International Business - Module 5

Module 05 Political Forces That Affect Global Trade
True / False Questions
1. Only in communist countries do governments own the factors of production.
True False
2. The only reason firms are nationalized is to spread a socialist-communist ideology.
True False
3. When the U.S. military contracts out security details in war zones, it is engaged in privatization.
True False
4. When people are kidnapped for ransom, the right response is to pay the ransom, get the hostages
released, and then retaliate.
True False
5. Kidnap, ransom, and extortion are techniques often used by terrorists against which no insurance
is available.
True False
6. Businesses favor unstable governments because they present more profit opportunities.
True False
7. Unpredictable government actions create many business opportunities.
True False
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8. The practice of country risk assessment is an exercise in xenophobic and ethnocentric thinking.
True False
9. Country risks are often political in nature.
True False
10. The length of the investment in a foreign country has no impact on the risk assessment for that
investment. What matters are the economic and political situations in the country.
True False
11. The national defense argument for trade restrictions is based on the development level of the
country.
True False
12. U.S. ocean shipping companies are benefiting from U.S. government subsidies.
True False
13. Sanctions are a trade restriction that is effective in forcing change.
True False
14. To protect an infant industry, trade restrictions might be effective.
True False
15. A comparison based on hourly wages is a reasonable guide to a need to protect domestic jobs.
True False
16. Fair competition is a strong rationale for trade barriers.
True False
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17. Retaliatory trade restrictions are not made for dumping because price competition is protected by
the WTO.
True False
18. Concession dumping is a type of trade discrimination.
True False
19. Subsidies that confer a benefit may well evoke countervailing duties.
True False
20. Voluntary export restraints are imposed by the importing nation to avoid violating WTO rules.
True False
21. Nontariff barriers that are not quantitative can be divided into two groups, those established by
the government participation in trade and those that are administrative.
True False
22. Unlike the topography, the political climate of a country has relatively little influence on its
exports.
True False
23. One example of nationalization of private companies is with the nationalization of French-owned
firms in Europe after WWII.
True False
24. When government-owned companies compete with private companies, the private companies
have the advantage.
True False
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25. The British prime minister David Cameron led the privatization movement.
True False
26. One historic function of government has been the protection of the economic activities within its
borders.
True False
27. Terrorists avoid kidnapping because the repercussions can be harmful to their movement.
True False
28. Paying ransom makes sense because a life is saved and the payments can be traced.
True False
29. To hedge the terrorism risk, there are insurance, antiterrorist schools, and even companies to
handle negotiations.
True False
30. Policy continuity and government stability are more important to a business than the type of
political system.
True False
Multiple Choice Questions
5-4
31. When governments nationalize a firm, they don't seek to
A. extract more money from the firm.

B. increase the firm's profitability.
C. preserve jobs.
D. sell the firm to foreign investors.
32. With privatization, all of these may occur, except
A. assets are transferred from the public sector to the private sector.
B. government control of business management may be increased.
C. state activities are moved into private management through contracts.
D. business loses its right to hire new employees.
33. Nationalization and privatization are
A. similar trends.
B. opposing trends.
C. both risks faced by privately held firms.
D. both risks not encountered in capitalist democracies.
34. Government protection of economic activities is
A. an historical function of government.

B. a recent responsibility of government.
C. a socialist characteristic.
D. stronger in democracies.
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35. Government stability refers to all but one of the following of a government:
A. policies, that they endure over time.

B. ability to keep itself in power.
C. ability to hold to predictable fiscal, monetary, and political policies.
D. ability to adjust to sudden changes by making radical policy changes.
36. A government protects its citizens when they are abroad in the following way:
A. A powerful country can send in the marines to protect citizens.

B. A government can assert the rights of its citizens and that its laws follow its citizens, no matter
where they are (extraterritoriality).
C. Politicians can influence how a foreign country's rules are applied to its own nationals.
D. Government embassies can provide information and emergency assistance, monitor and where
appropriate, make protests.
37. The trend for firms in regard to country risk assessment (CRA) is to
A. avoid it as an added cost in competitive markets.

B. concentrate much more on CRA in making decisions about foreign activities.
C. use CRA in obviously dangerous locations, but only in those situations, to control costs.
D. hire consultants to reduce CRA insurance costs.
38. What is the role of the home country in risk assessment?
A. It has no role. What matters is the country in which the business is conducted.
B. It is a significant consideration.
C. It is used initially, but then more micro issues become the focus of CRA.
D. Country risk does not involve political considerations at all.
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39. Arguments for trade restrictions include all but
A. national defense, infant industry, and job protection.

B. punishment of offending nations.
C. fair competition and retaliation.
D. sovereignty rights.
40. Dumping is
A. selling a product abroad for less than its production cost or cost in the home market.
B. selling a product abroad tax-free and with an extended warrantee.
C. exporting a product to a third country without correct documentation.
D. selling a product at its domestic market value.
41. The U.S. has been concerned about dumping and
A. yet only enacted antidumping measures in 2006.

B. enacted antidumping measures for its exporting companies as early as 1856.
C. became one of the first countries to prohibit dumping into its own market, in 1916.
D. illustrated this with the Boston Tea Party in 1773.
42. Social dumping occurs when an exporting country
A. imposes an export tax on domestic businesses that export, to compensate for the opportunity
cost to the domestic market.
B. creates unfair competition based on lower costs because the exporting country provides little
social support system to the worker.
C. targets markets that consist of specific vulnerable groups in the importing country.
D. exports good that are not sellable in the domestic environment due to hazards and safety
issues.
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43. An example of environmental dumping is not found in the
A. maquiladora plants of Mexico, located near the U.S. border and operating at lower
environmental standards than would be required in the U.S.
B. nuclear waste shipments to developing nations.
C. garbage shipments from New Jersey to developing nations.
D. recycling and processing of Virginia garbage to yield fuel and fertilizer.
44. Home country subsidies can be retaliatory because
A. they decrease the operating costs of local manufacturers compared to foreign manufacturers,
thereby harming the competitive profile of the foreign firms.
B. they may discriminate against companies that have not contributed to the president's campaign.
C. they reduce the cost basis of the foreign manufacturers.
D. they are funded by taxpayers, which is all of the home country's nationals.
45. Dumping includes
A. the foreign exporter's selling better products into the market than those manufactured in the
home country.
B. black market sales to avoid prohibited substances, such as weapons, alcohol, and pornography.
C. selling goods priced lower in a foreign market than in the home market to build market share.
D. expanding fast-food franchise operations in foreign markets.
46. Subsidies are problematic because they
A. are administered as a form of political patronage.

B. aid a nation's export businesses or protect its domestic businesses from imports.
C. encourage nationalization.
D. violate UN agreements.
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47. The primary motivation of tariffs is to
A. raise government revenue at the cost of importers.

B. raise the price of imports, to protect domestic goods.
C. punish countries over political issues.
D. encourage foreign consumption.
48. In the U.S., the Smoot-Hawley Tariff Act did not
A. outlaw tariffs for U.S. imports.

B. lead to the Wall Street crash of 1929.
C. establish the highest tariffs the U.S. has known.
D. intend to protect U.S. agriculture.
49. Official prices ensure all but that
A. imported goods will be sold at minimum prices, to avoid dumping.

B. a black market will be healthy and available for imported goods.
C. low-priced invoices to avoid tariffs will not be successful.
D. corruption will be minimal.
50. Import duties can be set to encourage
A. increased imports based on sales volumes.

B. local input.
C. price fixing.
D. imports from other suppliers.
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51. Nuisance tariffs
A. annoy importers with red tape, administrative paperwork, and added expense.
B. are an historical anomaly.
C. are found in developed nations more than in developing nations.
D. have no point other than to indicate that tariffs regulations change quickly.
52. A nontariff barrier is illustrated by all but
A. the French requirement in 1982 that all Japanese VCRs be inspected in Poitiers, far from the port
and up a windy mountain road.
B. the widespread Japanese belief that American rice can cause cancer.
C. the European attitude toward genetically modified crops.
D. the preference of some Indonesians for betel nut.
53. Quotas are a quantitative barrier that sets
A. limits, established by the importer.

B. goals, established by the exporter.
C. precise quantities of imports or exports, based on price.
D. expectations on domestic and foreign sales.
54. Transshipping is used to
A. reduce shipping costs, as a form of consolidation.

B. avoid import administration.
C. evade allocated quotas.
D. evade local manufacture requirements.
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55. The U.S. allocates quotas to 40 countries for specific tonnages of
A. sugar.
B. roast beef.
C. malt beer.
D. rice.
56. Although the U.S. supports free trade, since 1789 it has supported tariffs to protect domestic
A. wheat.
B. palm oil.
C. sugar.
D. corn.
57. Unlike quotas, voluntary export restraints (VERs) are imposed by
A. the importing country's government.

B. the exporting country's government.
C. either the importing or exporting country's government; what matters is that they are voluntary.
D. the importing company.
58. Examples of orderly marketing arrangements are
A. voluntary export restraints.

B. Jamaica Agreement treaties.
C. textile agreements.
D. Japanese truck export quotas.
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59. Non-quantitative nontariff barriers
A. are not counted as nontariff barriers.

B. often involve government participation in trade, especially in customs and other administrative
procedures.
C. often involve ownership.
D. are virtual barriers.
60. The most common form of direct government participation in trade is
A. the subsidy.
B. shipping on national vessels.
C. import duties.
D. a combination of subsidy, shipping, and import duties.
61. Customs procedures in many countries often
A. are transparent and fair.

B. discriminate against imports and favor exports.
C. are online and impersonal.
D. aid importers and exporters in estimating their total costs.
62. The imposition of standards is a way to establish nontariff barriers, and the following are examples
of the imposition of standards, except for:
A. Japan's refusal to import light mayonnaise containing potassium sorbate.

B. Canada's categorization of orange juice with added calcium as a drug, subject to special
requirements.
C. the prohibition of imported drugs at the consumer level in the U.S.
D. tariffs on certain barbiturate imports into the U.S.
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63. Barriers to trade
A. are a political issue, but don't affect the cost of imports except marginally.
B. cost consumers billions of dollars per year.
C. save jobs in unprotected industries at $231,289 per job per year.
D. None of these responses completes the phrase accurately.
64. Government stability is a characteristic of a government that
A. makes sudden radical policy changes.

B. readily shifts alliances to maintain power.
C. maintains predictability in fiscal, monetary, and political policies.
D. maintains authoritarian rule over an extended period of time.
65. International business can be a power political force, in part because
A. a recent Supreme Court ruling in the U.S. allows corporate contributions to political campaigns.
B. many top management team members are willing to accept roles with national security
agencies.
C. about half of the world's 100 largest economic units are firms.
D. business is all about achieving political goals.
66. "In nearly every economic crisis, the root cause is political, not economic," observed
A. Abraham Lincoln.
B. Lee Kuan Yew.
C. Adam Smith.
D. Ben Bernake.
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67. Businesses that conduct country risk assessment do so
A. as part of their legal profile.

B. to protect their assets, including people and property.
C. to satisfy their top management teams.
D. because, much as with executive salaries, there is a herd mentality.
68. The national defense argument for trade restrictions has been used in the U.S. to argue for
restriction on exports
A. of subway cars.
B. of uniforms.
C. of high technology items.
D. of ethanol.
69. An argument against using trade restrictions to punish an offending nation is that
A. sanctions seldom achieve their goal of forcing change in the offending country.
B. sanctions are relatively harmful to the citizens of the offending country.
C. sanctions are not condoned by the UN.
D. sanctions decrease the cost of doing business.
70. Counterarguments to the "protect domestic jobs from cheap foreign labor" argument include that
A. the labor rate is not all of the labor cost.

B. wage rates are incidental.
C. cheap foreign labor is a natural occurrence.
D. comparative advantage recognizes cheap labor as a competitive right.
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71. Tariff barriers may be used to
A. protect domestic industry from foreign, lower-cost producers.

B. reduce the need for foreign workers.
C. increase government revenues.
D. protect borders from gray market goods.
72. Duties may be used to
A. encourage local input.

B. stimulate imports.
C. reward compliant manufacturers.
D. increase government expenditures.
A. require importers to go through the administrative paperwork, even for a small payment.
B. can be declined at the point of import.
C. are used to activate larger duty payments related to quantity.
D. can be paid in kind.
74. Trade barriers create costs that are paid ultimately by the
A. government erecting the barrier.

B. consumer.
C. country exporting the goods.
D. exporter.
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75. Country risk assessment is a measure of the
A. threat of nationalization.
B. threat of losing an investment or not being paid.
C. kidnapping rate.
D. rate of unfunded exposures.
76. The national defense argument for trade restrictions suggests that
A. some industries, even if they are not competitive, may need protection from imports.
B. the military is an area that can be exempted from import restrictions.
C. national defense requires no trade restrictions.
D. exporters of matériel would do well to monitor trade restrictions and permissions.
77. Sanctions against nations are
A. not a form of trade restriction because the motivation is political.

B. a form of trade restriction that has economic and political impact.
C. ineffective, because other nations will violate them.
D. a way to conduct peaceful trade without disturbing commerce.
78. Productivity per worker in economically developed countries tends to be
A. higher, due to management skills and advanced technology.

B. lower, due to higher wages.
C. irrelevant, because most factory floors are automated.
D. the equivalent of productivity in less developed countries, due to motivation issues.
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79. An example of retaliatory trade restrictions is
A. the U.S. response to the EU ban of hormone-treated beef.

B. the EU restraint on Microsoft for bundling its product.
C. the Japanese refusal to allow U.S. military equipment in Japan.
D. China's tightening control of the export of rare earths.
80. Social dumping occurs when exporting producers
A. have lower wage rates, social costs, and environmental regulations.

B. allow for free migration, thereby exporting poverty.
C. allow the import of environmentally sensitive waste.
D. take knowing advantage of a social class system.
81. The main goal of tariffs is to
A. increase the selling price of imported goods, thereby reducing competition for domestic
producers.
B. raise revenues for the importing government.
C. reduce earnings for the exporting government.
D. penalize importers for not buying domestic goods.
82. A specific duty is a
A. fixed sum charged for a specified number of units of the product.

B. stated percentage of the invoice of the product.
C. duty established for a given, articulated reason.
D. rate charged in excess of a compound duty.
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83. Tariffs may be set to

B. decrease the import costs.
C. stimulate imports.
D. decrease consumer costs, lower price, and increase market share.
84. Some nontariff barriers are difficult to discourage because
A. they are non-quantitative and consist of government subsidies and standards.

B. their development has been supported by local politicians.
C. they build on nationalism and patriotism.
D. their development has been unsupervised.
85. An example of the use of trade as a political weapon is
A. sanctions on Russia for the occupation of Crimea in spring 2014.

B. subsidies to automakers by the U.S. government to rescue them from collapse.
C. exorbitant tax rates for repatriated profits in the U.S.
D. Apple's exports to Cuba.
86. In centralized economies (China, Cuba, Vietnam) the government owns a large part of the factors
of production
A. and the governments of market economies also own businesses.

B. unlike in market economies, where the private sector owns businesses.
C. and free-trade capitalism offers an alternative, with no government-owned businesses.
D. and these centralized economies avoid competition with free-traders.
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87. Governments nationalize private firms in order to
A. extract money from the firms when the firms are suspected of concealing profits.
B. decrease exports to balance the balance of payments.
C. learn about business development experientially.
D. punish workers at the firms for their political activism.
88. One motivation for government privatization is to
A. have the businesses run more efficiently.

B. punish corporate conglomerates.
C. explore alternative revenues.
D. exert increased government control.
89. Government stability has to do with
A. policies that are permanent or change gradually.

B. democratic processes and free elections.
C. a commitment to military strength.
D. leadership that listens to citizens and responds to their needs.
90. Governments provide stability by
A. protecting business from unfair competition and from attacks and theft.
B. pursuing open market values.
C. fostering competition and capitalist values.
D. supporting imports.
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91. Terrorism contributes to
A. an unstable environment that is detrimental to business.

B. an increase in business opportunities.
C. the warning signals on global values clashes.
D. religious and political stability.
92. Democratic nations that follow free-trade capitalism sometimes nationalize businesses, such as
A. the U.S. bailout during the 2009 financial crisis, when the U.S. government took control of
several large U.S. corporations.
B. Canada's purchase of Hershey.
C. The French purchase of Totale.
D. the move from New York to Russia of a major sports team owned by a Russian.
93. Examples of expropriation without compensation involve the following governments:
A. the U.S. with Iranian property in the U.S., Cuba with U.S. property in Cuba, and Zimbabwe with
land owned by white Zimbabwean citizens.
B. China with Hong Kong and Japan with the Kuril Isl.
C. the U.K. with the Falklands.
D. Canada with northern Maine.
94. The largest government privatizing in the EU as of 2015 is
A. Greece.
B. Germany.
C. the U.K.
D. Portugal.
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95. One critical issue related to ransom is
A. whether to pay and possibly save a life, but reinforce the effectiveness of ransom.
B. how to fund ransom payments.
C. whether ransom is connect to piracy.
D. the safety of those who are being held without access to ATMs.
96. Among the cybercrimes that most often target businesses are
A. hacking and data espionage.

B. check kiting.
C. prospecting and phishing.
D. accessing unauthorized accounts.
97. The sectors most frequently attacked by cyber criminals include
A. defense, energy and utilities, and finance.

B. retail.
C. oil and gas.
D. the auto industry.
98. The cybercrime context is
A. fluid, so the learning process is ongoing, because cyber criminals are bright and quick.
B. relatively static, so a firewall can be effective for a good six months in this environment.
C. rapidly evolving, so that cybercrime will soon be eliminated.
D. increasingly competitive, with switchovers between security personnel and criminals.
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99. The cost of cybercrime to the perpetrator is
A. exceedingly high, so as to be a deterrent.

B. almost nonexistent, because few criminals are apprehended.
C. difficult to determine, because security issues prohibit publication of trials.
D. negligible, because few laws have been updated to include cybercrime.
100. Country risk assessment is a way to
A. estimate the risk to business employees, property, and investment.

B. predict risk of marketing errors, given cultural variables.
C. predict responses of citizens to new product lines.
D. analyze the impact of diversity in a country's workforce.
101. Country risks can be responded to, in part, by
A. employee training programs.

B. a positive attitude and awareness of cultural differences.
C. defensive posturing in most public settings.
D. avoiding assignments in the country and using locals only.
102. Agricultural trade restrictions
A. exist in most countries.

B. exist in centralized economies only.
C. exist mostly in developing economies.
D. are no longer a part of common trade restrictions.
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103. Canada carved out a NAFTA exception for
A. milk and cream tariffs from the U.S.

B. tariffs on lumber from the U.S. Northwest.
C. imports of agricultural goods from Mexico.
D. tariffs on fish from all of the Great Lakes.
104. Government motivation for restricting trade includes
A. protecting jobs, promoting defense, imposing sanctions, and protecting infant industries.
B. increasing revenues through duties and tariffs.
C. a desire for isolationism as a political strength.
D. increasing domestic consumption and thereby domestic jobs.
105. Sanctions usually are imposed to
A. inflict economic harm on a nation to punish or force change.

B. protect an infant industry.
C. exact retribution for past conflicts.
D. increase the cost of doing business in the sanctioned nation for foreign competitors.
Fill in the Blank Questions
106. An example of trade as a political weapon is the U.S. sanctioning of _________ over annexation of
the Crimea.
________________________________________
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107. When governments ____________ forms, they take them from private to public ownership.
________________________________________
108. In seizing land in ______________, the government's goal was to change the ethnic balance of land
ownership.
________________________________________
109. ______________ was a leader of Britain's most recent privatization efforts.
________________________________________
110. A government that is ___________ can keep itself in power and hold predictable political, fiscal, and
monetary policies that are unlikely to change suddenly or without notification.
________________________________________
111. Business likes __________ and predictability because they provide stability and safety for assets and
people.
________________________________________
112. One risk to business is ____________, unlawful acts of violence to achieve a variety of objectives,
including revolution and revenge.
________________________________________
113. ____________ for ransom is a crime that targets international businesspeople as well as tourists.
________________________________________
114. ____________ is hijacking that includes kidnapping on the seas.
________________________________________
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115. Hacking, computer espionage, and domain-related offenses are examples of _________.
________________________________________
116. Many business leaders increase their organization's potential vulnerability to cybercrime by not
monitoring both their IT and traditional _____________.
________________________________________
117. _____________________ is an assessment of a country's economic situation and politics to determine

how much risk to employees, property, and investment exists for the firm doing business there.
________________________________________
118. The CRA firm Maplecroft has recently dropped ____________ and Brazil from its list of growth
markets due to its increasing risk.
________________________________________
119. Threats that target individuals can be covered by insurance, called _______.
________________________________________
120. The _____________ is having difficulty successfully completing trade negotiations due to politically
motivated agricultural tariff barriers.
________________________________________
121. The ___________ argument for trade restrictions suggests that certain industries need protection
from imports because these industries are vital to security and must be kept operating, even when
they are not competitive.
________________________________________
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122. __________ are trade restrictions imposed to inflict economic damage on other nations, as
punishment or to encourage change.
________________________________________
123. To protect an infant or ____________ industry, some argue that these firms need protection from
imports.
________________________________________
124. The ____________ argument suggests duties that would bring imported goods up to the price level
of goods in the domestic market.
________________________________________
125. Japan, the EU, and ___________ all protect their domestic sugar industry, despite their lack of
comparative advantage in sugar production.
________________________________________
126. Selling a product abroad for less than the cost of production, less than the price in the home
market, or less than the price to third-party countries constitutes ___________.
________________________________________
127. The U.S. does not prohibit U.S. companies from ___________ in foreign markets.
________________________________________
128. _________ can take the form of cash payments to the firm, government participation in ownership,
low-cost loans to exporters and foreign buyers to encourage purchase, and preferential tax
treatment.
________________________________________
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129. _________________ are often imposed to offset the effects of a subsidy.
________________________________________
130. __________, or import duties, are taxes levied on imported goods primarily to raise their selling price
to reduce competition for domestic producers.
________________________________________
131. A percentage of the invoice value of the product is known as ________________ duty.
________________________________________
132. A ____________ duty is a fixed sum charged for a specific number of the product.
________________________________________
133. A ______________ is a combination of specific and ad valorem duties.
________________________________________
134. Discrimination against imports other than import duties are known as _____________.
________________________________________
135. The ___________ is an NTB that limits the number of goods a country will permit to be imported
during a specific period.
________________________________________
136. _______________, moving a shipment through another country, can be used as a way to avoid
quotas.
________________________________________
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137. _________________ are export limits imposed by the exporting nation, at the request of the importing
nation.
________________________________________
138. Orderly marketing arrangements are a type of ________.
________________________________________
139. U.S. restriction on the origin of food used in the school lunch program is an example of a
___________ NTB.
________________________________________
140. Favorable treatment given by a government to its national airline in access to gates, landing slots,
and airport services is a non-quantitative ____________.
________________________________________
141. A government may move toward ________________ when it suspects foreign-owned companies are
concealing profits and not contributing to the host country.
________________________________________
142. During the ____________ revolution in the 1950s, the government nationalized foreign-owned
property without compensation.
________________________________________
143. The U.K.'s ____________ was recently privatized and shares can be purchased on the London Stock
Exchange.
________________________________________
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144. China, Russia, Portugal, the U.S., and ___________ are nations that have recently privatized
government-owned assets.
________________________________________
145. ________________ is characteristic of a country that cannot maintain itself in power and makes
sudden, unpredictable policy changes.
________________________________________
146. Governments provide _____________ and consulates abroad to protect the interests of their citizens
there.
________________________________________
147. Kidnapping for ____________ is a funding tool of terrorists and a security issue for international
businesspeople.
________________________________________
148. A new development in kidnapping, due to globalized banking services, occurs near international
airports. The kidnapping is shorter in duration and does not involve ransom requests. The victims
are forced to withdraw cash from ____________ to secure their release.
________________________________________
149. Piracy has been increasing, and seems to have moved from the East to the ______________ coast.
________________________________________
150. With regard to cybercrime, _______________ technology is now the most vulnerable area.
________________________________________
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Module 05 Political Forces That Affect Global Trade Answer Key
True / False Questions
1. Only in communist countries do governments own the factors of production.
FALSE
Often capitalist governments own the factors of production.
AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 05-01 Describe the goals of nationalizing and privatizing business.
Topic: Nationalization and Privatization of Business
2. The only reason firms are nationalized is to spread a socialist-communist ideology.
FALSE
Many other reasons exist for nationalization, including to extract more money from the firms, to
increase profitability, to preserve jobs, and as a result of government investments.

Blooms: Remember
Difficulty: 1 Easy
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3. When the U.S. military contracts out security details in war zones, it is engaged in privatization.
TRUE
Yes, when any government contracts out government work to the private sector, it is engaged
in privatization.

Blooms: Apply
4. When people are kidnapped for ransom, the right response is to pay the ransom, get the
hostages released, and then retaliate.
FALSE
The text explains that paying ransom can be counterproductive.

Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 05-02 Explain government protection and stability and their importance to business.
Topic: Government Stability
5. Kidnap, ransom, and extortion are techniques often used by terrorists against which no
insurance is available.
FALSE
There is kidnap, ransom, and extortion (KRE) insurance.

Blooms: Remember
Difficulty: 1 Easy
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6. Businesses favor unstable governments because they present more profit opportunities.
FALSE
Actually, businesses prefer predictability.

Blooms: Remember
Difficulty: 1 Easy
7. Unpredictable government actions create many business opportunities.
FALSE
Unpredictable government actions are a form of instability and reduce the likelihood of
business success.

Blooms: Remember
Difficulty: 1 Easy
8. The practice of country risk assessment is an exercise in xenophobic and ethnocentric thinking.
FALSE
Risk assessment is an attempt to understand the local environment. The charge that it is
xenophobic (fear of foreigners) and ethnocentric is a defensive one. Risk assessment is a good
idea.
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 05-03 Describe the role of country risk assessment in international business.
Topic: Country Risk Assessment
9. Country risks are often political in nature.
TRUE
They take the form of coups, wars, and revolutions.

Blooms: Remember
Difficulty: 1 Easy
10. The length of the investment in a foreign country has no impact on the risk assessment for that
investment. What matters are the economic and political situations in the country.
FALSE
Length of investment is a critical aspect to country risk assessment.

Blooms: Remember
Difficulty: 1 Easy
5-33
11. The national defense argument for trade restrictions is based on the development level of the
country.
FALSE
The level of development is not important with regard to trade restrictions. A nation would
protect its own industry, even though foreign nations could be more advanced in the sector.

Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 05-04 Explain the political motivations for government intervention in trade and the major types of
government trade restrictions.
Topic: Trade Restrictions
12. U.S. ocean shipping companies are benefiting from U.S. government subsidies.
TRUE
U.S. ocean shipping companies benefit from U.S. government subsidies. This is an example of
the national defense argument for trade restrictions, subsidies being an indirect trade
restriction.

Blooms: Remember
Difficulty: 1 Easy
5-34
13. Sanctions are a trade restriction that is effective in forcing change.
FALSE
Sanctions tend to be ineffective. Think Cuba, but perhaps the goal there is not change, but
rather, to make a political statement or to punish.

Blooms: Remember
Difficulty: 1 Easy
14. To protect an infant industry, trade restrictions might be effective.
TRUE
Trade restrictions might be effective, but if they are maintained for too long, the consumer will
end up subsidizing them via the lost opportunity to buy lower-priced foreign alternatives.

Blooms: Remember
Difficulty: 1 Easy
15. A comparison based on hourly wages is a reasonable guide to a need to protect domestic
jobs.
FALSE
Hourly wages are not all of the production costs nor all of the labor costs.

5-35
Blooms: Remember
Difficulty: 1 Easy
16. Fair competition is a strong rationale for trade barriers.
FALSE
Fair competition argues that import duties should be used to bring the imported item up to the
cost of the domestic one. It eliminates unfair advantages gained through superior technology,
lower taxes, lower raw material costs, or lower labor costs. This barrier eliminates the
competition's comparative advantage.

Blooms: Remember
Difficulty: 1 Easy
17. Retaliatory trade restrictions are not made for dumping because price competition is protected
by the WTO.
FALSE
Dumping is a frequent explanation of trade barriers, especially when the dumping is perceived
to be harmful to local industry.

Blooms: Remember
Difficulty: 1 Easy
5-36
18. Concession dumping is a type of trade discrimination.
FALSE
Concession dumping is not mentioned in the text as a type of dumping. Social and
environmental dumping are mentioned.

Blooms: Remember
Difficulty: 1 Easy
19. Subsidies that confer a benefit may well evoke countervailing duties.
TRUE
Countervailing duties may be levied to offset the effects of the subsidy.

Blooms: Remember
Difficulty: 1 Easy
20. Voluntary export restraints are imposed by the importing nation to avoid violating WTO rules.
FALSE
Voluntary export restraints (VERs) are imposed by the exporting nation. For example, in the
1980s and early 1990s, Japan imposed VERs on its auto industry exports to the U.S. to avoid a
trade war.

5-37
Blooms: Remember
Difficulty: 1 Easy
21. Nontariff barriers that are not quantitative can be divided into two groups, those established by
the government participation in trade and those that are administrative.
FALSE
There are three general areas for non-quantitative nontariff barriers, those established by
government participation in trade and standards. Standards as barriers are found in health and
food-related imports. Think about U.S. importation of prescription drugs from Canada.

Blooms: Remember
Difficulty: 1 Easy
22. Unlike the topography, the political climate of a country has relatively little influence on its
exports.
FALSE
Just the opposite. The entire chapter explains how politics influences trade.

Blooms: Remember
Difficulty: 1 Easy
5-38
23. One example of nationalization of private companies is with the nationalization of French-
owned firms in Europe after WWII.
FALSE
German-owned companies were nationalized after WWII.

Blooms: Remember
Difficulty: 1 Easy
24. When government-owned companies compete with private companies, the private companies
have the advantage.
FALSE
Actually, government-owned companies may have several advantages: they do not have to
make profits, so can cut prices to gain market share; they have access to cheaper financing;
they get government contracts; the get export assistance; they can hold down wages with
government assistance.

Blooms: Remember
Difficulty: 1 Easy
25. The British prime minister David Cameron led the privatization movement.
FALSE
Margaret Thatcher led this movement.

5-39
Blooms: Remember
Difficulty: 1 Easy
26. One historic function of government has been the protection of the economic activities within
its borders.
TRUE
This is one classic role of government.

Blooms: Remember
Difficulty: 1 Easy
27. Terrorists avoid kidnapping because the repercussions can be harmful to their movement.
FALSE
Terrorists actually use kidnapping frequently, and ransom can be a significant funding source
for them.

Blooms: Remember
Difficulty: 1 Easy
5-40
28. Paying ransom makes sense because a life is saved and the payments can be traced.
FALSE
Paying ransom encourages more kidnapping, so its payment is actually counterproductive long
term.

Blooms: Remember
Difficulty: 1 Easy
29. To hedge the terrorism risk, there are insurance, antiterrorist schools, and even companies to
handle negotiations.
TRUE
Although all of these hedges exist, the risk persists, unlike in some financial hedges where risk
can be more precisely controlled.

Blooms: Remember
Difficulty: 1 Easy
30. Policy continuity and government stability are more important to a business than the type of
political system.
TRUE
This is the case: Business wants predictability and stability. So, theoretically, a stable dictatorship
would be preferable to an unstable democracy.

5-41
Blooms: Remember
Difficulty: 1 Easy
Multiple Choice Questions
31. When governments nationalize a firm, they don't seek to
A. extract more money from the firm.

B. increase the firm's profitability.
C. preserve jobs.
D. sell the firm to foreign investors.
Selling the firm to foreign investors would be a privatization. The other alternatives are all
motivations for nationalization, as is ideology.

Blooms: Remember
Difficulty: 1 Easy
5-42
32. With privatization, all of these may occur, except
A. assets are transferred from the public sector to the private sector.
B. government control of business management may be increased.
C. state activities are moved into private management through contracts.
D. business loses its right to hire new employees.
Privatization moves assets from the public sector into the private, either permanently, though
sale, or temporarily, through contract. It does not constrain the ability to hire.

Blooms: Remember
Difficulty: 1 Easy
33. Nationalization and privatization are
A. similar trends.
B. opposing trends.
C. both risks faced by privately held firms.
D. both risks not encountered in capitalist democracies.
Nationalization takes a privately held entity public, whereas privatization takes a publically held
entity private, so they are opposing trends.

Blooms: Remember
Difficulty: 1 Easy
5-43
34. Government protection of economic activities is
A. an historical function of government.

B. a recent responsibility of government.
C. a socialist characteristic.
D. stronger in democracies.
That governments protect the economic activities within their borders is a function of
government with solid historical roots.

Blooms: Remember
35. Government stability refers to all but one of the following of a government:
A. policies, that they endure over time.

B. ability to keep itself in power.
C. ability to hold to predictable fiscal, monetary, and political policies.
D. ability to adjust to sudden changes by making radical policy changes.
All of these choices except the ability to adjust to sudden changes by making radical policy
changes refer to attributes of government stability.

Blooms: Remember
5-44
36. A government protects its citizens when they are abroad in the following way:
A. A powerful country can send in the marines to protect citizens.

B. A government can assert the rights of its citizens and that its laws follow its citizens, no
matter where they are (extraterritoriality).
C. Politicians can influence how a foreign country's rules are applied to its own nationals.
D. Government embassies can provide information and emergency assistance, monitor and
where appropriate, make protests.
Only one of these choices describes the limited assistance a government can give a citizen in
legal trouble abroad.

Blooms: Remember
Difficulty: 1 Easy
37. The trend for firms in regard to country risk assessment (CRA) is to
A. avoid it as an added cost in competitive markets.

B. concentrate much more on CRA in making decisions about foreign activities.
C. use CRA in obviously dangerous locations, but only in those situations, to control costs.
D. hire consultants to reduce CRA insurance costs.
The trend is to use CRA more intensively.

Blooms: Remember
Difficulty: 1 Easy
5-45
38. What is the role of the home country in risk assessment?
A. It has no role. What matters is the country in which the business is conducted.
B. It is a significant consideration.
C. It is used initially, but then more micro issues become the focus of CRA.
D. Country risk does not involve political considerations at all.
The home country of the parent company is thought to play a significant role in CRA. What is
the local attitude toward the home country?

Blooms: Remember
39. Arguments for trade restrictions include all but
A. national defense, infant industry, and job protection.

B. punishment of offending nations.
C. fair competition and retaliation.
D. sovereignty rights.
All of these arguments are used to justify trade restrictions except sovereignty rights.

Blooms: Remember
5-46
40. Dumping is
A. selling a product abroad for less than its production cost or cost in the home market.
B. selling a product abroad tax-free and with an extended warrantee.
C. exporting a product to a third country without correct documentation.
D. selling a product at its domestic market value.
Selling a product abroad for less than its production cost or cost in the home market is the
WTO definition of dumping.

Blooms: Remember
Difficulty: 1 Easy
41. The U.S. has been concerned about dumping and
A. yet only enacted antidumping measures in 2006.

B. enacted antidumping measures for its exporting companies as early as 1856.
C. became one of the first countries to prohibit dumping into its own market, in 1916.
D. illustrated this with the Boston Tea Party in 1773.
This is taken directly from the text.

Blooms: Remember
Difficulty: 1 Easy
5-47
42. Social dumping occurs when an exporting country
A. imposes an export tax on domestic businesses that export, to compensate for the
opportunity cost to the domestic market.
B. creates unfair competition based on lower costs because the exporting country provides
little social support system to the worker.
C. targets markets that consist of specific vulnerable groups in the importing country.
D. exports good that are not sellable in the domestic environment due to hazards and safety
issues.
Social dumping sets competitive pricing on the hardship of domestic workers.

Blooms: Remember
43. An example of environmental dumping is not found in the
A. maquiladora plants of Mexico, located near the U.S. border and operating at lower
environmental standards than would be required in the U.S.
B. nuclear waste shipments to developing nations.
C. garbage shipments from New Jersey to developing nations.
D. recycling and processing of Virginia garbage to yield fuel and fertilizer.
All but the recycling are examples of unfair competition caused by a location's lax
environmental standards.

Blooms: Remember
5-48
44. Home country subsidies can be retaliatory because
A. they decrease the operating costs of local manufacturers compared to foreign

manufacturers, thereby harming the competitive profile of the foreign firms.
B. they may discriminate against companies that have not contributed to the president's
campaign.
C. they reduce the cost basis of the foreign manufacturers.
D. they are funded by taxpayers, which is all of the home country's nationals.
Retaliatory subsidies increase the relative costs of the foreign goods.

Blooms: Remember
45. Dumping includes
A. the foreign exporter's selling better products into the market than those manufactured in
the home country.
B. black market sales to avoid prohibited substances, such as weapons, alcohol, and
pornography.
C. selling goods priced lower in a foreign market than in the home market to build market
share.
D. expanding fast-food franchise operations in foreign markets.
Only selling goods priced lower in a foreign market than in the home market to build market
share is a form of dumping.

Blooms: Remember
5-49
Difficulty: 1 Easy
46. Subsidies are problematic because they
A. are administered as a form of political patronage.

B. aid a nation's export businesses or protect its domestic businesses from imports.
C. encourage nationalization.
D. violate UN agreements.
Subsidies either aid export businesses, lowering their costs and making them more competitive,
or have the same effect on domestic businesses, protecting them from lower-cost foreign
imports.

Blooms: Remember
47. The primary motivation of tariffs is to
A. raise government revenue at the cost of importers.

B. raise the price of imports, to protect domestic goods.
C. punish countries over political issues.
D. encourage foreign consumption.
Tariffs are primarily used to raise the cost of imported goods.

Blooms: Remember
Difficulty: 1 Easy
5-50
48. In the U.S., the Smoot-Hawley Tariff Act did not
A. outlaw tariffs for U.S. imports.

B. lead to the Wall Street crash of 1929.
C. establish the highest tariffs the U.S. has known.
D. intend to protect U.S. agriculture.
Smoot-Hawley did not outlaw tariffs; it led to the Wall Street crash and the following depression
in an attempt to protect agriculture.

Blooms: Remember
49. Official prices ensure all but that
A. imported goods will be sold at minimum prices, to avoid dumping.

B. a black market will be healthy and available for imported goods.
C. low-priced invoices to avoid tariffs will not be successful.
D. corruption will be minimal.
Official prices are an attempt to avoid dumping and skirting tariffs requirements based solely
on import prices. They have nothing to do with corruption.

Blooms: Remember
5-51
50. Import duties can be set to encourage
A. increased imports based on sales volumes.

B. local input.
C. price fixing.
D. imports from other suppliers.
These conditions reduce tariffs when local input is part of the product.

Blooms: Remember
A. annoy importers with red tape, administrative paperwork, and added expense.
B. are an historical anomaly.
C. are found in developed nations more than in developing nations.
D. have no point other than to indicate that tariffs regulations change quickly.
Nuisance tariffs are just that, a nuisance. It is not the payment, but the process of making a tiny
payment that annoys the importer.

Blooms: Remember
Difficulty: 1 Easy
5-52
52. A nontariff barrier is illustrated by all but
A. the French requirement in 1982 that all Japanese VCRs be inspected in Poitiers, far from the
port and up a windy mountain road.
B. the widespread Japanese belief that American rice can cause cancer.
C. the European attitude toward genetically modified crops.
D. the preference of some Indonesians for betel nut.
These are all examples of nontariff barriers to trade (NTBs) except for the betel nut. Note that
the truth value is irrelevant to their status as NTBs.

Blooms: Remember
Difficulty: 1 Easy
53. Quotas are a quantitative barrier that sets
A. limits, established by the importer.

B. goals, established by the exporter.
C. precise quantities of imports or exports, based on price.
D. expectations on domestic and foreign sales.
Quotas usually are enforced by the importing nation.

Blooms: Remember
Difficulty: 1 Easy
5-53
54. Transshipping is used to
A. reduce shipping costs, as a form of consolidation.

B. avoid import administration.
C. evade allocated quotas.
D. evade local manufacture requirements.
Transshipping is discussed in this module as a way to get around filled quotas in a country.

Blooms: Remember
Difficulty: 1 Easy
55. The U.S. allocates quotas to 40 countries for specific tonnages of
A. sugar.
B. roast beef.
C. malt beer.
D. rice.
This is the example used in the text to illustrate allocated quotas.

Blooms: Remember
Difficulty: 1 Easy
5-54
56. Although the U.S. supports free trade, since 1789 it has supported tariffs to protect domestic
A. wheat.
B. palm oil.
C. sugar.
D. corn.
This is described in the section "Global Debate."

Blooms: Remember
Difficulty: 1 Easy
57. Unlike quotas, voluntary export restraints (VERs) are imposed by
A. the importing country's government.

B. the exporting country's government.
C. either the importing or exporting country's government; what matters is that they are
voluntary.
D. the importing company.
Although quotas are applied by the importing country, VERs are applied by the exporting
country.

Blooms: Remember
5-55
58. Examples of orderly marketing arrangements are
A. voluntary export restraints.

B. Jamaica Agreement treaties.
C. textile agreements.
D. Japanese truck export quotas.
Orderly marketing arrangements have been greatly reduced by the WTO, and they are a kind
of VER.

Blooms: Remember
59. Non-quantitative nontariff barriers
A. are not counted as nontariff barriers.

B. often involve government participation in trade, especially in customs and other
administrative procedures.
C. often involve ownership.
D. are virtual barriers.
There are more than 800 distinct forms of non-quantitative nontariff barriers, and they tend to
be established to gain protection formerly afforded by import duties.

Blooms: Remember
Difficulty: 1 Easy
5-56
60. The most common form of direct government participation in trade is
A. the subsidy.
B. shipping on national vessels.
C. import duties.
D. a combination of subsidy, shipping, and import duties.
The government gives subsidies to domestic producers, especially in the agricultural sector.

Blooms: Remember
Difficulty: 1 Easy
61. Customs procedures in many countries often
A. are transparent and fair.

B. discriminate against imports and favor exports.
C. are online and impersonal.
D. aid importers and exporters in estimating their total costs.
These are powerful nontariff, non-quantitative barriers, and many times they occur at the level
of the individual agent. This raises the possibility of corruption in many instances.

Blooms: Remember
Difficulty: 1 Easy
5-57
62. The imposition of standards is a way to establish nontariff barriers, and the following are
examples of the imposition of standards, except for:
A. Japan's refusal to import light mayonnaise containing potassium sorbate.

B. Canada's categorization of orange juice with added calcium as a drug, subject to special
requirements.
C. the prohibition of imported drugs at the consumer level in the U.S.
D. tariffs on certain barbiturate imports into the U.S.
These are all examples of the application of standards as NTBs except for tariffs on certain
barbiturate imports into the U.S.

Blooms: Remember
63. Barriers to trade
A. are a political issue, but don't affect the cost of imports except marginally.
B. cost consumers billions of dollars per year.
C. save jobs in unprotected industries at $231,289 per job per year.
D. None of these responses completes the phrase accurately.
The cost of barriers to trade are huge, and all are paid by the consumer.

Blooms: Remember
Difficulty: 1 Easy
5-58
64. Government stability is a characteristic of a government that
A. makes sudden radical policy changes.

B. readily shifts alliances to maintain power.
C. maintains predictability in fiscal, monetary, and political policies.
D. maintains authoritarian rule over an extended period of time.
Government stability is characteristic of a government that stays in power and makes

predictable changes in fiscal, monetary, and political policies, not radical shifts.

Blooms: Remember
Difficulty: 1 Easy
65. International business can be a power political force, in part because
A. a recent Supreme Court ruling in the U.S. allows corporate contributions to political
campaigns.
B. many top management team members are willing to accept roles with national security
agencies.
C. about half of the world's 100 largest economic units are firms.
D. business is all about achieving political goals.
The firm's political power comes in part from its economic power.

Blooms: Remember
Difficulty: 1 Easy
5-59
66. "In nearly every economic crisis, the root cause is political, not economic," observed
A. Abraham Lincoln.
B. Lee Kuan Yew.
C. Adam Smith.
D. Ben Bernake.
The former prime minister of Singapore made this observation.

Blooms: Remember
Difficulty: 1 Easy
67. Businesses that conduct country risk assessment do so
A. as part of their legal profile.

B. to protect their assets, including people and property.
C. to satisfy their top management teams.
D. because, much as with executive salaries, there is a herd mentality.
This is mentioned as the purpose of CRA.

Blooms: Remember
Difficulty: 1 Easy
5-60
68. The national defense argument for trade restrictions has been used in the U.S. to argue for
restriction on exports
A. of subway cars.
B. of uniforms.
C. of high technology items.
D. of ethanol.
Hi-tech items that could have military applications are controlled exports in the U.S.

Blooms: Remember
Difficulty: 1 Easy
69. An argument against using trade restrictions to punish an offending nation is that
A. sanctions seldom achieve their goal of forcing change in the offending country.
B. sanctions are relatively harmful to the citizens of the offending country.
C. sanctions are not condoned by the UN.
D. sanctions decrease the cost of doing business.
Sanctions seldom achieve their goal.

Blooms: Remember
Difficulty: 1 Easy
5-61
70. Counterarguments to the "protect domestic jobs from cheap foreign labor" argument include
that
A. the labor rate is not all of the labor cost.

B. wage rates are incidental.
C. cheap foreign labor is a natural occurrence.
D. comparative advantage recognizes cheap labor as a competitive right.
Hourly labor rates are not the full story, and productivity is what really matters.

Blooms: Remember
71. Tariff barriers may be used to
A. protect domestic industry from foreign, lower-cost producers.

B. reduce the need for foreign workers.
C. increase government revenues.
D. protect borders from gray market goods.
Tariff barriers raise the selling prices on imported goods, which reduces competition for
domestic goods.

Blooms: Remember
Difficulty: 1 Easy
5-62
72. Duties may be used to

B. stimulate imports.
C. reward compliant manufacturers.
D. increase government expenditures.
Duties can be used to encourage local input.

Blooms: Remember
Difficulty: 1 Easy
A. require importers to go through the administrative paperwork, even for a small payment.
B. can be declined at the point of import.
C. are used to activate larger duty payments related to quantity.
D. can be paid in kind.
This is the case; the cost of the paperwork may exceed the cost of the tariff.

Blooms: Remember
Difficulty: 1 Easy
5-63
74. Trade barriers create costs that are paid ultimately by the
A. government erecting the barrier.

B. consumer.
C. country exporting the goods.
D. exporter.
The costs of trade barriers are paid by the consumer. The average consumer cost per job saved
is thought to be in the $231,000 range.

Blooms: Remember
75. Country risk assessment is a measure of the
A. threat of nationalization.
B. threat of losing an investment or not being paid.
C. kidnapping rate.
D. rate of unfunded exposures.
The threat of losing an investment or not being paid is the focus of CRA. The threat of
nationalization is only a small part of that. Besides, most nationalizations include compensation.

Blooms: Remember
5-64
76. The national defense argument for trade restrictions suggests that
A. some industries, even if they are not competitive, may need protection from imports.
B. the military is an area that can be exempted from import restrictions.
C. national defense requires no trade restrictions.
D. exporters of matériel would do well to monitor trade restrictions and permissions.
This argument is based on the belief that we need to be prepared to be self-sufficient in some
sectors in wartime.

Blooms: Remember
77. Sanctions against nations are
A. not a form of trade restriction because the motivation is political.

B. a form of trade restriction that has economic and political impact.
C. ineffective, because other nations will violate them.
D. a way to conduct peaceful trade without disturbing commerce.
Trade and politics are closely intertwined. Sanctions may be politically motivated, and they
restrict trade.

Blooms: Remember
5-65
78. Productivity per worker in economically developed countries tends to be
A. higher, due to management skills and advanced technology.

B. lower, due to higher wages.
C. irrelevant, because most factory floors are automated.
D. the equivalent of productivity in less developed countries, due to motivation issues.
More developed economies tend to have higher productivity due to their management skills
and advanced technology.

Blooms: Remember
79. An example of retaliatory trade restrictions is
A. the U.S. response to the EU ban of hormone-treated beef.

B. the EU restraint on Microsoft for bundling its product.
C. the Japanese refusal to allow U.S. military equipment in Japan.
D. China's tightening control of the export of rare earths.
The beef wars in the late 1980s are an example of retaliatory trade restrictions.

Blooms: Remember
5-66
80. Social dumping occurs when exporting producers
A. have lower wage rates, social costs, and environmental regulations.

B. allow for free migration, thereby exporting poverty.
C. allow the import of environmentally sensitive waste.
D. take knowing advantage of a social class system.
Social dumping is when producers have lower wage rates, social costs, and environmental
regulations, and thus, can be more competitive.

Blooms: Remember
81. The main goal of tariffs is to
A. increase the selling price of imported goods, thereby reducing competition for domestic
producers.
B. raise revenues for the importing government.
C. reduce earnings for the exporting government.
D. penalize importers for not buying domestic goods.
The main goal of tariff barriers is to increase the price of imported goods. Some small
governments may also use tariffs to raise revenues, but this is a small part of the picture.

Blooms: Remember
5-67
82. A specific duty is a
A. fixed sum charged for a specified number of units of the product.

B. stated percentage of the invoice of the product.
C. duty established for a given, articulated reason.
D. rate charged in excess of a compound duty.
A specific duty is a fixed sum per number of units of the product.

Blooms: Remember
Difficulty: 1 Easy
83. Tariffs may be set to

B. decrease the import costs.
C. stimulate imports.
D. decrease consumer costs, lower price, and increase market share.
Tariffs are sometimes set to encourage local import. If the tariff is high, but reduced with local
input, local input is encouraged.

Blooms: Remember
Difficulty: 1 Easy
5-68
84. Some nontariff barriers are difficult to discourage because
A. they are non-quantitative and consist of government subsidies and standards.

B. their development has been supported by local politicians.
C. they build on nationalism and patriotism.
D. their development has been unsupervised.
Non-quantitative nontariff barriers are difficult to discourage because they consist of subsidies
and standards that may reflect national culture and values (GM foods in the EU).

Blooms: Remember
85. An example of the use of trade as a political weapon is
A. sanctions on Russia for the occupation of Crimea in spring 2014.

B. subsidies to automakers by the U.S. government to rescue them from collapse.
C. exorbitant tax rates for repatriated profits in the U.S.
D. Apple's exports to Cuba.
Sanctions against Russia is an example of the use of trade as a political weapon.

Blooms: Remember
5-69
86. In centralized economies (China, Cuba, Vietnam) the government owns a large part of the
factors of production
A. and the governments of market economies also own businesses.

B. unlike in market economies, where the private sector owns businesses.
C. and free-trade capitalism offers an alternative, with no government-owned businesses.
D. and these centralized economies avoid competition with free-traders.
All governments participate to some degree in business ownership.

Blooms: Remember
87. Governments nationalize private firms in order to
A. extract money from the firms when the firms are suspected of concealing profits.
B. decrease exports to balance the balance of payments.
C. learn about business development experientially.
D. punish workers at the firms for their political activism.
One motivation for nationalization is to make sure the profits of the firms benefit the nation's
citizens.

Blooms: Remember
5-70
88. One motivation for government privatization is to
A. have the businesses run more efficiently.

B. punish corporate conglomerates.
C. explore alternative revenues.
D. exert increased government control.
Privatizing often seeks the increased efficiency can accompany competition in the private
sector.

Blooms: Remember
Difficulty: 1 Easy
89. Government stability has to do with
A. policies that are permanent or change gradually.

B. democratic processes and free elections.
C. a commitment to military strength.
D. leadership that listens to citizens and responds to their needs.
Government stability can be found in all sorts of governments and has to do with stable or
slowly changing policies, so that businesses can predict their environments.

Blooms: Remember
Difficulty: 1 Easy
5-71
90. Governments provide stability by
A. protecting business from unfair competition and from attacks and theft.
B. pursuing open market values.
C. fostering competition and capitalist values.
D. supporting imports.
Protecting businesses from unfair competition and protecting their property rights also
contribute to a stable environment.

Blooms: Remember
Difficulty: 1 Easy
91. Terrorism contributes to
A. an unstable environment that is detrimental to business.

B. an increase in business opportunities.
C. the warning signals on global values clashes.
D. religious and political stability.
Terrorism is generally unfavorable to business because it increases instability and chaos.

Blooms: Remember
Difficulty: 1 Easy
5-72
92. Democratic nations that follow free-trade capitalism sometimes nationalize businesses, such as
A. the U.S. bailout during the 2009 financial crisis, when the U.S. government took control of
several large U.S. corporations.
B. Canada's purchase of Hershey.
C. The French purchase of Totale.
D. the move from New York to Russia of a major sports team owned by a Russian.
This temporary exertion of power to control was essentially nationalization.

Blooms: Remember
Difficulty: 1 Easy
93. Examples of expropriation without compensation involve the following governments:
A. the U.S. with Iranian property in the U.S., Cuba with U.S. property in Cuba, and Zimbabwe
with land owned by white Zimbabwean citizens.
B. China with Hong Kong and Japan with the Kuril Isl.
C. the U.K. with the Falklands.
D. Canada with northern Maine.
The U.S., Cuba, and Zimbabwe have expropriated without compensation. Exploration of the
political differences in the examples can be interesting.

Blooms: Remember
Difficulty: 1 Easy
5-73
94. The largest government privatizing in the EU as of 2015 is
A. Greece.
B. Germany.
C. the U.K.
D. Portugal.
Greece has privatized to raise funds for loan repayments.

Blooms: Remember
Difficulty: 1 Easy
95. One critical issue related to ransom is
A. whether to pay and possibly save a life, but reinforce the effectiveness of ransom.
B. how to fund ransom payments.
C. whether ransom is connect to piracy.
D. the safety of those who are being held without access to ATMs.
The short-term gain of saving a life through a ransom payment contradicts the long-term
reinforcement of the ransom tactic.

Blooms: Remember
Difficulty: 1 Easy
5-74
96. Among the cybercrimes that most often target businesses are
A. hacking and data espionage.

B. check kiting.
C. prospecting and phishing.
D. accessing unauthorized accounts.
Cybercrime most often involves hacking and data espionage.

Blooms: Remember
Difficulty: 1 Easy
97. The sectors most frequently attacked by cyber criminals include
A. defense, energy and utilities, and finance.

B. retail.
C. oil and gas.
D. the auto industry.
Defense, utilities, and finance are the sectors that bear the brunt of cyber attacks, as of spring
2015.

Blooms: Remember
Difficulty: 1 Easy
5-75
98. The cybercrime context is
A. fluid, so the learning process is ongoing, because cyber criminals are bright and quick.
B. relatively static, so a firewall can be effective for a good six months in this environment.
C. rapidly evolving, so that cybercrime will soon be eliminated.
D. increasingly competitive, with switchovers between security personnel and criminals.
The process of protection is essentially a defensive one, with one firewall breached and shortly
replaced by another. It is an ongoing adjustment with continuous learning.

Blooms: Remember
Difficulty: 1 Easy
99. The cost of cybercrime to the perpetrator is
A. exceedingly high, so as to be a deterrent.

B. almost nonexistent, because few criminals are apprehended.
C. difficult to determine, because security issues prohibit publication of trials.
D. negligible, because few laws have been updated to include cybercrime.
The penalties for cybercrime are very high in most countries and there is solid cooperation.

Blooms: Remember
Difficulty: 1 Easy
5-76
100. Country risk assessment is a way to
A. estimate the risk to business employees, property, and investment.

B. predict risk of marketing errors, given cultural variables.
C. predict responses of citizens to new product lines.
D. analyze the impact of diversity in a country's workforce.
CRA focuses on the risk a business takes within the country of losing workers, property, and
assets.

Blooms: Remember
Difficulty: 1 Easy
101. Country risks can be responded to, in part, by
A. employee training programs.

B. a positive attitude and awareness of cultural differences.
C. defensive posturing in most public settings.
D. avoiding assignments in the country and using locals only.
Training programs can reduce employee vulnerability.

Blooms: Remember
Difficulty: 1 Easy
5-77
102. Agricultural trade restrictions
A. exist in most countries.

B. exist in centralized economies only.
C. exist mostly in developing economies.
D. are no longer a part of common trade restrictions.
Almost all countries protect agricultural products, in part because the agricultural sector has
political power and influences politicians.

Blooms: Remember
Difficulty: 1 Easy
103. Canada carved out a NAFTA exception for
A. milk and cream tariffs from the U.S.

B. tariffs on lumber from the U.S. Northwest.
C. imports of agricultural goods from Mexico.
D. tariffs on fish from all of the Great Lakes.
Canada protected its dairy farmers, to the disappointment of U.S. dairies in Vermont and
Pennsylvania.

Blooms: Remember
Difficulty: 1 Easy
5-78
104. Government motivation for restricting trade includes
A. protecting jobs, promoting defense, imposing sanctions, and protecting infant industries.
B. increasing revenues through duties and tariffs.
C. a desire for isolationism as a political strength.
D. increasing domestic consumption and thereby domestic jobs.
Governments generally restrict trade to promote jobs and defense, to punish other nations
(sanctions), and to protect infant industries.

Blooms: Remember
Difficulty: 1 Easy
105. Sanctions usually are imposed to
A. inflict economic harm on a nation to punish or force change.

B. protect an infant industry.
C. exact retribution for past conflicts.
D. increase the cost of doing business in the sanctioned nation for foreign competitors.
The usual point of sanctions is to punish or force change (U.S. sanctions on Russia with Crimea).

Blooms: Remember
Difficulty: 1 Easy
5-79
Fill in the Blank Questions
106. An example of trade as a political weapon is the U.S. sanctioning of _________ over annexation
of the Crimea.
Russia
Russia is under U.S. sanctions as of spring 2015 for annexation of the Crimea.

Blooms: Remember
Difficulty: 1 Easy
107. When governments ____________ forms, they take them from private to public ownership.
nationalize
This is the definition of nationalization.

Blooms: Remember
Difficulty: 1 Easy
108. In seizing land in ______________, the government's goal was to change the ethnic balance of
land ownership.
Zimbabwe
The goal of Mugabe's government was to redistribute land ownership, changing the ethnic
balance of owners in Zimbabwe.
5-80
Blooms: Remember
Difficulty: 1 Easy
109. ______________ was a leader of Britain's most recent privatization efforts.
Thatcher
Margaret Thatcher began a successful privatization effort.

Blooms: Remember
Difficulty: 1 Easy
110. A government that is ___________ can keep itself in power and hold predictable political, fiscal,
and monetary policies that are unlikely to change suddenly or without notification.
stable
A stable government can achieve these conditions, which business values greatly.

Blooms: Remember
Difficulty: 1 Easy
111. Business likes __________ and predictability because they provide stability and safety for assets
and people.
peace
Peace and stability create conditions favorable for business.

Blooms: Remember
5-81
Difficulty: 1 Easy
112. One risk to business is ____________, unlawful acts of violence to achieve a variety of objectives,
including revolution and revenge.
terrorism
Terrorism is a primary risk in international business today.

Blooms: Remember
Difficulty: 1 Easy
113. ____________ for ransom is a crime that targets international businesspeople as well as tourists.
Kidnapping
Kidnapping is on the rise in many environments and is a critical risk.

Blooms: Remember
Difficulty: 1 Easy
114. ____________ is hijacking that includes kidnapping on the seas.
Piracy
This is the standard definition of piracy.

Blooms: Remember
Difficulty: 1 Easy
5-82
115. Hacking, computer espionage, and domain-related offenses are examples of _________.
cybercrime
Cybercrime is a critical risk area in all businesses and has a global reach.

Blooms: Remember
Difficulty: 1 Easy
116. Many business leaders increase their organization's potential vulnerability to cybercrime by not
monitoring both their IT and traditional _____________.
supply chains
Both the IT and traditional supply chains require monitoring.

Blooms: Remember
Difficulty: 1 Easy
117. _____________________ is an assessment of a country's economic situation and politics to

determine how much risk to employees, property, and investment exists for the firm doing
business there.
Country risk assessment
Definition is taken straight from the text.

Blooms: Remember
Difficulty: 1 Easy
5-83
118. The CRA firm Maplecroft has recently dropped ____________ and Brazil from its list of growth
markets due to its increasing risk.
Russia
This material is taken from the text.

Blooms: Remember
119. Threats that target individuals can be covered by insurance, called _______.
KRE (for kidnap, ransom, and extortion)
KRE is kidnap, ransom, and extortion, and covers costs incurred by responses to such attacks.

Blooms: Remember
Difficulty: 1 Easy
120. The _____________ is having difficulty successfully completing trade negotiations due to politically
motivated agricultural tariff barriers.
World Trade Organization (WTO)
The WTO negotiations have been ongoing, largely due to agricultural issues.

Blooms: Remember
Difficulty: 1 Easy
5-84
121. The ___________ argument for trade restrictions suggests that certain industries need protection
from imports because these industries are vital to security and must be kept operating, even
when they are not competitive.
national defense
This argument is explained in the text.

Blooms: Remember
Difficulty: 1 Easy
122. __________ are trade restrictions imposed to inflict economic damage on other nations, as
punishment or to encourage change.
Sanctions
Sanctions are to punish or prod toward change (Cuba, Russia, North Korea).

Blooms: Remember
Difficulty: 1 Easy
123. To protect an infant or ____________ industry, some argue that these firms need protection from
imports.
dying
This approach suggests temporary protection, until the industry is competitive.

Blooms: Remember
5-85
Difficulty: 1 Easy
124. The ____________ argument suggests duties that would bring imported goods up to the price
level of goods in the domestic market.
fair competition
This approach protects domestic producers, while eliminating the comparative advantage of
foreign producers, so is economically inefficient.

Blooms: Remember
125. Japan, the EU, and ___________ all protect their domestic sugar industry, despite their lack of
comparative advantage in sugar production.
the U.S.
The U.S. has protected sugar since 1789.

Blooms: Remember
Difficulty: 1 Easy
5-86
126. Selling a product abroad for less than the cost of production, less than the price in the home
market, or less than the price to third-party countries constitutes ___________.
dumping
Dumping is often a cause for trade retaliation.

Blooms: Remember
Difficulty: 1 Easy
127. The U.S. does not prohibit U.S. companies from ___________ in foreign markets.
dumping
There is no legislation prohibiting U.S. companies from dumping abroad, so the thinking about
dumping is purely defensive.

Blooms: Remember
Difficulty: 1 Easy
128. _________ can take the form of cash payments to the firm, government participation in
ownership, low-cost loans to exporters and foreign buyers to encourage purchase, and
preferential tax treatment.
Subsidies
Subsidies are common in all countries, especially around agriculture.

Blooms: Remember
Difficulty: 1 Easy
5-87
129. _________________ are often imposed to offset the effects of a subsidy.
Countervailing duties
In the U.S. countervailing duties are regularly imposed to equal the subsidy and thereby null its
effect.

Blooms: Remember
Difficulty: 1 Easy
130. __________, or import duties, are taxes levied on imported goods primarily to raise their selling
price to reduce competition for domestic producers.
Tariffs
Tariffs protect domestic producers from cheaper foreign imports.

Blooms: Remember
Difficulty: 1 Easy
131. A percentage of the invoice value of the product is known as ________________ duty.
ad valorem
Ad valorem is one of three types of tariffs (also specific and compound).
5-88
Blooms: Remember
Difficulty: 1 Easy
132. A ____________ duty is a fixed sum charged for a specific number of the product.
specific
Specific duty is one of three (ad valorem and compound are the others).

Blooms: Remember
Difficulty: 1 Easy
133. A ______________ is a combination of specific and ad valorem duties.
compound duty
Compound duties are used to protect against inflation.

Blooms: Remember
Difficulty: 1 Easy
134. Discrimination against imports other than import duties are known as _____________.
nontariff barriers (NTBs)
NTBs may be difficult to detect and control.

Blooms: Remember
5-89
Difficulty: 1 Easy
135. The ___________ is an NTB that limits the number of goods a country will permit to be imported
during a specific period.
quota
For example, quotas are used on sugar in the U.S.

Blooms: Remember
Difficulty: 1 Easy
136. _______________, moving a shipment through another country, can be used as a way to avoid
quotas.
Transshipping
Transshipping may be difficult to detect, and thus, be an effective tactic.

Blooms: Remember
Difficulty: 1 Easy
5-90
137. _________________ are export limits imposed by the exporting nation, at the request of the
importing nation.
Voluntary export restraints (VERs)
Examples are VERs on Japanese auto exports to the U.S. and Canadian lumber to the U.S.

Blooms: Remember
138. Orderly marketing arrangements are a type of ________.
VER
They are formally negotiated between governments.

Blooms: Remember
Difficulty: 1 Easy
139. U.S. restriction on the origin of food used in the school lunch program is an example of a
___________ NTB.
non-quantitative
Non-quantitative NTBs can be difficult to address and are the most significant NTB today.

Blooms: Remember
Difficulty: 1 Easy
5-91
140. Favorable treatment given by a government to its national airline in access to gates, landing
slots, and airport services is a non-quantitative ____________.
NTB
NTBs are frequently used by governments to create an advantage for local businesses.

Blooms: Remember
Difficulty: 1 Easy
141. A government may move toward ________________ when it suspects foreign-owned companies
are concealing profits and not contributing to the host country.
nationalization
Usually this sort of nationalization occurs with compensation.

Blooms: Remember
Difficulty: 1 Easy
142. During the ____________ revolution in the 1950s, the government nationalized foreign-owned
property without compensation.
Cuban
As the U.S. normalizes relations with Cuba, it will be interesting to observe how this issue is
addressed.

Blooms: Remember
5-92
Difficulty: 1 Easy
143. The U.K.'s ____________ was recently privatized and shares can be purchased on the London
Stock Exchange.
Royal Mail
Royal Mail's price rose to 50 percent more than its original offer.

Blooms: Remember
Difficulty: 1 Easy
144. China, Russia, Portugal, the U.S., and ___________ are nations that have recently privatized
government-owned assets.
Greece
This is taken directly from the text.

Blooms: Remember
Difficulty: 1 Easy
145. ________________ is characteristic of a country that cannot maintain itself in power and makes
sudden, unpredictable policy changes.
Instability
Instability is not the friend of business.

Blooms: Remember
5-93
Difficulty: 1 Easy
146. Governments provide _____________ and consulates abroad to protect the interests of their
citizens there.
embassies
These representations abroad are also a source of information for the home government. Their
ability to actually protect the citizen is limited.

Blooms: Remember
Difficulty: 1 Easy
147. Kidnapping for ____________ is a funding tool of terrorists and a security issue for international
businesspeople.
ransom
The use of kidnapping for ransom has increased.

Blooms: Remember
Difficulty: 1 Easy
5-94
148. A new development in kidnapping, due to globalized banking services, occurs near
international airports. The kidnapping is shorter in duration and does not involve ransom
requests. The victims are forced to withdraw cash from ____________ to secure their release.
an ATM
This approach is less dangerous, but still costly.

Blooms: Remember
Difficulty: 1 Easy
149. Piracy has been increasing, and seems to have moved from the East to the ______________ coast.
West African
Once the increased piracy off the coast of Somalia began to be contained, increased rates
appeared off the coast of Nigeria.

Blooms: Remember
Difficulty: 1 Easy
150. With regard to cybercrime, _______________ technology is now the most vulnerable area.
mobile
Many smartphone users are relatively unaware of the vulnerabilities these devices carry with
them.

Blooms: Remember
Difficulty: 1 Easy
5-95
5-96

International Business - Module 5

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International Business - Module 5

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Module 05 Political Forces That Affect Global Trade

True / False Questions

1. Only in communist countries do governments own the factors of production.

2. The only reason firms are nationalized is to spread a socialist-communist ideology.

7. Unpredictable government actions create many business opportunities.

9. Country risks are often political in nature.

13. Sanctions are a trade restriction that is effective in forcing change.

14. To protect an infant industry, trade restrictions might be effective.

16. Fair competition is a strong rationale for trade barriers.

18. Concession dumping is a type of trade discrimination.

Multiple Choice Questions

A. extract more money from the firm.

32. With privatization, all of these may occur, except

33. Nationalization and privatization are

34. Government protection of economic activities is

A. an historical function of government.

A. policies, that they endure over time.

A. A powerful country can send in the marines to protect citizens.

A. avoid it as an added cost in competitive markets.

38. What is the role of the home country in risk assessment?

A. national defense, infant industry, and job protection.

41. The U.S. has been concerned about dumping and

A. yet only enacted antidumping measures in 2006.

42. Social dumping occurs when an exporting country

44. Home country subsidies can be retaliatory because

45. Dumping includes

46. Subsidies are problematic because they

A. are administered as a form of political patronage.

A. raise government revenue at the cost of importers.

48. In the U.S., the Smoot-Hawley Tariff Act did not

A. outlaw tariffs for U.S. imports.

49. Official prices ensure all but that

A. imported goods will be sold at minimum prices, to avoid dumping.

50. Import duties can be set to encourage

A. increased imports based on sales volumes.

52. A nontariff barrier is illustrated by all but

53. Quotas are a quantitative barrier that sets

A. limits, established by the importer.

54. Transshipping is used to

A. reduce shipping costs, as a form of consolidation.

57. Unlike quotas, voluntary export restraints (VERs) are imposed by

A. the importing country's government.

58. Examples of orderly marketing arrangements are

A. voluntary export restraints.

A. are not counted as nontariff barriers.

60. The most common form of direct government participation in trade is

61. Customs procedures in many countries often

A. are transparent and fair.

A. Japan's refusal to import light mayonnaise containing potassium sorbate.

64. Government stability is a characteristic of a government that

A. makes sudden radical policy changes.

65. International business can be a power political force, in part because

A. as part of their legal profile.

A. the labor rate is not all of the labor cost.

A. protect domestic industry from foreign, lower-cost producers.

72. Duties may be used to

A. encourage local input.

73. Nuisance tariffs

A. government erecting the barrier.

77. Sanctions against nations are

A. not a form of trade restriction because the motivation is political.

78. Productivity per worker in economically developed countries tends to be

A. higher, due to management skills and advanced technology.

A. the U.S. response to the EU ban of hormone-treated beef.