MIB Master of International Business MCQ 4 — Questions and Answers
Question 1: Porter's Diamond model identifies four determinants of national competitive advantage. Which of the following is NOT one of them?
- Factor conditions
- Exchange rate stability (Correct answer)
- Demand conditions
- Related and supporting industries
Correct answer: Exchange rate stability
Porter's Diamond includes factor conditions, demand conditions, related/supporting industries, and firm strategy/structure/rivalry — exchange rate stability is not a determinant.
Question 2: An 'export processing zone' (EPZ) is designed primarily to:
- Restrict imports through high tariff walls
- Attract foreign investment by offering tax incentives and streamlined regulations for export production (Correct answer)
- Regulate the quality of goods destined for export markets
- Manage foreign exchange reserves by centralizing export revenues
Correct answer: Attract foreign investment by offering tax incentives and streamlined regulations for export production
EPZs offer incentives such as tax holidays, duty-free imports of inputs, and relaxed labor regulations to attract FDI oriented toward export manufacturing.
Question 3: Which concept refers to the competitive disadvantage that arises when a multinational firm operates abroad due to unfamiliarity with local culture, laws, and business practices?
- Psychic distance
- Liability of foreignness (Correct answer)
- Country-of-origin effect
- Cultural distance index
Correct answer: Liability of foreignness
Liability of foreignness (Zaheer, 1995) describes the extra costs and disadvantages MNEs face compared to local firms because of their outsider status.
Question 4: A currency is said to be 'overvalued' when:
- Its exchange rate is below purchasing power parity equilibrium
- Its exchange rate is above purchasing power parity equilibrium (Correct answer)
- The central bank holds excess foreign reserves
- Inflation in the home country is lower than in trading partners
Correct answer: Its exchange rate is above purchasing power parity equilibrium
An overvalued currency trades at a higher price than PPP suggests, making exports expensive and imports cheap — often unsustainable without intervention.
Question 5: Which international trade term (Incoterm) means the seller delivers when goods are placed on board the vessel nominated by the buyer, with risk transferring at that point?
- CIF – Cost, Insurance and Freight
- DDP – Delivered Duty Paid
- FOB – Free On Board (Correct answer)
- EXW – Ex Works
Correct answer: FOB – Free On Board
Under FOB, the seller's obligation ends and risk transfers to the buyer once the goods are loaded on the vessel at the named port of shipment.
Question 6: The 'eclectic paradigm' (OLI framework) by John Dunning states that a firm will engage in FDI when it possesses:
- Only ownership advantages
- Ownership, Location, and Internalization advantages simultaneously (Correct answer)
- Location advantages and government support
- Internalization and financial scale advantages
Correct answer: Ownership, Location, and Internalization advantages simultaneously
Dunning's OLI (Ownership-Location-Internalization) framework holds that all three conditions must be met for FDI to be the optimal internationalization mode.
Question 7: A 'countertrade' arrangement in international business is BEST described as:
- A bilateral agreement where goods are exchanged without cash payment (Correct answer)
- A forward contract used to hedge import costs
- A tariff imposed as retaliation for unfair trade practices
- A joint venture structured to maximize local content requirements
Correct answer: A bilateral agreement where goods are exchanged without cash payment
Countertrade involves reciprocal trade where goods or services partially or fully substitute for monetary payment, common in markets with currency restrictions.
MIB Master of International Business MCQ 4
Porter's Diamond model identifies four determinants of national competitive advantage.
Which of the following is NOT one of them?