ADM 3318 International Business December 12, Possible Final Exam Questions and Answers

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Frederick Ryan
5 years ago
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1 Questin #1: What are the drivers f glbalizatin? Glbalizatin: The shift tward a mre integrated and interdependent wrld ecnmy. Drivers f Glbalizatin: - Declining Trade and Investment Barriers: Many barriers t internatinal trade tk the frm f high tariffs n imprts f manufactured gds. The typical aim f such tariffs was t prtect dmestic industries. Freign Direct Investment (FDI): Occurs when a firm invests resurces in business activities utside its hme cuntry. - The Rle f Technlgical Change: Micrprcessrs and Telecmmunicatins: Perhaps the single mst imprtant innvatin fr glbalizatin. It allwed fr the explsive grwth f high-pwer, lw-cst cmputing, and vastly increasing the amunt f infrmatin that can be prcessed by individuals and firms. The Internet and Wrld Wide Web: The web makes it much easier fr buyers and sellers t find each ther, wherever they may be lcated and whatever their size. Transprtatin Technlgy: In ecnmic terms, the mst imprtant develpment f transprtatin technlgy is the use f cmmercial jet aircrafts, super-freighters, and the intrductin f cntainerizatin, which simplifies transhipment frm ne mde f transprt t anther. Questin #2: Why d firms prefer t acquire existing assets/firms (thrugh Mergers and Acquisitins) than undertake Greenfield Investments? Greenfield Investment: Establishing a new peratin in a freign cuntry. M&A: Acquiring r merging with an existing firm in the freign cuntry. Why M&A ver Greenfield? 1. M&As are quicker t execute. 2. Freign firms are acquired because they have valuable strategic assets. 3. The acquiring firms believe they can increased the efficiency f the acquired unit by transferring capital, technlgy, and/r management skills. Questin #3: PPP thery states that everything that is the same prduct r services shuld cst the same arund the wrld. This is nt the case, why? Althugh PPP thery seems t yield relatively accurate predictins in the lng run, it des nt appear t be a strng predictr f shrt run mvements in exchange rates cvering time spans f five years r less. - This culd be a result f: 1. PPP thery des nt accunt fr transprtatin cst and barriers t trade. 2. Gvernment interventin: PPP thery states that market rates will establish exchange rates; hwever, all cuntries exert a degree f cntrl ver their exchange rate. 3. Multinatinal Enterprises have lts f pricing pwer. Mnply and Oligply market structures shw evidence f crprate cmpetitrs clluding with ne anther ver price.

2 4. PPP thery des nt accunt fr taxes. Taxes influence the prices f gds. Questin #4: Describe and cmment n varius levels f ecnmic integratin. Reginal Ecnmic Integratin: Agreements amng cuntries in a gegraphic regin t reduce and ultimately remve tariff and nn-tariff barriers t free flw f gds, services, and factrs f prductin between each ther. Levels f Ecnmic Integratin: 1. Free Trade: N tariffs, qutas, subsidies, r admin. impediments are allwed between member states. Can impst prtectin regulatins fr inward flw. N such thing as "free trade." There is merely liberalized trade between cuntries. 2. Custms Market: Eliminates trade barriers between members and cmmn ext. trade plicy. Extremely rare. 3. Cmmn Market: N barriers t trade between members, cmmn external trade plicy. Allwed free flw f factrs f prductin. This is tugh t create and maintain. 4. Ecnmic Unin: Free flw f prducts and factrs f prductins, cmmn currency, cmmn mnetary and fiscal plicy, and tax harmnizatin. EU wuld nt be cnsidered a ecnmic unin because they have different taxes. 5. Plitical Ecnmy: All states and prvinces cmbined int a single natin united by demcracy. Best examples are the US and Canada. Questin #5: What are the advantages and disadvantages f the different kind f exchange rate systems? Flating Exchange Rate: A system under which the exchange rate fr cnverting ne currency int anther is cntinuusly adjusted depending n the law f supply and demand. - Advantages: Mst likely t g t an internatinal level. - Disadvantages: A lt f vlatility, difficult fr mnetary plicies, and gvernments can run deficits in respnse t plitical pressures. Pegged Exchange Rate: A system under which the value f a cuntry's currency is fixed relative t a reference currency, and then the exchange rate between that currency and ther currencies is determined by the reference currency exchange rate. - Advantages: Keeps inflatin fr the individual cuntry lw. - Disadvantage: Creates an unfair cmpetitive advantage fr cuntries that utilize a lw peg. Dirty Flat: A system under which a cuntry's currency is nminally allwed t flat freely against ther currencies, but in which the gvernment will intervene if it believes the currency has devalued t far frm its value. - Advantages: Central banks can regulate the vlatility f exchange rates. - Disadvantages: Crisis respnse is very slw, and banks dn't intervene fast enugh.

3 Fixed Exchange Rate: A system under which the exchange rate fr cnverting ne currency int anther is set at a cnstant rate. - Advantages: Makes business planning much easier and nullifies mnetary plicies. - Disadvantages: Nt practical and cuntries dn't want t give up exchange rates. Questin #6: ADM 3318 IB Cnsultants have been asked by a Canadian firm t prvide a brief reprt n hw it shuld select a freign cuntry t prduct its new bidegradable tilets. Hw wuld yu suggest a gd lcatin? Cuntry Factrs: Other things being equal, a firm shuld lcate its varius manufacturing activities where the ecnmic, plitical, and cultural cnditins are cnducive t the perfrmance f thse activities. - Frmal and infrmal trade barriers bviusly influence lcatin decisins. - Anther factr is expected future mvements in the cuntry's exchange rate. Technlgical Factrs: - Fixed Csts: In sme cases, the fixed csts f setting up a prductin plant are really high. In this situatin, it wuld make sense t serve the wrld market frm ne lcatin. - Minimum Efficient Scale: The level f utput at which mst plant-level scale ecnmies are exhausted. (Ecnmies f Scale plays n affect). High MES = centralize prductin t ne place - Flexible Manufacturing and Mass Custmizatin: 1. Flexible Manufacturing: Technlgy designed t reduce setup time, imprve jb scheduling, and imprve quality cntrl. 2. Mass Custmizatin: The ability f cmpanies t use flexible manufacturing technlgy t achieve prduct custmizatin at lw cst. Prduct Factrs: - Value-t-Weight Rati: This rati influences transprtatin decisins. Many electrnic cmpnents and pharmaceuticals have high value-t-weight ratis because they are expensive and weigh very little. A high rati = multiple prductin lcatins. - Universal Needs: Needs are nt the same all ver the wrld. If the prduct des nt meet universal needs, it shuld be kept t where it des. Lcating Prductin Facilities: Tw basic strategies. 1. Cncentrating them in a centralized lcatin and serving the wrld market frm there. Makes Sense When: (1) High variance in cuntry factrs and lw trade barriers; (2) exchange rates are stable; (3) High fixed csts and high MES; (4) High valuet-weight rati and it meets universal needs. 2. Decentralizing them in varius reginal r natinal lcatins that are clse t majr markets. Makes Sense When: Oppsite f abve.

4 Questin #7: ADM 3318 IB Cnsultants have been asked by a Chinese aut firm t advise it n hw t decide n making r buying a special battery it will need fr the cars t be made in its Canadian factries. Make r Buy Decisin? Advantages f Make: - Lwering Csts: If the firm is mre efficient at prducing the cmpnent than any ther firm, they shuld cntinue t prduce it in-huse. - Facilitating Specialized Investment: An asset whse value is cntingent upn a particular persisting relatinship. When substantial investment in specialized assets are required t manufacture a cmpnent, the firm will prefer t make the cmpnent internally. - Prtecting Prprietary Prduct Technlgy: Firms d nt want t get the technlgy that makes their prduct superir. - Imprving Scheduling: Planning, crdinatin, and scheduling f adjacent prcesses much easier and, in sme cases, easier. The Advantages f Buy: - Strategic Flexibility: The firm can maintain its flexibility by switching rders between suppliers as circumstances dictate. The aim is t get the best deal. - Lwer Csts: In-huse prductin requires a lt f crdinatin and supervisin and there is a smaller incentive t reduce cst. The benefits f making all r part f a prduct in-huse seem t be greatest when (1) highly specialized assets are invlved; (2) vertical integratin is necessary fr prtecting prprietary technical knwledge; (3) and the firm is mst efficient. - If these cnditins are nt met, it is better t buy the prduct r the cmpnents. Questin #8: What impacts wuld trade barriers have n a Canadian business wner perating a subsidiary within the Eurpean Unin. - Trade barriers wuld have very little impact n the Canadian business wner because the subsidiary within the Eurpean Unin is nt acting in trade (that is t say imprting and exprting gds). The Subsidiary is taking the frm f Freign Direct Investment. - Freign Direct Investment (FDI): Occurs when a firm invests directly in facilities t prduce r market a prduct in a freign cuntry. - The Eurpean des nt exhibit restrictins n FDI like it des fr imprts. There are n transprtatin csts, tariffs, r qutas.

5 Questin #9: An MBA student says: "We have several hundreds f free trade agreements. There are yet thers t cme and virtually every cuntry is engaged in ne r mre f them. I cnclude that we have achieved DOHA. DOHA isn't dead. It's here already!" S hw d yu respnd t this student? - Dha: Capital city in Qatar where the WTO is lking t cnduct free trade negtiatins cncerning tariffs, barriers, FDI, etc. - The gal was t make free trade easier by taking away tariffs, bring dwn ther trade barriers, and regulate antidumping. - The MBA students is arguing that there is n need fr additinal Dha debates because the wrld already has s many free trade agreements: NAFTA, APEC, EFTA, TPP, etc. - The prblem with the current situatins f free trade agreements is that they are centralized t certain regins. Fr example, NAFTA nly applies t Nrth America (Canada, USA, and Mexic). - My respnse t the MBA student: Althugh there are existing free trade agreements between natins, there is n free trade agreement fr the wrld. It is fr this reasn that there is a need fr the cntinuatin f the Dha negtiatins. Fuck this class.

Edexcel (B) Economics A-level

Edexcel (B) Economics A-level Edexcel (B) Ecnmics A-level Theme 3: The Glbal Ecnmy 3.1 Glbalisatin 3.1.4 Trade plicy and trade negtiatins Ntes Prtectinism: Prtectinism is the act f guarding a cuntry s industries frm freign cmpetitin,