and how it has grown are reflected in that one- fourth of everything grown or made in the world is now exported. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: International Trade
10. (p. 37) The exports of most of the major exporting nations have increased at about the same rate as the world average although Japan, the E.U., and the developing nations as a whole surpassed the world average between 1992 and 2007. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: International Trade
11. (p. 37) The proportion of manufacturing value added that is located in developed countries has been roughly stable since 1995. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: International Trade
2-22 Chapter 02 - International Trade and Foreign Direct Investment
12. (p. 37) South and East Asia's share of the world's manufacturing value added has nearly tripled since 1980. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: International Trade
13. (p. 37) In 2006, the top 20 nations accounted for nearly 75 percent of all exports and imports of merchandise worldwide. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: International Trade
14. (p. 38) More than half the exports from developing nations go to developed countries, and this proportion is increasing. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 2 Topic: International Trade
15. (p. 38) Both developed nations and developing nations tend to trade more with developed nations. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 2 Topic: International Trade
2-23 Chapter 02 - International Trade and Foreign Direct Investment
16. (p. 38) The extensive distribution system based on general trading companies (sogo shoshain Japanese) is one reason Japan sells more to developed nations than do most developed nations. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 2 Topic: International Trade
17. (p. 41) Japanese companies have significantly more subsidiaries in developing nations than American companies do; these subsidiaries provide captive customers for their owners. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 2 Topic: International Trade
18. (p. 41) Expanded regional trade agreements can substantially alter the level and proportion of trade flows within and across regions, and the share of world trade accounted for by members of regional trade agreements has increased from 37 to over 70 percent. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 2 Topic: International Trade
19. (p. 41) International companies' choices of locations for their plants and other operations are influenced by the fact that members of trade groups are increasingly selling more to each other. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 2 Topic: International Trade
2-24 Chapter 02 - International Trade and Foreign Direct Investment
20. (p. 42) An analysis of the major trading partners of the firm's home country and those of the nations where it has affiliates that export is of limited value to management. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 2 Topic: International Trade
21. (p. 42) There are a number of advantages in focusing attention on a nation that is already a sizable purchaser of goods coming from the would-be exporter's country. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 2 Topic: International Trade
22. (p. 42) China, Mexico, and Japan are the three largest trading partners of the U.S., in terms of the total volume of imports and exports. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 2 Topic: International Trade
23. (p. 44) Foreign investment can be divided into two components: promotion investment and direct investment. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 3 Topic: Foreign Investment
2-25 Chapter 02 - International Trade and Foreign Direct Investment
24. (p. 44) Portfolio investment is the purchase of sufficient stock in a firm to obtain significant management control. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 3 Topic: Foreign Investment
25. (p. 44) Direct investment is the purchase of stocks and bonds to obtain a return on the funds invested. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 3 Topic: Foreign Investment
26. (p. 45) The United States accounts for more outward foreign direct investment than any other nation. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
27. (p. 45) The proportion of the outstanding stock of foreign direct investment accounted for by the United States declined by two-thirds between 1985 and 2006. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
2-26 Chapter 02 - International Trade and Foreign Direct Investment
28. (p. 45) The proportion of the outstanding stock of foreign direct investment accounted for by Japan declined from 12 percent to 4.0 percent between 1990 and 2006. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
29. (p. 45) The proportion of the outstanding stock of foreign direct investment that comes from developing nations decreased from 14 percent in 1980 to 10 percent in 2006. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
30. (p. 46) Industrialized nations invest primarily in one another just as they trade more with one another. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
31. (p. 46) Although annual flows of foreign direct investment still come primarily from developed countries, the proportion of worldwide outward FDI that comes from developing nations increased to over 20 percent in 2006. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
2-27 Chapter 02 - International Trade and Foreign Direct Investment
32. (p. 48) The position of China and its territories as an increasingly larger destination for inward foreign direct investment from 1995 to 2004 represents a threat to other Asian economies. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Hard Learning Objective: 3 Topic: Foreign Investment
33. (p. 48) If a nation is continuing to receive appreciable amounts of foreign investment, its investment climate must be favorable. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
34. (p. 48) Historically, foreign direct investment has followed foreign trade, and one reason is that foreign trade is typically less costly and less risky than making a direct investment into foreign markets. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
35. (p. 55) Although the countries of sub-Saharan Africa have largely missed out on the trend of increasing international flows of foreign direct investment over the past two decades, the majority of African nations have introduced legislation liberalizing foreign direct investment. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
2-28 Chapter 02 - International Trade and Foreign Direct Investment
36. (p. 49) The new business environment of fewer government barriers to trade, increased competition from globalizing firms, and new production and communications technology is causing many international firms to disperse the activities of their production systems to locations close to available resources, and then integrate the entire production process either regionally or globally. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
37. (p. 49) The size, growth, and direction of U.S. foreign direct investment has been much more in the developing countries than in the developed countries. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
38. (p. 50) The 30 highest-ranked nations in the Trade and Development Index are all developed countries. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
39. (p. 51) Asian nations account for over one quarter of the total foreign direct investment in the United States. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 4 Topic: Foreign Direct Investment in the United States
2-29 Chapter 02 - International Trade and Foreign Direct Investment
40. (p. 51) Firms from just eight nations, the UK, Japan, Netherlands, Germany, Canada, Switzerland, China, and France own approximately 84 percent of the total foreign direct investment in the United States. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 4 Topic: Foreign Direct Investment in the United States
41. (p. 52) Since 1986, there has been more foreign investment in the United States than the level of American foreign direct investment abroad. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 4 Topic: Foreign Direct Investment in the United States
42. (p. 52) Most of the foreign direct investment in the United States has been spent on establishing new companies. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 4 Topic: Foreign Direct Investment in the United States
43. (p. 53) International firms enter foreign markets to increase profits and sales or protect markets from competition. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 5 Topic: Why Enter Foreign Markets?
2-30 Chapter 02 - International Trade and Foreign Direct Investment
44. (p. 53) One problem with using GDP per capita in developing nations as a basis for comparing economies is that statistical systems in many developing nations are deficient and the reliability of the data is questionable. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 5 Topic: Why Enter Foreign Markets?
45. (p. 55) Many developing markets are growing at faster rates than is the U.S. market. 69 of 171 countries in the World Bank database had GDP per capita growth rates exceeding that of the U.S. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 5 Topic: Why Enter Foreign Markets?
46. (p. 58) The maquiladora sector in Mexico is undergoing a major shift toward activities that are highly labor-intensive, due to increased competition from China and other nations. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 5 Topic: Why Enter Foreign Markets?
47. (p. 60) The means for supplying foreign markets may be summarized in two activities: exporting to them or manufacturing in them. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 5 Topic: Why Enter Foreign Markets?
2-31 Chapter 02 - International Trade and Foreign Direct Investment
48. (p. 60) The seven dimensions along which management can globalize include products, markets, labor, and government. FALSE
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 6 Topic: Seven Global Dimensions
49. (p. 60) The seven dimensions along which management can globalize include products, promotion, competitive strategy, and extent of global ownership in the firm. TRUE
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 6 Topic: Seven Global Dimensions
Multiple Choice Questions
50. (p. 36) One measure of the magnitude of international trade and how it has grown is ______of everything grown or made in the world is now exported. A. 10% B. 25% C. 32% D. 45%
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: International Trade
2-32 Chapter 02 - International Trade and Foreign Direct Investment
51. (p. 36) The dollar value of total world exports in 2004 was greater than the gross national product of every nation in the world except the A. People's Republic of China B. Germany C. Japan D. United States
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: International Trade
52. (p. 37) The quadrupling of world exports between 1990 and 2007 demonstrates that ______. A. businesspeople must be prepared to meet increased competition B. domestic business cannot compete with cheap imports C. the opportunity to increase sales by exporting is a viable growth strategy D. A, B, and C E. A and C
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: International Trade
53. (p. 38) More than half of the exports from developing nations go to developed nations and A. this proportion has been declining over the past 35 years. B. over 70 percent of exports from developed economies also go to other industrialized nations. C. Japan, the European Union, Australia and New Zealand each sends a larger portion of its exports to developing nations than do other developed economies. D. all of the above E. A and B
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 2 Topic: International Trade
2-33 Chapter 02 - International Trade and Foreign Direct Investment
54. (p. 42) When considering where to export, advantages to managers of focusing on a nation that is already a sizable purchaser of goods coming from the home country include: A. The cultures of the two countries should be relatively similar and compatible. B. The climate for foreign direct investment in the importing nation is relatively favorable. C. Export and import regulations are not insurmountable. D. All of the above E. A and B
AACSB: Analytic Bloom: Knowledge Difficulty: Hard Learning Objective: 2 Topic: International Trade
55. (p. 42) Many of the same Asian countries that are major exporters to the United States are also significant importers of American goods because: A. their rising standards of living enable their people to afford more imported products. B. they are purchasing large amounts of capital goods to further their industrial expansion. C. they are importing raw materials and components that will be assembled and subsequently be exported, often to the U.S. D. All of the above. E. A and B
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 2 Topic: International Trade
56. (p. 43) The three largest markets for American exports of goods in 2007 were: A. Japan, the U.K., and China. B. Japan, Mexico, and the U.K. C. Canada, Mexico, and China. D. Canada, Japan, and the U.K. E. Japan, Mexico, and China.
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 2 Topic: International Trade
2-34 Chapter 02 - International Trade and Foreign Direct Investment
57. (p. 43) The three nations that exported the largest amount of goods to the United States in 2007 were: A. Japan, Canada, and China. B. China, Mexico, and the U.K. C. Japan, China, and Saudi Arabia. D. Canada, Japan, and Mexico. E. Canada, Mexico, and China.
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 2 Topic: International Trade
58. (p. 44) Foreign investment includes the following components: A. portfolio investment. B. joint venture investments. C. direct investment. D. A and C. E. A, B, and C.
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
59. (p. 45) Firms from ______had the largest total outstanding stock of direct overseas investment at the end of 2006. A. Germany B. the United States C. the United Kingdom D. Japan E. France
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
2-35 Chapter 02 - International Trade and Foreign Direct Investment
60. (p. 45) At the end of 2006, the value of the outstanding stock of foreign direct investment of all nations totaled more than: A. 500 billion dollars B. 1 trillion dollars C. 6 trillion dollars D. 12 trillion dollars E. 18 trillion dollars
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
61. (p. 46) Regarding the annual outflows of foreign direct investment, A. the proportion that came from developing nations in 207 was nearly double the average from those nations from 1985 to 1995. B. the proportion that came from the United States and Europe was nearly 30 percent. C. much of the recent increase has been associated with mergers, acquisitions, and other international investments made by companies in industries facing increased competition and global consolidation. D. nearly half went to China and its territories in 2007. E. All of the above.
AACSB: Analytic Bloom: Knowledge Difficulty: Hard Learning Objective: 3 Topic: Foreign Investment
62. (p. 49) From 1985 to 2006, the highest proportion of foreign direct investment from the United States has gone to ______. A. Mexico B. Japan C. the European Union D. Canada E. China
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
2-36 Chapter 02 - International Trade and Foreign Direct Investment
63. (p. 51) Firms from which countries are the major investors in the United States? A. Industrialized nations of Europe. B. Oil-rich Middle East nations. C. Japan. D. Canada.
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 4 Topic: Foreign Investment
64. (p. 53) In using GNP per capita as a basis for making comparisons of nations' economies, A. extreme care must be exercised to avoid drawing unwarranted conclusions. B. realize statistical systems in many developing countries are deficient. C. realize the reliability of the data provided is often questionable. D. All of the above. E. B and C.
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 5 Topic: Why Enter Foreign Markets?
65. (p. 51) GDP/capita: A. is an excellent tool for comparing the market potential of different nations. B. takes into consideration the distribution of income. C. is an arithmetic mean obtained by dividing GDP by the population. D. all of the above. E. A and B.
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 5 Topic: Why Enter Foreign Markets?
2-37 Chapter 02 - International Trade and Foreign Direct Investment
66. (p. 53) These are reasons to enter foreign markets: A. to increase profits, protect foreign markets, guarantee market share B. to protect foreign markets, maintain access to raw materials, and establish geographic diversification C. to increase profits D. B and C
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 5 Topic: Why Enter Foreign Markets?
67. (p. 57) In-bond plants (maquiladoras): A. are allowed to import parts and finished products without any import duties. B. are located on the border between Mexico and the U.S. C. provide competitive production sites due to lower cost labor. D. All of the above. E. None of the above.
AACSB: Analytic Bloom: Knowledge Difficulty: Hard Learning Objective: 5 Topic: Why Enter Foreign Markets?
68. (p. 58) Increasing wage rates in Mexico have affected maquilas in the following ways: A. encouraged Mexican firms to establish U.S. plants to supply the Mexican market. B. encouraged higher value work in the Mexican maquila plants. C. encouraged American plants in Mexico to supply the Mexican market. D. A and B. E. A, B and C.
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 5 Topic: Why Enter Foreign Markets?
2-38 Chapter 02 - International Trade and Foreign Direct Investment
69. (p. 58) When foreign exchange is scarce, governments usually give preference to the importation of: A. B and C. B. capital goods. C. raw materials. D. consumer goods. E. all of the above.
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 5 Topic: Why Enter Foreign Markets?
70. (p. 60) Methods for supplying foreign markets may be categorized in just two activities: A. exporting to a foreign market and manufacturing in it. B. exporting goods to a foreign market and exporting services to it. C. manufacturing in a foreign market and licensing technology. D. establishing joint ventures and wholly-owned production facilities.
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 5 Topic: Why Enter Foreign Markets?
71. (p. 60) According to the text, there are ______dimensions along which management can globalize. A. at least seven B. no more than two C. over twelve D. A and C
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 6 Topic: Why Enter Foreign Markets?
Essay Questions
2-39 Chapter 02 - International Trade and Foreign Direct Investment
72. (p. 35) Discuss the importance of small and medium-sized enterprises in generating export sales.
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 1 Topic: International Trade
73. (p. 36) According to the text, discuss the importance of international trade and investment to companies.
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 1 Topic: International Trade
74. (p. 36) Discuss the main trends in the level of international trade in the past 20 years.
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 1 Topic: International Trade
75. (p. 38) Discuss the main trends in the direction of international trade in the past 20 years.
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 2 Topic: International Trade
2-40 Chapter 02 - International Trade and Foreign Direct Investment
76. (p. 41) Discuss the advantages in focusing attention on a nation that is already a sizable purchaser of goods coming from the exporter's home country.
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 2 Topic: International Trade
77. (p. 44) Discuss the main trends in the level and direction of foreign investment in the past 20 years.
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
78. (p. 45) Identify and discuss the nations that invest the most in the United States, and how trends in the level of investments they make in that country.
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 4 Topic: Foreign Investment
79. (p. 48) Does trade lead FDI or does FDI lead trade? Please explain your reasoning.
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
2-41 Chapter 02 - International Trade and Foreign Direct Investment
80. (p. 50) How do trade and investment affect economic and social development?
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
81. (p. 52) Why have more of the investment outlays made in the United States by foreign firms been spent on acquiring going companies rather than establishing new ones?
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 4 Topic: Foreign Investment
82. (p. 54) Explain the levels of foreign direct investment into Africa.
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 4 Topic: Foreign Investment
83. (p. 53) Discuss the various reasons international firms enter foreign markets.
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 5 Topic: Why Enter Foreign Markets?
2-42 Chapter 02 - International Trade and Foreign Direct Investment
84. (p. 57) Describe the in-bond plant concept. Of what interest is this to the Mexican and American manufacturers?
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Hard Learning Objective: 5 Topic: Why Enter Foreign Markets?
85. (p. 60) The text identifies at least seven dimensions along which management can globalize. What are these dimensions?
Answers may vary.
AACSB: Comprehension Bloom: Synthesis Difficulty: Medium Learning Objective: 6 Topic: Seven Global Dimensions
Fill in the Blank Questions
86. (p. 34) Most major U.S. corporations supply their overseas markets by ______and ______. exporting, production
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Large International Firms Invest Overseas, and They Also Export
2-43 Chapter 02 - International Trade and Foreign Direct Investment
87. (p. 34) ______and ______are two approaches to meeting overseas demand. International trade and foreign direct investment.
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Large International Firms Invest Overseas, and They Also Export
88. (p. 35) ______refers to the overseas procurement of raw materials, components, and products. Foreign sourcing
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 1 Topic: Large International Firms Invest Overseas, and They Also Export
89. (p. 36) One measure of the significance or international trade is that ______of everything grown or made in the world is now exported. one fourth
AACSB: Analytic Bloom: Knowledge Difficulty: Easy Learning Objective: 1 Topic: Large International Firms Invest Overseas, and They Also Export
90. (p. 38) More than one-half of the exports from developing countries go to ______countries, and this proportion has been ______over the past 35 years. developed, declining
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 2 Topic: International Trade
2-44 Chapter 02 - International Trade and Foreign Direct Investment
91. (p. 43) The three largest trading partners for the U.S., in imports and exports for the year 2007, included ______, ______, and ______. China, Canada, and Mexico
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 2 Topic: International Trade
92. (p. 44) Foreign investment may be divided into two components: ______and ______. portfolio investment, direct investment
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
93. (p. 44) _____ refers to overseas purchases of stocks and bonds to gain a return on the funds invested. Portfolio investment
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
94. (p. 44) The purchase of sufficient stock in a firm to obtain significant control is called ______. direct investment
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
2-45 Chapter 02 - International Trade and Foreign Direct Investment
95. (p. 50) Developed by the United Nations Conference on Trade and Development, the ______is a tool whose goal is to assist efforts "to systematically monitor the trade and development performance of developing countries with a view to facilitating national and international policies and strategies that would ensure that trade serves as a key instrument of development." Trade and Development Index
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 3 Topic: Foreign Investment
96. (p. 52) Historically, approximately ______of the value of corporate investments made in the United States from abroad have been spent to acquire going companies rather than to establish new ones. two-thirds
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 4 Topic: Foreign Investment
97. (p. 54) An agreement by a small group of nations to establish free trade among themselves while maintaining trade restrictions with all other nations is called ______. preferential trading arrangement
AACSB: Analytic Bloom: Knowledge Difficulty: Hard Learning Objective: 5 Topic: Why Enter Foreign Markets?
2-46 Chapter 02 - International Trade and Foreign Direct Investment
98. (p. 57) A government-designated zone in which workers are permitted to import parts and materials without paying import duties, as long as these imported items are then exported once they have been processed or assembled, is a(n) ______. preferential trading arrangement
AACSB: Analytic Bloom: Knowledge Difficulty: Hard Learning Objective: 5 Topic: Why Enter Foreign Markets?
99. (p. 57) ______are production facilities in Mexico that temporarily import raw materials, components, or parts duty-free to be manufactured, processed or assembled with less expensive local labor, after which the finished or semifinished product is exported. In-bond plants, or maquiladoras
AACSB: Analytic Bloom: Knowledge Difficulty: Medium Learning Objective: 5 Topic: Why Enter Foreign Markets?
100. (p. 60) There are at least seven dimensions along which management can globalize, including ______, ______, ______, ______, ______, ______, and ______. product, markets, promotion, where value is added to the product, competitive strategy, use of non-home-country personnel, and extent of global ownership in the firm
AACSB: Analytic Bloom: Knowledge Difficulty: Hard Learning Objective: 6 Topic: How to Enter Foreign Markets
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