Deck 11: Selecting and Managing Entry Modes

Question 1

Countertrade can provide access to markets that are otherwise closed because of a lack of hard currency.

Answer 1

True

Question 2

By definition,direct exporters always sell directly to end users.

Answer 2

False

Question 3

Offset differs from a counterpurchase in that it does not specify the type of product that must be purchased,just the amount that will be spent.

Answer 3

True

Question 4

Switch trading is the export of industrial equipment in return for products produced by that equipment.

Question 5

Matching needs to abilities is the first step in developing a successful export strategy.

Question 6

Indirect exporting occurs when a company sells its products to intermediaries who then resell to buyers in a target market.

Question 7

Agency relationships are popular among exporters because they are easy to terminate should difficulties arise.

Question 8

Companies are often drawn into exporting when customers in other countries solicit their goods.

Question 9

A confirmed letter of credit is guaranteed by both the exporter's bank in the country of export and the importer's bank in the country of import.

Question 10

The most common methods of buying and selling goods internationally are joint ventures and strategic alliances.

Question 11

A sight draft extends the period of time following delivery by which the importer must pay for goods.

Question 12

Because of the cash outlays involved,countertrade is not an option for smaller companies.

Question 13

A way a company can achieve economies of scale is to expand into international markets.

Question 14

Most large companies use exporting as a means of expanding total sales when the domestic market has become saturated.

Question 15

Advance payment normally takes the form of a sight draft.

Question 16

Using a distributor reduces an exporter's risk.

Question 17

Typically,indirect exporting relies on local sales representatives or distributors.

Question 18

An entry mode is the institutional arrangement by which a firm gets its products,technologies,human skills,or other resources into a market.

Question 19

Advance payment is the least favourable method for exporters.

Question 20

Exporting permits companies to diversify their sales.

Question 21

Which of the following is the first step in developing a successful export strategy?

A)Initiate meetings
B)Commit resources
C)Identify a potential market
D)Match needs to abilities

Question 22

The most important disadvantage of a strategic alliance is that it can create a future local or even global competitor.

Question 23

Which of the following occurs when a company sells its products to buyers in a target market without going through intermediary companies?

A)Direct exporting
B)Countertrade
C)Licensing
D)Franchising

Question 24

Types of entry modes available to companies include all of the following EXCEPT ________.

A)exporting,importing,and countertrade
B)contractual entry
C)investment entry
D)value entry

Question 25

Under a turnkey project,one company supplies another with managerial expertise for a specific period of time.

Question 26

The brand name or trademark of a company is normally the single most important item desired by a franchisee.

Question 27

Because ________ take ownership of the merchandise when it enters their country,they accept all the risks associated with generating local sales.

A)distributors
B)sales representatives
C)indirect distributors
D)agents

Question 28

The advance payment method reduces the risk of non-shipment the importer faces under the open account method.

Question 29

________ is the institutional arrangement by which a firm gets its products,technologies,human skills,or other resources into a market.

A)investment process
B)export
C)entry mode
D)market transfer

Question 30

In developing a successful export strategy,once a potential market has been identified,the next step is to ________.

A)match needs to abilities
B)initiate meetings
C)commit resources
D)investigate demand in a target market

Question 31

Cross licensing occurs when companies employ licensing agreements to swap intangible property with one another.

Question 32

The primary advantage of franchising is that franchisees have a great degree of organizational flexibility.

Question 33

A company performing market research and interpreting results is at which step in the export strategy process?

A)Identify a potential market
B)Match needs to abilities
C)Initiate meetings
D)Commit resources

Question 34

All of the following are true of distributors EXCEPT ________.

A)they sell either to retailers and wholesalers or to end users through their own channels of distribution
B)they earn a profit equal to the difference between the price they pay and the price they receive for the exporter's goods
C)they do not take ownership of the merchandise when it enters their country
D)they can stunt the growth of the exporter's market share by charging very high prices

Question 35

Which of the following is the most common method of buying and selling goods internationally?

A)Exporting and importing
B)Contractual entry
C)Countertrade
D)Investment entry

Question 36

Licensing is primarily used in the service industries.

Question 37

Letters of credit are popular among traders because banks assume most of the risks.

Question 38

In a backward integration joint venture,the parties choose to invest together in downstream business activities.

Question 39

A company establishing relationships with potential local distributors,buyers,and others is at which step in the export process?

A)Commit resources
B)Match needs to abilities
C)Initiate meetings
D)Identify a potential market

Question 40

A wholly owned subsidiary is a facility owned and controlled by a single parent company.

Question 41

Selling goods or services that are paid for,in whole or part,with other goods or services is called ________.

A)indirect exporting
B)countertrade
C)licensing
D)franchising

Question 42

Which of the following normally takes the form of a wire transfer of money from the bank account of the importer directly to that of the exporter prior to shipment of merchandise?

A)Documentary collection
B)Letter of credit
C)Advance payment
D)Open account

Question 43

Export/import financing in which a bank acts as an intermediary without accepting financial risk is called ________.

A)documentary collection
B)letter of credit
C)buyback
D)open account

Question 44

A company that exports products on behalf of an indirect exporter is called a(n)________.

A)distributor
B)export trading company
C)agent
D)export management company

Question 45

Buyback is defined as which of the following?

A)The export of industrial equipment in return for products produced by that equipment
B)An agreement that a company will offset a hard-currency sale to a nation by making a hard-currency purchase of an unspecified product from that nation in the future
C)The sale of goods or services to a country by a company that promises to make a future purchase of a specific product from that country
D)The exchange of goods or services directly for other goods or services without the use of money

Question 46

Advance payment is common in each of the following situations EXCEPT when ________.

A)two parties are unfamiliar with each other
B)two parties are very familiar with each other
C)the transaction is for a relatively small amount
D)the buyer is unable to obtain credit

Question 47

The different types of intermediaries involved in indirect exporting include all of the following EXCEPT ________.

A)export management companies
B)sales representatives
C)agents
D)export trading companies

Question 48

The sale of goods and services to a country by a company that promises to make a future purchase of a specific product from that country is called a(n)________.

A)counterpurchase
B)offset
C)switch trade
D)barter

Question 49

Which of the following is the oldest known form of countertrade?

A)Offset
B)Counterpurchase
C)Barter
D)Switch trading

Question 50

Which of the following types of agreements allows a country to earn back some of the currency it pays out for imports?

A)Switch trading
B)Counterpurchase
C)Buyback
D)Barter

Question 51

Which of the following is the exchange of goods and services directly for other goods and services without the use of money?

A)Offset
B)Counterpurchase
C)Barter
D)Switch trading

Question 52

Which of the following is NOT a method of export/import financing?

A)Documentary collection
B)Letter of credit
C)Buyback
D)Open account

Question 53

The biggest advantage of an export management company is usually its ________.

A)knowledge of the target market's cultural,political,legal,and economic conditions
B)well-developed and extensive distribution channels
C)well-rounded experience in countertrade-related activities
D)financial understanding of investment projects and its manufacturing expertise

Question 54

Which of the following occurs when a company sells its products to intermediaries who then resell to buyers in a target market?

A)Indirect exporting
B)Investment entry
C)Strategic alliance
D)Direct exporting

Question 55

Which of the following is NOT true of countertrade?

A)It can provide access to markets that are otherwise off-limits because of a lack of hard currency.
B)It involves commodities and agricultural products.
C)It involves a risk similar to that encountered in currency markets.
D)There is no means of hedging the type of risk encountered in countertrade.

Question 56

A form of countertrade that usually typifies long-term relationships between the companies involved is called ________.

A)switch trading
B)counterpurchase
C)offset
D)buyback

Question 57

A company proposes that in exchange for a hard-currency sale,it will make a hard-currency purchase of an unspecified product from the buyer nation in the future.The company is proposing which of the following?

A)Counterpurchase
B)Offset
C)Switch trading
D)Barter

Question 58

When one company sells to another its obligation to make a purchase in a given country,this is called ________.

A)counterpurchase
B)offset
C)switch trading
D)barter

Question 59

Which of the following is NOT a type of countertrade?

A)Offset
B)Buyback
C)Switch trading
D)Open account

Question 60

An offset agreement differs from a counterpurchase agreement in which of the following respects?

A)Offset does not specify the type of product that must be purchased.
B)Counterpurchase does not specify the type of product that must be purchased.
C)Offset does not involve a currency sale.
D)Offset does not specify the amount that will be spent.

Question 61

Which of the following is a method of export/import financing in which the importer's bank issues a document stating that the bank will pay the exporter when the exporter fulfills the terms of the document?

A)Draft
B)Bill of lading
C)Letter of credit
D)Bill of exchange

Question 62

Which of the following is NOT a form of investment entry?

A)Strategic alliance
B)Wholly owned subsidiary
C)Joint venture
D)Turnkey project

Question 63

Which of the following requires the importer to pay when goods are delivered?

A)Sight draft
B)Bill of lading
C)Time draft
D)Airway bill

Question 64

Which of the following allows the bank issuing a letter of credit to modify the terms of the letter only after obtaining the approval of both exporter and importer?

A)Revocable letter of credit
B)Confirmed letter of credit
C)Bill of lading
D)Irrevocable letter of credit

Question 65

Which of the following is a contract between the exporter and shipper that specifies merchandise destination and shipping costs?

A)Draft
B)Bill of lading
C)Letter of credit
D)Bill of exchange

Question 66

The ________ payment method is commonly used when there is an ongoing relationship between the two parties.

A)advance payment
B)documentary collection
C)letter of credit
D)open account

Question 67

When an exporter ships merchandise and later bills the importer for its value,it is using a(n)________ type of export/import financing.

A)advance payment
B)open account
C)letter of credit
D)documentary collection

Question 68

A ________ joint venture is formed when each partner requires the same component in its production process.

A)backward
B)multistage
C)forward
D)buyback

Question 69

A document ordering the importer to pay the exporter a specified sum of money at a specified time is called a(n)________.

A)bill of lading
B)letter of credit
C)bill of exchange
D)airway bill

Question 70

Which of the following financing methods entails the greatest risk for importers?

A)Documentary collection
B)Advance payment
C)Letter of credit
D)Open account

Question 71

Which of the following is a contractual entry mode in which one company supplies another with intangible property and other assistance over an extended period?

A)Franchising
B)Management contract
C)Licensing
D)Strategic alliance

Question 72

When inscribed "accepted" by an importer,a(n)________ becomes a negotiable instrument that can be traded among financial institutions.

A)sight draft
B)bill of lading
C)time draft
D)airway bill

Question 73

Letters of credit are popular among traders because most of the risks are assumed by ________.

A)countertraders
B)importers
C)exporters
D)banks

Question 74

A ________ is a separate company created and jointly owned by two or more independent entities to achieve a common business objective.

A)wholly owned subsidiary
B)joint venture
C)strategic alliance
D)turnkey project

Question 75

Which of the following is a contractual entry mode in which a company owning intangible property grants another firm the right to use that property for a specified period of time?

A)Franchising
B)Management contract
C)Licensing
D)Strategic alliance

Question 76

When one company is hired to design,construct,and test a production facility for a client,the arrangement is called a ________.

A)turnkey project
B)licensing agreement
C)joint venture
D)franchising agreement

Question 77

Which of the following financing methods entails the greatest risk for exporters?

A)Documentary collection
B)Advance payment
C)Letter of credit
D)Open account

Question 78

In which type of joint venture do the parties choose to invest together in downstream business activities?

A)Backward integration
B)Multistage
C)Forward integration
D)Buyback

Question 79

Contractual entry modes include all of the following EXCEPT ________.

A)franchising
B)management contracts
C)licensing
D)strategic alliances

Question 80

Which of the following can be modified by the issuing bank without obtaining approval from either the exporter or the importer?

A)Revocable letter of credit
B)Confirmed letter of credit
C)Bill of lading
D)Irrevocable letter of credit