Section I: Answer each question in one paragraph
Problem 1. Professor Charles W.L. Hill says, “As used in this book, globalization refers to the shift toward a more integrated and interdependent world economy. Globalization has two main components: the globalization of markets and the globalization of production.”
Without rewording Hill’s statement, give your definition of the term Globalization.
Problem 2: In his book The Competitive Advantage of Nations, Michael Porter of the Harvard Business School tries to explain why certain nations have international success in selected industries. He does so by looking at four major attributes in a paradigm we now call “Porter’s Diamond.
In your own words, tell what the four attributes are and then evaluate Porter’s Diamond theory.
Problem 3. Shortly after World War I, the nations of the world returned to tracking the value of their currencies to the price of gold. This system lasted until the Great Depression era when nations suspended gold convertibility.
Why? And what role did the United States play in all of this?
Problem 4. Professor Hill speaks to several international trade theories. We have also addressed this in class. One of these is the Product Life Cycle theory, sometimes called the International Product Life Cycle Theory, or IPLC.
Define the IPLC in your own words and giving two examples of products that fit within this theory
Problem 5. Toward the end of World War II, with the world’s economic system of trade in ruin, over 40 nations met in the United States at a resort in New Hampshire to create rules and organizations to govern the post-war international monetary system.
What was the name of the “system” that came out of this series of meetings, what were the two multinational institutions that were established, and explain the mission of one of these two organizations.
Problem 6. There are both advantages and disadvantages to entering into international business via a certain mode.
Name two different modes of entry and thoroughly discuss the advantages and disadvantages of each, identifying at least one product or service that would go with each of your two modes.
Section II: True/False
Problem 1. In a country’s balance of payments accounts, whenever a transaction resulting in a payment from another country is entered it is done so as a debit and given a negative (-) sign.
Problem 2. The EMU is the current currency of the European Union.
Problem 3. Barterlike agreements by which goods and services can be traded for other goods and services is called Intertrade.
Problem 4. The amount of local currency required to meet interest payments and retire principle on local debt obligations is highly affected when a country’s currency depreciates.
Problem 5. High transportation costs and/or tariffs imposed on exports help explain why many firms prefer horizontal FDI or licensing over exporting.
Problem 6. Just-in-time inventory systems were pioneered by German software companies, such as SAP.
Problem 7. The theory of comparative advantage suggests that restricted free trade brings about trade in a positive-sum game.
Problem 8. A firm considering FDI usually must negotiate the terms of the investment with the host government.
Problem 9. Regional economic integration is an attempt to achieve economic gains from the free flow of trade and investment between neighboring countries.
Problem 10. Because there is a lack of governmental regulations, the eurocurrency market is unattractive to depositors and borrowers.
Problem 11. Vertical differentiation refers to how the firm is divided into subunits.
Problem 12. The most favorable aspect of the liquidity in one’s own domestic market is that the cost of capital tends to be lower than it is in the international markets.
Problem 13. The effect of a tariff is to lower the costs on imported goods.
Section III: Fill in the blank:
1. Countertrade is primarily used when a firm exports to a country whose currency is _________ and may ___________ the foreign exchange reserves needed to purchase the imports.
2. The two factors that seem to underlie the trend toward globalization are: ___________ and _____________.
3. In order to protect newly-formed industry groups, some nations will charge duties on foreign goods from those sectors in order to allow them to get strong enough to compete internationally. This is called: ___________ argument.
4. Every nation levies taxes on imports to one extent or another. Generally speaking there are two types of these taxes and they are called: ___________ and ___________.
5. Speculative pressures on the US dollar occurred in 1971 when President Nixon closed the so-called gold window. There were two basic reasons for this speculation. They were __________ and ________
6. The problems resulting from mistrust between importers and exporters can be solved by using a third party, in whom both have ________. This function is usually performed by a __________.
7. In today’s international monetary system, some countries have adopted __________ rates, while others have _________ their currency to another, while others have ___________ theirs to a basket of other currencies allowing their currency to _________ within a zone around the basket.
8. FDI can make a positive contribution to a host economy by supplying _________, ___________, and __________ that would otherwise not be available.
9. Pressures for cost reductions are greatest in industries producing ________ products where ____________ is the main competitive weapon.
10. In order to minimize risk, letters of credit should always be _____________ and as such they may be done on either a __________ or ____________ basis.
11. It is ___________ for American business to pay bribes to foreign officials where bribery is an accepted cultural tradition, as the ____________ does does not (pick one) cover this area.