IBUS 401 Exam 1 UPDATED QUESTIONS
AND CORRECT ANSWERS
Centralized management - CORRECT ANSWER allows managers of the parent firm to control
foreign subsidiaries and reduce the power of subsidiary managers
Decentralized management - CORRECT ANSWER gives more control to subsidiary managers
who are closer to the subsidiary's operation and environment
Agency cost - CORRECT ANSWER cost of ensuring managers maximize shareholder wealth
Agency problem - CORRECT ANSWER conflict of interest between managers and
shareholders (difference in goals)
Sarbanes-oxley act - CORRECT ANSWER 2002 A law passed by Congress that ensures a
more transparent process for managers to report on the productivity and financial condition of their
firm
Theory of Competitive Advantage - CORRECT ANSWER specialization increases production
efficiency
Imperfect Market Theory - CORRECT ANSWER factors of production are somewhat
immobile, providing incentive to seek out foreign opportunities
Product Cycle Theory - CORRECT ANSWER as a firm matures, it recognizes opportunities
outside its domestic market
Direct foreign investment (DFI) - CORRECT ANSWER any method of increasing
international business that requires a direct investment in foreign operations
International trade, licensing - CORRECT ANSWER what is usually not included in direct
foreign investment?
, Balance of Payments - CORRECT ANSWER summary of transactions between domestic and
foreign residents for a specific country over a specified period of time
Current Account - CORRECT ANSWER summary of flow of funds due to purchases of goods
and services or the provision of income on financial assets
Capital Account - CORRECT ANSWER summary of flow of funds resulting from the sale of
assets between one specified country and all other countries over a specified period of time
Financial Account - CORRECT ANSWER refers to special types of investment, including
direct foreign investment and portfolio investment
Removal of the Berlin Wall - CORRECT ANSWER Led to reductions in trade barriers in
Eastern Europe.
Single European Act of 1987 - CORRECT ANSWER Improved access to supplies from firms
in other European countries.
North American Free Trade Agreement (NAFTA) - CORRECT ANSWER Allowed U.S. firms
to penetrate product and labor markets that previously had not been accessible.
General Agreement on Tariffs and Trade (GATT) - CORRECT ANSWER Called for the
reduction or elimination of trade restrictions on specified imported goods over a 10-year period across
117 countries
The European Union - CORRECT ANSWER Free movement of products, services, and capital
among member countries.
Euro - CORRECT ANSWER this was invented to... Avoid exposure to exchange rate risk
Events that increased trade volume - CORRECT ANSWER Removal of the Berlin Wall, Single
European Act of 1987, North American Free Trade Agreement (NAFTA), General Agreement on
Tariffs and Trade (GATT), Inception of the Euro, Expansion of the European Union, Other Trade
Agreements
AND CORRECT ANSWERS
Centralized management - CORRECT ANSWER allows managers of the parent firm to control
foreign subsidiaries and reduce the power of subsidiary managers
Decentralized management - CORRECT ANSWER gives more control to subsidiary managers
who are closer to the subsidiary's operation and environment
Agency cost - CORRECT ANSWER cost of ensuring managers maximize shareholder wealth
Agency problem - CORRECT ANSWER conflict of interest between managers and
shareholders (difference in goals)
Sarbanes-oxley act - CORRECT ANSWER 2002 A law passed by Congress that ensures a
more transparent process for managers to report on the productivity and financial condition of their
firm
Theory of Competitive Advantage - CORRECT ANSWER specialization increases production
efficiency
Imperfect Market Theory - CORRECT ANSWER factors of production are somewhat
immobile, providing incentive to seek out foreign opportunities
Product Cycle Theory - CORRECT ANSWER as a firm matures, it recognizes opportunities
outside its domestic market
Direct foreign investment (DFI) - CORRECT ANSWER any method of increasing
international business that requires a direct investment in foreign operations
International trade, licensing - CORRECT ANSWER what is usually not included in direct
foreign investment?
, Balance of Payments - CORRECT ANSWER summary of transactions between domestic and
foreign residents for a specific country over a specified period of time
Current Account - CORRECT ANSWER summary of flow of funds due to purchases of goods
and services or the provision of income on financial assets
Capital Account - CORRECT ANSWER summary of flow of funds resulting from the sale of
assets between one specified country and all other countries over a specified period of time
Financial Account - CORRECT ANSWER refers to special types of investment, including
direct foreign investment and portfolio investment
Removal of the Berlin Wall - CORRECT ANSWER Led to reductions in trade barriers in
Eastern Europe.
Single European Act of 1987 - CORRECT ANSWER Improved access to supplies from firms
in other European countries.
North American Free Trade Agreement (NAFTA) - CORRECT ANSWER Allowed U.S. firms
to penetrate product and labor markets that previously had not been accessible.
General Agreement on Tariffs and Trade (GATT) - CORRECT ANSWER Called for the
reduction or elimination of trade restrictions on specified imported goods over a 10-year period across
117 countries
The European Union - CORRECT ANSWER Free movement of products, services, and capital
among member countries.
Euro - CORRECT ANSWER this was invented to... Avoid exposure to exchange rate risk
Events that increased trade volume - CORRECT ANSWER Removal of the Berlin Wall, Single
European Act of 1987, North American Free Trade Agreement (NAFTA), General Agreement on
Tariffs and Trade (GATT), Inception of the Euro, Expansion of the European Union, Other Trade
Agreements
