International Business MCQs with Answers

Multiple Choice Questions 38 Pages

Savitribai Phule Pune University

Bachelor of Business Administration

Contributed by

Shashank Sahni

DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45

Subject: International Business CLASS: SYBBA IV SEM (2013 PATTERN)

PROF. Heena D. Gandhi
www.dacc.edu.in

Question Bank - Multiple Choice Questions (MCQs)

Unit 1: Introduction to International Trade

1) How is comparative advantage defined?

a) You produce the things you are especially good at, and buy from others, the goods you are less
efficient in producing.
b) To produce and consume all goods without trade.
c) How the world actually works.
d) Globalization, growing economic linkages among countries.

2) What are the four factor endowments?

a) National resources, labor, physical capital and human capital
b) Types of technology
c) Material inputs used up in the process of production
d) International differences in climate

3) The Heckscher- Ohlin model is principally focused on what aspect of economics?

a) International trade
b) Supply and demand
c) Normative economics
d) Production possibility frontier

4) A no-trade world will have which of the following characteristics:

a) Countries will have same relative endowments of production factors
b) Consumers across countries will have identical and homogenous tastes
c) There will be no distortions or externalities
d) all of the above

Page 1
DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45

Subject: International Business CLASS: SYBBA IV SEM (2013 PATTERN)

PROF. Heena D. Gandhi
www.dacc.edu.in

5) Transportation cost of trade affects:

a) pattern of trade
b) boundaries between tradable and non-tradable goods
c) Global supply chains
d) all of the above

6) Which of the following trade policies limits specified quantity of goods to be imported at one tariff rate?

a) Quota
b) Import tariff
c) Specific tariff
d) All of the above

7) In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in

a) Military capabilities
b) labor productivities
c) relative availabilities of factors of production
d) tastes

8) Nations conduct international trade because:

a) Some nations prefer to produce one thing while others produce other things.
b) Resources are not equally distributed among all trading nations.
c) Trade enhances opportunities to accumulate profits.
d) Interest rates are not identical in all trading nations

9) International Trade is most likely to generate short-term unemployment in:

a) Industries in which there are neither imports nor exports
b) Import-competing industries
c) Industries that sell to domestic and foreign buyers.
d) Industries that sell to only foreign buyers

Page 2
DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45

Subject: International Business CLASS: SYBBA IV SEM (2013 PATTERN)

PROF. Heena D. Gandhi
www.dacc.edu.in

10) What was the first economic theory of international trade to be developed?

a) The theory of mercantilism
b) The theory of comparative advantage
c) The theory of absolute advantage
d) The Heckscher-Ohlin theory

11) Mercantilists believed that a country could increase the amount of wealth it had by _____.
a) Promoting exports and discouraging imports
b) Discouraging exports and promoting imports
c) Controlling imports and exports
d) Increasing both imports and exports

12) According to Adam Smith, the trade between countries should happen _____.
a) Naturally according to the market forces
b) Under government regulation
c) Using factors that are available
d) Only when a country has an absolute advantage

13) If a nation has an open economy it means that the nation:
a) Allows private ownership of capital.
b) Has flexible exchange rates
c) Has fixed exchange rates
d) Conducts trade with other countries

14) International trade forces domestic firms to become more competitive in terms of
a) The introduction of new products
b) Product design and quality
c) Product price
d) All of the above

15) The movement to free international trade is most likely to generate short-term unemployment in which
industries
a) Industries in which there are neither imports nor exports
b) Import-competing industries.
c) Industries that sell to domestic and foreign buyers
d) Industries that sell to only foreign buyers

Page 3
DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45

Subject: International Business CLASS: SYBBA IV SEM (2013 PATTERN)

PROF. Heena D. Gandhi
www.dacc.edu.in

16) Increased foreign competition tend to
a) Intensify inflationary pressure at home
b) Induce falling output per worker-hour for domestic workers
c) Place constraints on the wages of domestic workers
d) Increase profits of domestic import-competing industries

Use the information in the table below to answer the next three questions 17,18,19.

Country
Tons of steel
DVDs
South Korea
80
40
Japan
20
20

17) The opportunity cost of one DVD in Japan:
a) One ton of steel
b) Two tons of steel
c)Three tons of steel
d) Four tons of steel

18) The opportunity cost of one DVD in South Korea is:
a. One-half ton of steel
b. One ton of steel
c. One and one-half tons of steel
d. Two tons of steel

19) According to the principle of comparative advantage:
a. South Korea should export steel
b. South Korea should export steel and DVDs
c. Japan should export steel
d. Japan should export steel and DVDs

Answer the next 4 questions 20,21,22,23 based on the production table below:

Country:(Output per Labor Hour)

A
B
Product X
3
9
Product Y
4
2

Page 4
DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45

Subject: International Business CLASS: SYBBA IV SEM (2013 PATTERN)

PROF. Heena D. Gandhi
www.dacc.edu.in

20) Country A has an absolute advantage in
a) Product X
b) Product Y
c) Neither X nor Y
d) Both X and Y

21) Country B has an absolute advantage in
a) Product X
b) Product Y
c) Neither X nor Y
d) Both X and Y

22) If the countries were to trade along the lines of absolute advantage:
a) A would export X to B
b) B would import Y from A
c) Neither country would want to trade

23) If countries were to trade along the lines of comparative advantage:
a) A would export X to B
b) A would export Y to B
c) Neither country would want to trade

24) Globalization refers to:
a) Lower incomes worldwide
b) Less foreign trade and investment
c) Global warming and their effects
d) A more integrated and interdependent world

25) Comparative Cost Trade Theory is given by
a) Adam Smith
b) David Ricardo
c) Gottfried Haberle
d) Heckscher Ohlin

Page 5
DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45

Subject: International Business CLASS: SYBBA IV SEM (2013 PATTERN)

PROF. Heena D. Gandhi
www.dacc.edu.in

26) ……………...is the payment method most often used in International Trade which offers the exporter best
assurance of being paid for the products sold internationally.
a) Bill of Lading
b) Letter of Credit
c) Open Account
d) Drafts

27) Key controllable factors in global marketing are:
a) Government policy and legislation
b) social and technical changes
c) marketing activities and plans
d) all of the above.

28) The first phase of globalization started around 1870 and ended with …..
a) World War I
b) World War II
c) The Establishment of GATT
d) In 1913 when GDP was High

29) According to this theory, the holdings of a country’s treasure primarily in the form of gold constituted its
wealth.
a. Gold Theory
b. Ricardo Theory
c. Mercantilism
d. Hecksher Theory

30) The Theory of Absolute Cost Advantage is given by
a. David Ricardo
b. Adam Smith
c. F W Taylor
d. Ohlin and Heckscher

31) The Theory of Relative Factor Endowments is given by
a) David Ricardo
b) Adam Smith
c) c. F W Taussig
d) Ohlin and Hecksher

Page 6
DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45

Subject: International Business CLASS: SYBBA IV SEM (2013 PATTERN)

PROF. Heena D. Gandhi
www.dacc.edu.in

32) The theory of comparative cost advantage is given by
a. David Ricardo
b. Adam Smith
c. F W Taussig
d. Ohlin and Heckscher

Unit 1 Answer Key:
1 – a
2 - a
3 - a
4 - d
5 - d
6 – a
7 – c
8 – b
9 - b
10 -a
11 – a
12 - d
13 - d
14 - d
15 - b
16 – c
17 – a
18 – d
19 - a
20 - b
21 – a
22 -b
23 - b
24 - d
25 - b
26-b
27-c
28-a
29-c
30-b
31-d
32-a

Unit 2: Multinational Enterprises

1) A national company becomes an MNC when it
a) Makes a foreign direct investment
b) Takes out a foreign loan
c) Imports a foreign product
d) Exports a foreign product
e) Hires foreign workers

2) A multinational is a firm that controls and manages production facilities in
a) Both developed and developing countries
b) At least two countries
c) One country but relies on multiple markets for the consumption of goods it produces
d) At least two developed countries and one developing country
e) One country, but relies on purchasing intermediate foods from companies in other countries

3) A foreign direct investment occurs when a company in country A invests in a company located in country
B and thereby gives the investing company control over the management of the company receiving its
investment. A company does not have to be the sole investor in the foreign company
a) True
b) False
Page 7
DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45

Subject: International Business CLASS: SYBBA IV SEM (2013 PATTERN)

PROF. Heena D. Gandhi
www.dacc.edu.in

4) Locational advantages are based on which combination of the following specific country characteristics
a) A large reserve of natural resources, a large local market and efficiency opportunities
b) A small reserve of natural resources, a large local market and efficiency opportunities
c) A small reserve of natural resources, a small local market and efficiency opportunities
d) A large reserve of natural resources, a small local market and efficiency opportunities
e) A small reserve of natural resources, a large local market but few efficiency opportunities

5) Horizontal integration occurs when
a) Firm creates singular country production facilities, each of which produces different good or goods
b) Firm creates multiple production facilities, each of which produces the same good or goods.
c) Firm creates multiple production facilities, each of which produces different good or goods
d) Firm creates singular country facilities, each of which produces the same good or goods
e) Firm creates multiple production facilities, in multiple countries but with different technologies

6) Vertical integration refers to instances in which multinational corporations internalize (i.e., bring under
their ownership and control) their transactions for intermediate goods
a) True
b) False

7) Which of the following is a definition of multinational enterprises?
a) A company employing foreign nationals.
b) A company headquartered in one country but having operations in other countries.
c) A company operating in emerging economies.
d) None of the above.

8) A company that invests in a controlling interest in a foreign company is best described as engaging in
which of the following?
a) International investment
b) Foreign portfolio investment
c) Foreign indirect investment
d) Foreign direct investment
e) None of the answers are correct

Page 8
DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45

Subject: International Business CLASS: SYBBA IV SEM (2013 PATTERN)

PROF. Heena D. Gandhi
www.dacc.edu.in

9) Match the following.
(i) MNCs buy at cheap rates from small producers
(a) Automobiles producers
(ii) Quotas and taxes on imports are used to regulate trade items
(b) Garments, footwear, sports
(iii) Indian companies who have invested abroad
(c) Call centers
(iv) IT has helped in spreading of production of services
(d) Tata Motors, Infosys, Ranbaxy
(v) Several MNCs have invested in setting up factories in India for
production
(e) Trade barriers
a) i-b, ii-e, iii-d, iv-c, v-a
b) i-a, ii-b, iii-d, iv-c, v-d
c) i-d, ii-c, iii-a, iv-b, v-e

10) Which of the following would be an example of foreign direct investment from the United States to
Taiwan?
a) A U.S. bank buys bonds issued by a Taiwan computer manufacturer.
b) A U.S. car manufacturer enters into a contract with a Taiwan firm to make and sell it spark plugs.
c) Microsoft hires a Taiwanese computer programmer to debug some software for it.
d) The state of California rents space in Taipei for one of its employees to use promoting tourism in
California.

11) What is the connection, if any, between comparative advantage (CA) and foreign direct investment (FDI)?
a) Nothing. CA has nothing to do with FDI.
b) Countries often engage in FDI in industries where the country they invest in has a comparative
advantage.
c) When a country’s firms invest abroad, this helps to create CA in the same industry at home.
d) When a country’s firms invest abroad, this helps to create CA in the same industry in the country
where they undertake the investment.

12) If a German manufacturer of household appliances wants to take advantage of the cheaper labor available
in the Czech Republic, which of the following actions will not serve that purpose?
a) Build a manufacturing subsidiary there and employ Czech workers.
b) Build a plant in the Czech Republic and send all German workers to operate it.
c) License a Czech firm to produce its products under its own label.
d) Contract for a Czech firm to do some of the processing for it.

Page 9
DNYANSAGAR ARTS AND COMMERCE COLLEGE, BALEWADI, PUNE – 45

Subject: International Business CLASS: SYBBA IV SEM (2013 PATTERN)

PROF. Heena D. Gandhi
www.dacc.edu.in

13) Suppose that Mexico has previously had restrictions on inflows of foreign direct investment from all
sources, including the United States. Then suppose that they remove those restrictions on flows from the
United States in a particular industry, say hammocks. As a result, several hammock producers in the U.S.
move production to Mexico via FDI. Indicate for each of the groups below whether you expect them to
gain or to lose from this flow of investment.
a) Workers previously employed in hammock production in the U.S. Gain / Lose
b) Workers previously employed in hammock production in Mexico. Gain / Lose
c) Owners of firms that move production to Mexico. Gain / Lose
d) Owners of U.S. hammock firms that do not move production to Mexico. Gain / Lose
e) Owners of firms in Mexico that previously produced hammocks. Gain / Lose
f) Consumers of hammocks (assume that there already was free trade in hammocks). Gain / Lose

14) Which of the following was created in an effort to promote free trade?
a) World Trade Organization
b) the Sarbanes-Oxley Act
c) multilateral development banks
d) the Organization for Economic Cooperation and Development

15) . Removing barriers or restrictions set by the government is called:
a) Liberalisation
b) Investment
c) Favorable trade
d) Free trade

16) Rapid integration or interconnection between countries is known as:
a) Privatisation
b) Globalisation
c) Liberalisation
d) Socialisation

17) In which year did the government decide to remove barriers on foreign trade and investment in India?
a) 1993
b) 1992
c) 1991
d) 1990

Page 10

International Business MCQs with Answers

International Business MCQs with Answers

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