IIA Certified Internal IIA-CIA-PART4 Questions & Answers

• Question 531:

  A firm wishing to become global must consider how many national markets to enter. A firm should enter fewer national markets when

  A. Communication adaptation costs are low.

  B. The product need not be adapted.

  C. Entry costs are low.

  D. The first countries chosen are heavily populated and have high incomes.

  Correct Answer: D

  According to Ayal and Zif, the following are factors indicating that few national markets should be entered:

  (1)

  entry costs are high;

  (2)

  market control costs are high;

  (3)

  product adaptation costs are high;

  (4)

  communication adaptation costs are high;

  (5)

  the first countries selected have large populations, high incomes, and high income growth;

  (6)

  a dominant firm can erect high entry barriers.

• Question 532:

  A firm expands into international markets to

  A. Be in foreign markets.

  B. Eliminate foreign competition

  C. Pursue new, higher-profit opportunities.

  D. Preclude piracy of the firm's products.

  Correct Answer: C

  A firm may decide to go abroad for many reasons, for example, to respond to a competitive challenge in its home country by another global firm, to pursue opportunities yielding greater profits, to achieve economies of scale, to diversify, or to follow customers who need international service.

• Question 533:

  A global firm

  A. Has achieved economies of scale in the firm's domestic market.

  B. Plans, operates, and coordinates business globally.

  C. Relies on indirect export.

  D. Tends to rely more on one product market.

  Correct Answer: B

  According to Kotler, "Global firms plan, operate, and coordinate their activities on a worldwide basis." Thus, a global firm secures cost or product differentiation advantages not available to domestic firms.

• Question 534:

  When a multinational firm decides to sell its products abroad, one of the risks the firm faces is that the government of the foreign market charges the firm with dumping. Dumping occurs when

  A. The same product sells at different prices in different countries.

  B. A firm charges less than the cost to make the product so as to enter or win a market.

  C. Lower quality versions of the product are sold abroad so as to be affordable.

  D. Transfer prices are set artificially high so as to minimize tax payments.

  Correct Answer: B

  Dumping is an unfair trade practice that violates international agreements. It occurs when a firmcharges a price (1) lower than that in its home market or (2) less than the cost to make the product. Dumping may be done to penetrate a market or as a result of export subsidies.

• Question 535:

  Which of the following is the most significant reason that domestic governments and international organizations seek to eliminate cartels?

  A. The increased sales price reduces the amount of corporate tax revenues payable to the government.

  B. True competition keeps prices as low as possible, thus increasing efficiency in the marketplace.

  C. Small businesses cannot survive or grow without government protection.

  D. The economic stability of developing countries depends on a global free market.

  Correct Answer: B

  A cartel is an organization of sellers (e.g., the oil cartel OPEC) who undertake joint action to maximize members' profits by controlling the supply, and therefore the price, of their product. Under the laws of many nations, such collusive conduct is illegal when engaged in by firms subject to those laws. The reason is that, as a result of the monopolistic and anticompetitive practices of cartels, supply is lower, prices are high, competition is restrained, and the relevant industry is less efficient. Accordingly, governmental and international organizations seek to protect consumers and the health of the domestic and global economy through anti-cartel efforts.