MIB Master of International Business 3 — Questions and Answers
Question 1: Which currency exchange rate system allows a country's currency value to fluctuate freely based on market supply and demand?
- Fixed exchange rate
- Managed float
- Currency board
- Free float (Correct answer)
Correct answer: Free float
A free float system lets market forces determine currency value without government intervention, as seen with the U.S. dollar, euro, and Japanese yen.
Question 2: A firm's value chain analysis in an international context helps managers identify:
- The best currency hedging instruments
- Activities where the firm can achieve competitive advantage globally (Correct answer)
- The number of employees needed in each country
- Optimal tax domiciles for transfer pricing
Correct answer: Activities where the firm can achieve competitive advantage globally
Value chain analysis breaks down a firm's activities to identify which can be performed most efficiently or distinctively across global locations to build competitive advantage.
Question 3: When a parent company sets artificially low prices on goods sold to its foreign subsidiaries to reduce overall tax liability, this practice is called:
- Dumping
- Transfer pricing manipulation (Correct answer)
- Tariff escalation
- Currency arbitrage
Correct answer: Transfer pricing manipulation
Transfer pricing manipulation occurs when MNCs set intracompany prices to shift profits to low-tax jurisdictions, a practice heavily scrutinized by tax authorities worldwide.
Question 4: The 'liability of foreignness' concept refers to:
- Additional tariffs imposed on foreign-made goods
- The extra costs and disadvantages firms face when operating in unfamiliar foreign markets (Correct answer)
- Currency translation losses on foreign assets
- Legal restrictions on foreign ownership of domestic firms
Correct answer: The extra costs and disadvantages firms face when operating in unfamiliar foreign markets
Liability of foreignness describes the inherent competitive disadvantages MNCs face abroad — such as unfamiliarity with local laws, culture, and networks — compared to indigenous competitors.
Question 5: Which of the following best describes a 'born global' firm?
- A multinational that began operations before WWII
- A firm that pursues international markets from or near its inception (Correct answer)
- A company that exclusively uses export agents
- A state-owned enterprise with international subsidiaries
Correct answer: A firm that pursues international markets from or near its inception
Born global firms internationalize rapidly from founding, often driven by technology, niche markets, or founder networks, bypassing the traditional incremental internationalization stages.
Question 6: In international negotiations, cultures described as 'polychronic' tend to:
- Adhere strictly to schedules and do one task at a time
- Handle multiple tasks simultaneously and view time as flexible (Correct answer)
- Avoid direct eye contact during business discussions
- Prefer written contracts over verbal agreements
Correct answer: Handle multiple tasks simultaneously and view time as flexible
Polychronic cultures (common in Latin America and the Middle East) treat time as fluid, often multitask, and prioritize relationships over rigid schedules.
Question 7: The Foreign Corrupt Practices Act (FCPA) prohibits U.S. companies from:
- Employing foreign nationals in senior management
- Paying bribes to foreign government officials to gain business advantage (Correct answer)
- Repatriating profits from developing countries
- Using dual-use technology in export transactions
Correct answer: Paying bribes to foreign government officials to gain business advantage
The FCPA (1977) makes it illegal for U.S. persons and companies to bribe foreign officials in exchange for obtaining or retaining business, with significant civil and criminal penalties.
MIB Master of International Business 3
Which currency exchange rate system allows a country's currency value to fluctuate freely based on market supply and demand?