FINAL EXAM CHP20, 11, 17

Question 1

Accounting is the ____________ of business

Answer 1

Language

Question 2

Political risk with international business

Answer 2

 Political change may result in the expropriation of foreign firms’ assets.
 Political and social unrest may also result in economic collapse, which can render a firm’s assets worthless.

Question 3

Economic risk with international business

Answer 3

The biggest problem arising from mismanagement has been inflation.

Question 4

Why separate subsidiary and managerial performance?

Answer 4

o Tax Burden
 Double taxation in some countries
 Tax havens can help minimize tax liability.

o Dividend Remittances
 Most common method by which firms transfer funds from foreign subsidiaries to the parent company.

o Royalty Payment and Fees
 Remuneration paid to owners of technology, patents, or trade names for use of that technology or right to manufacture and/or sell products under those patents or trade names.

Question 5

What is the International Monetary System?

Answer 5

The institutional arrangements that countries adopt to govern exchange rates.

Question 6

Floating exchange rate system

Answer 6

Exists when a country allows the foreign exchange market to determine the relative value of a currency.

Question 7

Pegged exchange rate system

Answer 7

Exists when a country fixes the value of its currency relative to a reference currency.

Question 8

Dirty float

Answer 8

Exists when a country tries to hold the value of its currency within some range of a reference currency such as the U.S. dollar.

Question 9

Fixed exchange rate system

Answer 9

Exists when countries fix their currencies against each other at some mutually agreed on exchange rate.

Question 10

The three main types of financial crises

Answer 10

o Currency crisis
o Banking crisis
o Foreign debt crisis

Question 11

Six Sigma

Answer 11

A direct descendant of total quality management (TQM) that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout the company.

Question 12

ISO 9000

Answer 12

In the EU, firms must meet ISO 9000 standards before gaining access to the EU marketplace.

Question 13

What should firms consider for technological factors?

Answer 13

o Level of fixed costs
o Minimum efficient scale
o Flexibility of the technology

Question 14

When does production in multiple locations make sense?

Answer 14

o Both fixed costs and the minimum efficient scale of production are relatively low.
o Appropriate flexible manufacturing technologies are not available.

Question 15

Why make instead of buy?

Answer 15

o Vertical integration - making component parts in-house
 Lower costs
 Facilitates investments in highly specialized assets.

Question 16

Why buy instead of make?

Answer 16

o Buying component parts from independent suppliers
 Gives the firm greater flexibility.
 Helps drive down the firm’s cost structure.
 Helps the firm capture orders from international customers.

Question 17

Just In Time (J.I.T.)

Answer 17

o JIT systems economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process.
 Major cost savings from reduced warehousing and inventory holding costs.