Introduction to International Business
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Questions and Answers

Which factor primarily differentiates international business from domestic business?

  • The application of different sets of regulations and laws (correct)
  • The size of the target market
  • The currency used in transactions
  • The number of employees

A company begins exporting its products to several countries. Which aspect of international business scope is it engaging in?

  • Merchandise export (correct)
  • Technology transfer
  • Capital investment
  • Service import

A major benefit of international business for a company is _____.

  • Decreased risk from economic downturns
  • Lower operational costs due to simplified regulations
  • Access to a wider range of resources and markets (correct)
  • Reduced competition in the domestic market

A company grants rights to a foreign entity uses its brand name for a fee. Which mode of entry is the company using?

<p>Licensing (D)</p> Signup and view all the answers

Which entry mode involves the greatest degree of control and risk for a company entering a foreign market?

<p>Wholly Owned Subsidiary (D)</p> Signup and view all the answers

What is the primary advantage of contract manufacturing as a mode of entry into international business?

<p>Reduced capital investment and risk (C)</p> Signup and view all the answers

What is the key difference between licensing and franchising in international business?

<p>Licensing provides broader operational guidelines than franchising. (D)</p> Signup and view all the answers

Two companies from different countries pool resources to establish a new, separate legal entity. This is an example of _____.

<p>Joint Venture (B)</p> Signup and view all the answers

Which document is essential for customs clearance in the importing country?

<p>Bill of Lading (D)</p> Signup and view all the answers

What is the first step in the export procedure?

<p>Receiving an inquiry and sending a quotation (B)</p> Signup and view all the answers

Which document provides detailed information about the goods being exported, including price, quantity, and specifications?

<p>Commercial Invoice (B)</p> Signup and view all the answers

The importer needs to present a document to the customs authority to prove the origin of the goods. Which document is required?

<p>Certificate of Origin (D)</p> Signup and view all the answers

The importer arranges payment to the exporter through a bank. What is this method of payment known as?

<p>Letter of Credit (C)</p> Signup and view all the answers

Which organization provides financial assistance to countries with balance of payments difficulties?

<p>International Monetary Fund (IMF) (D)</p> Signup and view all the answers

What is the primary goal of the World Trade Organization (WTO)?

<p>To reduce trade barriers and promote free trade (A)</p> Signup and view all the answers

Which organization focuses on providing loans and grants for infrastructure and development projects in developing countries?

<p>International Bank for Reconstruction and Development (IBRD) (C)</p> Signup and view all the answers

In which mode of entry does a company allow a foreign entity to produce and sell its products while adhering to specific quality standards?

<p>Contract Manufacturing (D)</p> Signup and view all the answers

Which of the following is NOT typically included in the scope of international business?

<p>Domestic marketing campaigns (D)</p> Signup and view all the answers

A firm decides to open a manufacturing plant in another country to serve the local market. What type of entry mode is this?

<p>Wholly Owned Subsidiary (D)</p> Signup and view all the answers

What is the purpose of a 'shipping bill' in export trade?

<p>It is a document required by customs authorities for export clearance. (A)</p> Signup and view all the answers

Which of these documents ensures that the goods being shipped are insured against loss or damage during transit?

<p>Insurance Certificate (B)</p> Signup and view all the answers

A company chooses to export its products indirectly through an intermediary. What is one potential disadvantage of this approach?

<p>Less control over the marketing and distribution (A)</p> Signup and view all the answers

Which of the following is a primary function of the International Monetary Fund (IMF)?

<p>Monitoring exchange rates and providing financial assistance (B)</p> Signup and view all the answers

What role does the IBRD primarily play in the global economy?

<p>Providing financial support for reconstruction and development (D)</p> Signup and view all the answers

How does the WTO contribute to the stability and predictability of international trade?

<p>By providing a framework for negotiating and formalizing trade agreements (D)</p> Signup and view all the answers

What is the significance of a 'proforma invoice' in international trade?

<p>It is preliminary quotation provided to the importer before the sale. (A)</p> Signup and view all the answers

When an importer receives goods, what is the first step in the import procedure?

<p>Filing of the 'bill of entry' (B)</p> Signup and view all the answers

What is one potential challenge for a company using a joint venture as a mode of entry?

<p>Potential conflicts and disagreements with the partner (C)</p> Signup and view all the answers

A company decides to allow a foreign firm to use its production processes under strict guidelines. Which mode of entry is being used?

<p>Licensing (A)</p> Signup and view all the answers

How does international business contribute to increased product variety in a domestic market?

<p>By increasing competition from foreign firms (B)</p> Signup and view all the answers

What role does 'customs clearance' play in the import process?

<p>Ensuring compliance with import regulations and assessing duties (A)</p> Signup and view all the answers

If an exporter requires immediate payment before shipping goods, which payment method is most suitable?

<p>Advance Payment (C)</p> Signup and view all the answers

Which of the following is a common risk associated with exporting?

<p>Difficulty in receiving payment from foreign buyers (D)</p> Signup and view all the answers

What is the core principle underlying the operation of the World Trade Organization (WTO)?

<p>Non-discrimination and free trade (B)</p> Signup and view all the answers

The IMF often imposes certain conditions on countries receiving financial assistance. What are these conditions typically aimed at?

<p>Implementing economic reforms to ensure stability (A)</p> Signup and view all the answers

Which document serves as a receipt for the shipment when goods are loaded onto a vessel?

<p>Bill of Lading (D)</p> Signup and view all the answers

A company manufactures its products in its home country and sells them to customers in another country. Which mode of entry is this?

<p>Exporting (C)</p> Signup and view all the answers

What advantage does a wholly-owned subsidiary offer over other entry modes?

<p>Greater control over operations (D)</p> Signup and view all the answers

Which of the following is NOT a typical benefit of international business?

<p>Lower transportation costs (B)</p> Signup and view all the answers

A company gains the right to market and sell goods/services using someone else's brand, operational system, and support. What type of international business entry is being pursued?

<p>Franchising (C)</p> Signup and view all the answers

In an import procedure, what is the purpose of 'examination of goods' by customs officials?

<p>To verify the declared details and quantity of the consignment (A)</p> Signup and view all the answers

A company in Country A owns 60% of a company in Country B, sharing control and profits. What international entry mode is used?

<p>Joint Venture (D)</p> Signup and view all the answers

Which international organization works to stabilize exchange rates and allow member countries to borrow funds when facing payment difficulties.

<p>IMF (B)</p> Signup and view all the answers

What is the primary function of a packing list in international trade?

<p>To detail the contents of each package in a shipment (C)</p> Signup and view all the answers

Which procedure occurs first for an Importer?

<p>Filing of import documents (B)</p> Signup and view all the answers

Flashcards

International Business

Business activities that cross national borders.

Domestic Business

Business within a single country's borders.

Benefits of International Business

Wider market, access to resources, diversification, and growth.

Modes of Entry into International Business

Exporting, importing, contract manufacturing, licensing, franchising, joint ventures, and wholly owned subsidiaries.

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Exporting

Selling goods or services to another country.

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Importing

Buying goods or services from another country.

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Contract Manufacturing

Producing goods in a foreign country under contract.

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Licensing and Franchising

Granting rights to a foreign entity to produce or sell your product or service.

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Joint Ventures

A business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance.

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Wholly Owned Subsidiaries

A company whose stock is completely owned by one parent company.

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Export Procedure

A step-by-step process to move goods out of a country.

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Import Procedure

A step-by-step process to bring goods into a country.

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Documents used in Trade

Documents used in Export and Import Trade

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IMF

International Monetary Fund - promotes international monetary cooperation.

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IBRD (World Bank)

The World Bank - provides loans to countries for capital programs

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WTO

Deals with the rules of trade between nations.

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Political Risk Assessment

Analysis of the local regulatory and legal environment.

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Economic Factors

Exchange rates, inflation, and interest rates.

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Cultural Assessment

Understanding cultural norms and values in foreign markets.

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Technological Factors

Assessing infrastructure, technology, and communication systems.

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Trade Agreements

Agreements between countries to reduce trade barriers.

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Tariffs

Taxes imposed on imported goods.

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Quotas

Limits on the quantity of imported goods.

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Exchange Controls

Government restrictions on currency exchange.

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Embargo

Prohibiting trade with a specific country.

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Dumping

Selling products below cost in a foreign market.

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Absolute Advantage

A country's ability to produce a good or service at a lower cost than other countries.

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Comparative Advantage

A country's ability to produce a good or service at a lower opportunity cost than other countries.

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Foreign Exchange

Converting one currency into another.

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Exchange Rate

The price of one currency in terms of another.

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Exchange Rate Risk

The risk that exchange rates will change adversely.

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Currency Hedging

The process of managing financial risks related to currency fluctuations.

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Currency Speculation

Buying and selling currencies for profit.

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Floating Exchange Rate

A system in which exchange rates are determined by supply and demand.

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Fixed Exchange Rate

A system in which exchange rates are fixed by governments.

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Balance of Trade

The difference between the value of a country's exports and imports.

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Trade Surplus

A situation where a country exports more than it imports.

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Trade Deficit

Situation when country imports more than exports

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Human Capital

Infrastructure, education, and healthcare systems.

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Study Notes

  • International business involves commercial activities that cross national borders

International Business vs. Domestic Business

  • International business differs from domestic business due to factors like varying currencies, legal systems, cultures, and political environments

Scope of International Business

  • International business includes:
    • Exporting and importing goods and services
    • Foreign direct investment
    • Licensing
    • Franchising
    • Contract manufacturing

Benefits of International Business

  • International business can lead to:
    • Increased revenue
    • Diversification
    • Access to new markets
    • Greater efficiency
    • Overcoming domestic competition

Modes of Entry into International Business

  • Common entry modes include:
    • Exporting and Importing: Direct or indirect sale/purchase of goods/services
    • Contract Manufacturing: Production outsourced to a foreign company
    • Licensing and Franchising: Granting rights to use intellectual property or business models
    • Joint Ventures: Collaboration with a foreign company
    • Wholly Owned Subsidiaries: Establishing a fully owned operation in a foreign country

Export Procedure

  • Typical steps involve:
    • Inquiry/Order receipt
    • Production/Procurement
    • Quality control
    • Pre-shipment inspection
    • Export packaging
    • Insurance
    • Customs clearance
    • Shipment
    • Post-shipment documentation

Import Procedure

  • Typical steps involve:
    • Trade enquiry
    • Obtaining import license
    • Securing foreign exchange
    • Placing order/indent
    • Obtaining letter of credit
    • Shipment advice
    • Customs clearance and examination of goods
    • Transportation to warehouse

Documents Used in Export and Import Trade

  • Key documents include:
    • Proforma Invoice
    • Commercial Invoice
    • Packing List
    • Bill of Lading/Air Waybill
    • Certificate of Origin
    • Inspection Certificate
    • Marine Insurance Policy
    • Letter of Credit

IMF (International Monetary Fund)

  • The IMF aims to promote international monetary cooperation and facilitate international trade

IBRD (International Bank for Reconstruction and Development)

  • IBRD focuses on providing loans to developing countries to reduce poverty

WTO (World Trade Organization)

  • The WTO regulates international trade, reduces trade barriers, and resolves trade disputes

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Description

Explore the basics of international business, including its scope, benefits, and modes of entry. Learn about exporting, foreign direct investment, licensing, and franchising. Understand how international business differs from domestic business.

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