CPM CPM Global Pricing & Cross-Border Strategy 2 — Questions and Answers
Question 1: Which currency hedging approach locks in a fixed exchange rate for future transactions?
- Forward contract (Correct answer)
- Spot transaction
- Currency basket indexing
- Inflationary pricing adjustment
Correct answer: Forward contract
A forward contract commits both parties to a specific exchange rate for a future transaction, eliminating foreign exchange risk for that deal.
Question 2: In global pricing, 'price escalation' refers to:
- The increase in end-user price caused by cumulative tariffs, logistics costs, and channel margins in export markets (Correct answer)
- Annual price increases tied to inflation
- Escalation clauses in long-term supply contracts
- The process of raising prices after a competitive response
Correct answer: The increase in end-user price caused by cumulative tariffs, logistics costs, and channel margins in export markets
Export price escalation occurs because import duties, freight, insurance, and local channel margins stack on top of the factory price, often doubling the end-user cost.
Question 3: A 'country-of-origin' pricing consideration is most relevant when:
- Consumers associate quality or prestige with the manufacturing country, affecting willingness to pay (Correct answer)
- Import tariffs vary by origin country
- Logistics costs differ by shipping lane
- Tax treaties apply different withholding rates
Correct answer: Consumers associate quality or prestige with the manufacturing country, affecting willingness to pay
Country-of-origin effects influence perceived quality and brand equity — products from prestige origins can command premiums even when functionally identical.
Question 4: In international B2B pricing, 'Incoterms' affect pricing strategy because they:
- Define who bears shipping cost and risk, directly impacting the net price received by the seller (Correct answer)
- Set maximum export prices under trade agreements
- Determine currency of invoice for cross-border contracts
- Establish quality standards for traded goods
Correct answer: Define who bears shipping cost and risk, directly impacting the net price received by the seller
Incoterms (e.g., FOB, CIF, DDP) determine at which point cost and risk transfer from seller to buyer, materially affecting the seller's effective net revenue.
Question 5: Hyperinflation in an export market typically requires which pricing adjustment strategy?
- Dollarization of contracts or frequent price escalation clauses tied to inflation indices (Correct answer)
- Fixed long-term contracts to provide customer stability
- Reducing prices to offset inflation's impact on consumer spending power
- Exiting the market until inflation stabilizes
Correct answer: Dollarization of contracts or frequent price escalation clauses tied to inflation indices
Invoicing in a stable hard currency or tying prices to inflation indices protects against rapid purchasing power erosion in hyperinflationary markets.
Question 6: Which of the following best characterizes a 'polycentric' international pricing strategy?
- Each local subsidiary sets prices independently based on local market conditions (Correct answer)
- A global headquarters mandates uniform prices worldwide
- Prices are set by a regional hub for clusters of similar countries
- All pricing is determined by import parity
Correct answer: Each local subsidiary sets prices independently based on local market conditions
Polycentric pricing gives each market full local autonomy, maximizing local optimization but risking cross-market inconsistency and arbitrage.
CPM CPM Global Pricing & Cross-Border Strategy 2
Which currency hedging approach locks in a fixed exchange rate for future transactions?