ADM 3318 International Business December 12, 2010
Possible Final Exam Questions and
Answers
Question #1: What are the drivers of globalization?
Globalization: The shift toward a more integrates and interdependent world economy.
Drivers of Globalization:
- Declining Trade and Investment Barriers:
o Many barriers to international trade took the form of high tariffs on imports of
manufactured goods. The typical aim of such tariffs was to protect domestic
industries.
o Foreign Direct Investment (FDI): Occurs when a firm invests resources in
business activities outside its home country.
- The Role of Technological Change:
o Microprocessors and Telecommunications: Perhaps the single most important
innovation for globalization. It allowed for the explosive growth of high-power, low-
cost computing, and vastly increasing the amount of information that can be
processed by individuals and firms.
o The Internet and World Wide Web: The web makes it much easier for buyers and
sellers to find each other, wherever they may be located and whatever their size.
o Transportation Technology: In economic terms, the most important development of
transportation technology is the use of commercial jet aircrafts, super-freighters, and
the introduction of containerization, which simplifies transhipment from one mode of
transport to another.
Question #2: Why do firms prefer to acquire existing assets/firms (through Mergers and Acquisitions)
than undertake Greenfield Investments?
Greenfield Investment: Establishing a new operation in a foreign country.
M&A: Acquiring or merging with an existing firm in the foreign country.
Why M&A over Greenfield?
1. M&As are quicker to execute.
2. Foreign firms are acquired because they have valuable strategic assets.
3. The acquiring firms believe they can increased the efficiency of the acquired unit by
transferring capital, technology, and/or management skills.
Question #3: PPP theory states that everything that is the same product or services should cost the
same around the world. This is not the case, why?
Although PPP theory seems to yield relatively accurate predictions in the long run, it does not appear to
be a strong predictor of short run movements in exchange rates covering time spans of five years or less.
- This could be a result of:
1. PPP theory does not account for transportation cost and barriers to trade.
2. Government intervention: PPP theory states that market rates will establish exchange
rates; however, all countries exert a degree of control over their exchange rate.
3. Multinational Enterprises have lots of pricing power. Monopoly and Oligopoly market
structures show evidence of corporate competitors colluding with one another over
price.
4. PPP theory does not account for taxes. Taxes influence the prices of goods.
This study source was downloaded by 100000852681095 from CourseHero.com on 12-12-2022 03:46:26 GMT -
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, ADM International December 12,
Possible Final Exam Questions and
Question #4: Describe and comment on various levels of economic integration.
Regional Economic Integration: Agreements among countries in a geographic region to reduce and
ultimately remove tariff and non-tariff barriers to free flow of goods, services, and factors of production
between each other.
Levels of Economic Integration:
1. Free Trade: No tariffs, quotas, subsidies, or admin. impediments are allowed between
member states. Can impost protection regulations for inward flow.
o No such thing as "free trade." There is merely liberalized trade between countries.
2. Customs Market: Eliminates trade barriers between members and common ext. trade policy.
o Extremely rare.
3. Common Market: No barriers to trade between members, common external trade
policy. Allowed free flow of factors of production.
o This is tough to create and maintain.
4. Economic Union: Free flow of products and factors of productions, common currency,
common monetary and fiscal policy, and tax harmonization.
o EU would not be considered a economic union because they have different taxes.
5. Political Economy: All states and provinces combined into a single nation united by democracy.
o Best examples are the US and Canada.
Question #5: What are the advantages and disadvantages of the different kind of exchange rate
systems?
Floating Exchange Rate: A system under which the exchange rate for converting one currency into
another is continuously adjusted depending on the law of supply and demand.
- Advantages: Most likely to go to an international level.
- Disadvantages: A lot of volatility, difficult for monetary policies, and governments can
run deficits in response to political pressures.
Pegged Exchange Rate: A system under which the value of a country's currency is fixed relative to a
reference currency, and then the exchange rate between that currency and other currencies is
determined by the reference currency exchange rate.
- Advantages: Keeps inflation for the individual country low.
- Disadvantage: Creates an unfair competitive advantage for countries that utilize a low peg.
Dirty Float: A system under which a country's currency is nominally allowed to float freely against other
currencies, but in which the government will intervene if it believes the currency has devalued too far
from its value.
- Advantages: Central banks can regulate the volatility of exchange rates.
- Disadvantages: Crisis response is very slow, and banks don't intervene fast enough.
Fixed Exchange Rate: A system under which the exchange rate for converting one currency into
another is set at a constant rate.
- Advantages: Makes business planning much easier and nullifies monetary policies.
- Disadvantages: Not practical and countries don't want to give up exchange rates.
This study source was downloaded by 100000852681095 from CourseHero.com on 12-12-2022 03:46:26 GMT -
https://www.coursehero.com/file/16665726/Possible-Final-Exam-Questions-and-
Possible Final Exam Questions and
Answers
Question #1: What are the drivers of globalization?
Globalization: The shift toward a more integrates and interdependent world economy.
Drivers of Globalization:
- Declining Trade and Investment Barriers:
o Many barriers to international trade took the form of high tariffs on imports of
manufactured goods. The typical aim of such tariffs was to protect domestic
industries.
o Foreign Direct Investment (FDI): Occurs when a firm invests resources in
business activities outside its home country.
- The Role of Technological Change:
o Microprocessors and Telecommunications: Perhaps the single most important
innovation for globalization. It allowed for the explosive growth of high-power, low-
cost computing, and vastly increasing the amount of information that can be
processed by individuals and firms.
o The Internet and World Wide Web: The web makes it much easier for buyers and
sellers to find each other, wherever they may be located and whatever their size.
o Transportation Technology: In economic terms, the most important development of
transportation technology is the use of commercial jet aircrafts, super-freighters, and
the introduction of containerization, which simplifies transhipment from one mode of
transport to another.
Question #2: Why do firms prefer to acquire existing assets/firms (through Mergers and Acquisitions)
than undertake Greenfield Investments?
Greenfield Investment: Establishing a new operation in a foreign country.
M&A: Acquiring or merging with an existing firm in the foreign country.
Why M&A over Greenfield?
1. M&As are quicker to execute.
2. Foreign firms are acquired because they have valuable strategic assets.
3. The acquiring firms believe they can increased the efficiency of the acquired unit by
transferring capital, technology, and/or management skills.
Question #3: PPP theory states that everything that is the same product or services should cost the
same around the world. This is not the case, why?
Although PPP theory seems to yield relatively accurate predictions in the long run, it does not appear to
be a strong predictor of short run movements in exchange rates covering time spans of five years or less.
- This could be a result of:
1. PPP theory does not account for transportation cost and barriers to trade.
2. Government intervention: PPP theory states that market rates will establish exchange
rates; however, all countries exert a degree of control over their exchange rate.
3. Multinational Enterprises have lots of pricing power. Monopoly and Oligopoly market
structures show evidence of corporate competitors colluding with one another over
price.
4. PPP theory does not account for taxes. Taxes influence the prices of goods.
This study source was downloaded by 100000852681095 from CourseHero.com on 12-12-2022 03:46:26 GMT -
https://www.coursehero.com/file/16665726/Possible-Final-Exam-Questions-and-
, ADM International December 12,
Possible Final Exam Questions and
Question #4: Describe and comment on various levels of economic integration.
Regional Economic Integration: Agreements among countries in a geographic region to reduce and
ultimately remove tariff and non-tariff barriers to free flow of goods, services, and factors of production
between each other.
Levels of Economic Integration:
1. Free Trade: No tariffs, quotas, subsidies, or admin. impediments are allowed between
member states. Can impost protection regulations for inward flow.
o No such thing as "free trade." There is merely liberalized trade between countries.
2. Customs Market: Eliminates trade barriers between members and common ext. trade policy.
o Extremely rare.
3. Common Market: No barriers to trade between members, common external trade
policy. Allowed free flow of factors of production.
o This is tough to create and maintain.
4. Economic Union: Free flow of products and factors of productions, common currency,
common monetary and fiscal policy, and tax harmonization.
o EU would not be considered a economic union because they have different taxes.
5. Political Economy: All states and provinces combined into a single nation united by democracy.
o Best examples are the US and Canada.
Question #5: What are the advantages and disadvantages of the different kind of exchange rate
systems?
Floating Exchange Rate: A system under which the exchange rate for converting one currency into
another is continuously adjusted depending on the law of supply and demand.
- Advantages: Most likely to go to an international level.
- Disadvantages: A lot of volatility, difficult for monetary policies, and governments can
run deficits in response to political pressures.
Pegged Exchange Rate: A system under which the value of a country's currency is fixed relative to a
reference currency, and then the exchange rate between that currency and other currencies is
determined by the reference currency exchange rate.
- Advantages: Keeps inflation for the individual country low.
- Disadvantage: Creates an unfair competitive advantage for countries that utilize a low peg.
Dirty Float: A system under which a country's currency is nominally allowed to float freely against other
currencies, but in which the government will intervene if it believes the currency has devalued too far
from its value.
- Advantages: Central banks can regulate the volatility of exchange rates.
- Disadvantages: Crisis response is very slow, and banks don't intervene fast enough.
Fixed Exchange Rate: A system under which the exchange rate for converting one currency into
another is set at a constant rate.
- Advantages: Makes business planning much easier and nullifies monetary policies.
- Disadvantages: Not practical and countries don't want to give up exchange rates.
This study source was downloaded by 100000852681095 from CourseHero.com on 12-12-2022 03:46:26 GMT -
https://www.coursehero.com/file/16665726/Possible-Final-Exam-Questions-and-
