International

Question 1

What is a country’s balance-of-payments account?

Answer 1

A summary accounting of all of a country’s transactions with other countries

Question 2

What is the current account?

Answer 2

Net dollar amounts earned from export of goods and services, amounts spent on import of goods and services, and government grants to foreign entities

Question 3

Capital account

Answer 3

Net dollar amount of inflows from investments and loans by foreign entities, amount of outflows from investments and loans U.S. entities made abroad, and the resulting net balance

Question 4

Financial account

Answer 4

Net dollar amount of U.S.-owned assets abroad and foreign-owned assets in the U.S.

Question 5

Free Floating currency

Answer 5

exchange rate is determined by market forces of supply and demand for a currency

Question 6

Pegged or movable currency

Answer 6

exchange rate is fixed by the gov, with frequent revisions

Question 7

Define “direct (currency) exchange rate.”

Answer 7

Currency exchange rate expressed as the domestic price of one unit of a foreign currency (e.g., U.S. dollar cost of one euro)

Question 8

Define “indirect (currency) exchange rate.”

Answer 8

Currency exchange rate expressed as the foreign currency price of one unit of the domestic currency (e.g., euro cost of one U.S. dollar)

Question 9

If the central bank of a country raises interest rates sharply, the country’s currency will most likely

Answer 9

Increase in relative value.

Question 10

Transaction Risk

Answer 10

The possible unfavorable impact of changes in currency exchange rates on transactions denominated in a foreign currency, including accounts receivable, accounts payable, and other monetary accounts to be settled in a foreign currency.

Question 11

Translation risk

Answer 11

The possible unfavorable impact of changes in currency exchange rates on the financial statements of an entity when those statements are converted from one currency to another. Changes in exchange rates directly affect the translated value of income statement and balance sheet items.

Question 12

Economic risk

Answer 12

The possible unfavorable impact of changes in currency exchange rates on a firm’s future international earning power; for example, on future costs, prices, and sales. Exchange rate changes affect the price competitiveness of entities in countries for which the exchange rate changes.

Question 13

Define “foreign currency forward exchange contract.”

Answer 13

Agreement to buy or sell a specified amount of a foreign currency at a specified future date at a specified (forward) rate

Question 14

Define “foreign currency risk hedging.”

Answer 14

A risk management strategy that seeks to offset losses resulting from changes in exchange rates between currencies by using contracts, swaps, options, and other instruments that will result in changes counter to (opposite of) the adverse effects of changes in the currency exchange rate

Question 15

foreign currency exchange contract

Answer 15

the obligation to buy or sell a foreign currency is firm; the exchange must occur

Question 16

foreign currency option contract

Answer 16

the party holding the option has the right (option) to buy (call) or sell (put) but does not have to exercise that option; the exchange will occur according to a decision made by the option holder.

Question 17

Political risk

Answer 17

the risk related to actions by a foreign government, such as enacting legislation that prevents the repatriation of a foreign subsidiary’s profits or seizing a firm’s assets. Purchasing or selling futures contracts is designed to hedge transaction risks relating to foreign exchange rates.

Question 18

Describe the primary objective of the World Bank.

Answer 18

To promote general economic development worldwide, focusing on lending to developing countries for infrastructure, agricultural, educational and similar projects

Question 19

Globalization of production

Answer 19

The sourcing of goods and services from around the world to take advantage of differences in cost and quality of the factors of production and, thereby, gain competitive advantage.

Question 20

Foreign outsourcing

Answer 20

acquiring goods from foreign suppliers

Question 21

Foreign direct investment

Answer 21

producing goods in facilities owned or controlled by U.S. companies but located in foreign countries

Question 22

Identify five risks encountered when engaging in foreign outsourcing.

Answer 22

Quality risk: Goods/services do not meet buyer’s standards.
Security risk : Foreign provider misappropriates proprietary information.
Export/Import risk: Trade barriers prevent transfer of goods/services.
Currency exchange risk: Exchange rates change unfavorably.
Legal risk: Home country or foreign country laws are violated.

Question 23

If the dollar strengthens against a foreign currency, the dollar value of an investment denominated in the foreign currency will DECLINE/INCLINE

Answer 23

decline

Question 24

The best reason corporations issue Eurobonds rather than domestic bonds is that

Answer 24

These bonds are normally a less expensive form of financing because of the absence of government regulation.

Question 25

What are Porters 3 generic strategies

Answer 25

Cost Leadership
Differentiation
Focus

Question 26

Identify four of economic factors that should be considered in a PEST analysis of a macroenvironment.

Answer 26

Economic structure, stability, and growth rate
Interest rate
Inflation rate
Currency exchange rates

Question 27

Identify four of technology factors that should be considered in a PEST analysis of a macroenvironment.

Answer 27

Level of research and development activity
State of automation capability
Level of technology “savvy”
Rate of technology change

Question 28

Identify four social factors that should be considered in a PEST analysis of a macroenvironment.

Answer 28

Population growth rate
Age distribution
Educational attainment and career attitudes
Health and safety characteristics

Question 29

Identify four political factors that should be considered in a PEST analysis of a macroenvironment.

Answer 29

Political stability
Tax policy
Labor laws
Environmental laws
International trade attitudes and restrictions

Question 30

Porters 5 Forces

Answer 30

• Threat of Entry
• Intensity of Rivalry
• Threat of Substitute goods
• Bargaining Power of Buyers
• Bargaining Power of Suppliers

Question 31

The level of Rivalry depends on what factors?

Answer 31

• Structure of competition
• product differentiation
• industry cost structure
• Entities strategic objectives
• Customer switching costs
• Exit Barriers

Question 32

Identify the three generic strategies enumerated by Michael Porter.

Answer 32

Cost leadership
Differentiation
Focus (or niche)

Question 33

Define a “cost leadership strategy.”

Answer 33

Under a cost leadership strategy, an entity seeks to be the low-cost provider for a given level of output in an industry. The strategy is intended to enable either higher gross profits than competitors or sales at a lower price to gain market share

Question 34

Define a “differentiation strategy.”

Answer 34

Under a differentiation strategy, an entity seeks to develop and offer a product or service that has unique features for which customers are willing to pay a premium price that more than covers the extra cost of providing the product or service.

Question 35

Define a “focus strategy.”

Answer 35

Under a focus strategy, an entity focuses on a narrow industry segment (an industry subgroup or “niche”) and seeks to achieve either a cost advantage, or, differentiation.