IBUS 401 Exam 1 Questions and Answers 2025
/. Course Focus - Answer-Publicly-listed multinational firms domiciled in the United
States and their foreign wholly-owned subsidiaries
/.Primary Goal of Financial Managers - Answer-•Maximize shareholder/stockholder
wealth
•
/.Agency Problems and Agency Costs are generally... - Answer-•greater for MNCs than
for purely domestic firms
•Direct: expenses benefit mangers not shareholders
•Indirect: + NPV projects passed up (not quantifiable)
•More for MNC due to things like culture, size, distance
/.•Centralized vs. Decentralized management - Answer-•Centralized: everyone reports
to headquarters
•Decentralized: regions
/.Why Conduct International Business? - Answer-•Competitive Advantage
•Who is best at what (e.g., cheap labor)?
•Leads to outsources to ↑firm value
•Imperfect Markets
•Can 100% of production and manufacturing occur at home (i.e., in domestic market)?
•Product Cycle
New Product à Maturity à Standardization and Streamlining of Manufacturing
/.Comparative Advantage - Answer-•A country has a comparative advantage in
producing a good (or service) if its opportunity cost of production is less than other
countries
/.Absolute Advantage - Answer-•A country has absolute advantage if it can produce a
good (or service) at a lower cost or use fewer resources in its production than other
countries
/.Ways of Conducting International Business - Answer-•Trade: exports and/or imports
•Licensing: contract agreement
•Franchise: contract agreement
•Joint Venture: 2 firms join forces in project
•Mergers & Acquisitions ("M&A")
•Establishment of new subsidiaries
,/.Lincensing v Franchising - Answer-Licensing: a company charges a fee to a foreign
company to use its intellectual property, brand, or design
Franchising: a company charges a foreign entity to use its business model and brand
name to operate an independent branch
/.Joint Venture - Answer-A corporate project undertaken by at least two companies from
different countries where the two companies retain their independent identities
/.Merger and Acquisitin - Answer-Merger: The combination of two companies located in
different countries
Acquiistin: The purchase of a company outside of the company's domestic country
/.Aggregate Output of a Country - Answer-•Gross Domestic Product ("GDP") and Gross
National Product ("GNP") measure the market value of all final goods and services
produced by factors (e.g., labor and capital) for a given period
/.Gross Domestic Product ("GDP") - Answer-•located within a country or economy
•Production of goods and services by foreigners within a country
•GDP more widely used as a measure of economy activity occurring within the country
/.Gross National Product ("GNP") - Answer-•supplied by citizens of a country or
economy
•Production of goods and services by citizens outside the country
/.GNP and GDP similarity - Answer-*Production of goods and services by citizens within
a country
/.•Some countries have large differences between GDP and GNP because: - Answer-
•They have many citizens who work abroad (e.g., Portugal)
•They pay more for the use of foreign-owned assets in domestic production than they
earn on assets they own abroad (e.g., Brazil)
/.Imports vs. Exports - Answer-Imports: Purchases from abroad
Exports:Sales to abroad
/.Net Exports - Answer-Value of Exports -Value of Imports
/.Trade Balance - Answer-Trade is balanced
Exports = Imports
Net Exports = 0
Trade Surplus
Exports > Imports
Net Exports is positive
Trade Deficit
Exports < Imports
Net Exports is negative
, /.•The economy of this country is closed - Answer-•An autarky occurs when a country
does not trade with other countries
•Price of good or service in economy is autarkic price
/.•The economy of this country is open - Answer-•Price of good or service in world
market is world price (assuming no trade restrictions)
/.Benefits of Open Economy - Answer-•Provides domestic households with larger
variety of goods and services
•
•Provides domestic companies with access to foreign markets and capital
•
•Provides domestic investors with access to foreign capital markets, foreign assets, and
greater investment opportunities
•
•Encourages goods and services that are more competitively priced
/.Free trade - Answer-•occurs when there are no government restrictions on a country's
ability to trade
•Global aggregate demand and supply determine the equilibrium quantity and price of
imports and exports
/.Trade protection - Answer-•Often, governments impose policies that restrict trade (e.g.,
tariffs and quotas)
•Prevent market forces (i.e., supply and demand) from determining equilibrium price of
imports and exports
/.Globalization - Answer-According to Deardorff, globalization refers to:
1.the "increasing worldwide integration of markets for goods, services, and capital that
began to attract special attention in the late 1990s."
2."a variety of other changes that were perceived to occur at about the same time, such
as an increased role for large corporations (i.e., MNCs) in the world economy and
increased intervention into domestic policies and affairs by international organizations."
/.Importance of Trade - Answer-•The importance of trade can be measured using the
ratio: (Trade in Goods and Services)/GDP
•
•From 1970 - 2006 trade as a percentage of regional GDP increased for all regions
•Developing/emerging countries in Asia had the fastest growth in trade
•Trade, as a percentage of GDP, increased in most regions of the world during 1990 -
2009
•
•Consistent with the worldwide economic downturn, these values declined for 2010 -
2016
•
/. Course Focus - Answer-Publicly-listed multinational firms domiciled in the United
States and their foreign wholly-owned subsidiaries
/.Primary Goal of Financial Managers - Answer-•Maximize shareholder/stockholder
wealth
•
/.Agency Problems and Agency Costs are generally... - Answer-•greater for MNCs than
for purely domestic firms
•Direct: expenses benefit mangers not shareholders
•Indirect: + NPV projects passed up (not quantifiable)
•More for MNC due to things like culture, size, distance
/.•Centralized vs. Decentralized management - Answer-•Centralized: everyone reports
to headquarters
•Decentralized: regions
/.Why Conduct International Business? - Answer-•Competitive Advantage
•Who is best at what (e.g., cheap labor)?
•Leads to outsources to ↑firm value
•Imperfect Markets
•Can 100% of production and manufacturing occur at home (i.e., in domestic market)?
•Product Cycle
New Product à Maturity à Standardization and Streamlining of Manufacturing
/.Comparative Advantage - Answer-•A country has a comparative advantage in
producing a good (or service) if its opportunity cost of production is less than other
countries
/.Absolute Advantage - Answer-•A country has absolute advantage if it can produce a
good (or service) at a lower cost or use fewer resources in its production than other
countries
/.Ways of Conducting International Business - Answer-•Trade: exports and/or imports
•Licensing: contract agreement
•Franchise: contract agreement
•Joint Venture: 2 firms join forces in project
•Mergers & Acquisitions ("M&A")
•Establishment of new subsidiaries
,/.Lincensing v Franchising - Answer-Licensing: a company charges a fee to a foreign
company to use its intellectual property, brand, or design
Franchising: a company charges a foreign entity to use its business model and brand
name to operate an independent branch
/.Joint Venture - Answer-A corporate project undertaken by at least two companies from
different countries where the two companies retain their independent identities
/.Merger and Acquisitin - Answer-Merger: The combination of two companies located in
different countries
Acquiistin: The purchase of a company outside of the company's domestic country
/.Aggregate Output of a Country - Answer-•Gross Domestic Product ("GDP") and Gross
National Product ("GNP") measure the market value of all final goods and services
produced by factors (e.g., labor and capital) for a given period
/.Gross Domestic Product ("GDP") - Answer-•located within a country or economy
•Production of goods and services by foreigners within a country
•GDP more widely used as a measure of economy activity occurring within the country
/.Gross National Product ("GNP") - Answer-•supplied by citizens of a country or
economy
•Production of goods and services by citizens outside the country
/.GNP and GDP similarity - Answer-*Production of goods and services by citizens within
a country
/.•Some countries have large differences between GDP and GNP because: - Answer-
•They have many citizens who work abroad (e.g., Portugal)
•They pay more for the use of foreign-owned assets in domestic production than they
earn on assets they own abroad (e.g., Brazil)
/.Imports vs. Exports - Answer-Imports: Purchases from abroad
Exports:Sales to abroad
/.Net Exports - Answer-Value of Exports -Value of Imports
/.Trade Balance - Answer-Trade is balanced
Exports = Imports
Net Exports = 0
Trade Surplus
Exports > Imports
Net Exports is positive
Trade Deficit
Exports < Imports
Net Exports is negative
, /.•The economy of this country is closed - Answer-•An autarky occurs when a country
does not trade with other countries
•Price of good or service in economy is autarkic price
/.•The economy of this country is open - Answer-•Price of good or service in world
market is world price (assuming no trade restrictions)
/.Benefits of Open Economy - Answer-•Provides domestic households with larger
variety of goods and services
•
•Provides domestic companies with access to foreign markets and capital
•
•Provides domestic investors with access to foreign capital markets, foreign assets, and
greater investment opportunities
•
•Encourages goods and services that are more competitively priced
/.Free trade - Answer-•occurs when there are no government restrictions on a country's
ability to trade
•Global aggregate demand and supply determine the equilibrium quantity and price of
imports and exports
/.Trade protection - Answer-•Often, governments impose policies that restrict trade (e.g.,
tariffs and quotas)
•Prevent market forces (i.e., supply and demand) from determining equilibrium price of
imports and exports
/.Globalization - Answer-According to Deardorff, globalization refers to:
1.the "increasing worldwide integration of markets for goods, services, and capital that
began to attract special attention in the late 1990s."
2."a variety of other changes that were perceived to occur at about the same time, such
as an increased role for large corporations (i.e., MNCs) in the world economy and
increased intervention into domestic policies and affairs by international organizations."
/.Importance of Trade - Answer-•The importance of trade can be measured using the
ratio: (Trade in Goods and Services)/GDP
•
•From 1970 - 2006 trade as a percentage of regional GDP increased for all regions
•Developing/emerging countries in Asia had the fastest growth in trade
•Trade, as a percentage of GDP, increased in most regions of the world during 1990 -
2009
•
•Consistent with the worldwide economic downturn, these values declined for 2010 -
2016
•
