IIA IIA Certifications IIA-CIA-PART3 Questions & Answers

• Question 861:

  Which of the following statements is true with regard to a vertically integrated acquisition?

  A. A grocery store chain that purchases a dairy and begins to make milk-based products under its own brand is forward integrated.

  B. A movie producer that acquires a chain of theaters is backward integrated.

  C. A clothing manufacturer that acquires a chain of clothing stores is forward integrated.

  D. A soda maker that purchases its leading competitor is backward integrated.

  Correct Answer: C

  Vertical integration occurs upstream (backward) by acquiring suppliers or downstream (forward) by acquiring wholesalers and retailers. An example of forward integration is a clothing manufacturer's acquisition of a chain of clothing stores in which to sell its products.

• Question 862:

  In which industry structure is differentiation absent, and all sellers charge the same price?

  A. Monopoly.

  B. Monopolistic competition.

  C. Oligopoly.

  D. Pure competition.

  Correct Answer: D

  An industry consists of firms selling products or services that are substitutes. One way to describe an industry considers the number of sellers and the extent of differentiation ofproducts and services. In pure competition, differentiation is absent, and the same prices are charged by all sellers.

• Question 863:

  A true market signal: A. Is a direct market communication indicating intent.

  B. May involve a threat not intended to be carried out.

  C. May be an attempt to minimize a future provocative move.

  D. Announces a move that will occur.

  Correct Answer: C

  Prior announcements of moves may minimize the provocation caused by a future strategic adjustment, e.g., a price cut. Such a move may be a genuine attempt to realign prices with changes in costs, not an aggressive grab for market share. However, the move may also be an attempt to mislead.

• Question 864:

  Firm A mostly does business in markets in the southern part of the country. Firm B mostly does business in markets in the western part of the country. However, Firm A has recently moved to compete with Firm B in the western part of the country by introducing its existing products there. Accordingly, Firm B has entered Firm As primary markets. What kind of market signal did Firm B send?

  A. A cross-parry.

  B. A bluff.

  C. An introduction of a fighting brand.

  D. A direct response.

  Correct Answer: A

  The cross-parry is a response to a competitor's move in one area with a move in another. For example, Firm X, which is well entrenched in region A, may move to compete with Firm Y in its stronghold in region

  B. Firm Ys cross-parry is to enter the market in region A. A cross-parry is an indirect response by the defending firm that potentially avoids destructive conflict in the newly penetrated market. However, it also signals the possibility of retaliation, especially if it occurs in one of the initiating firm's key markets. For example, price cutting as a cross-parry may be very effective against a firm with a large share of the market where the parry is made. This firm has more to lose in a price war in that market. Consequently, maintenance of a presence in a cross market deters the large-share firm from attacking elsewhere.

• Question 865:

  A firm discounts never-before-discounted items. This action is an example of a:

  A. Divergence from industry precedent.

  B. Cross-parry.

  C. Divergence from prior strategic objectives.

  D. Bluff.

  Correct Answer: A

  The discounting of never-before-discounted items implies aggressive intent. It is an example of a divergence from industry precedent.

• Question 866:

  Prior announcements of moves have value as market signals in part because an announced move need not actually occur. Which of the following is true regarding the effects of prior announcements of moves on the market?

  I. The effects may preempt competition

  II. The effects may express pleasure or displeasure with a competitor's action

  III. The effects may be a means of ending all external debate

  IV.

  The effects may test competitor sentiment

  A.

  I, II, and Ill only.

  B.

  I, II, and IV only.

  C.

  II, Ill, and IV only.

  D.

  I, II, Ill, and IV.

  Correct Answer: B

  Among other things, prior announcements of moves may preempt competition, threaten action, test competitor sentiment, express pleasure or displeasure with a competitor's action, and act as a means of ending internal debate. Moreover, prior announcements of moves may be a means of ending some external debate (i.e., if the announcement was aimed at the financial community in order to answer questions about the firm's liquidity). However, all external debate would be impossible to end, even by means of prior announcements of moves.

• Question 867:

  When firms compete in different geographical locations or have multiple product lines that do not necessarily overlap, the most effective way of responding to an aggressive move by a competitor without directly triggering destructive moves and countermoves is to

  A. Mislead the competitor into taking or not taking an action.

  B. Make a prior announcement of intended moves.

  C. Initiate a move in the market where the competitor is strong.

  D. Initiate direct aggressive moves

  Correct Answer: C

  Initiating a move in the market where the competitor is strong is a cross- parry. A cross- parry is an effective way to signal displeasure and raise the threat of more serious retribution without directly triggering destructive moves and countermoves.

• Question 868:

  General Electric has popularized a model for competitive analysis. In this portfolio matrix,

  A. Each of the firm's businesses is represented by a circle proportional to its size.

  B. Business strength and market attractiveness are measured using a multifactor index.

  C. The number of cells varies with the number of factors used by the firm in its analysis.

  D. The four quadrants represent combinations of high or low market growth rates and business profitability.

  Correct Answer: B

  The GE model is a multifactor portfolio matrix with two variables. Business strength or competitive position (BUS) is on one axis, and market attractiveness (MAT) is on the other. To measure BUS and MAT, the firm must isolate the multiple factors affecting each, quantify them, and create an index. Factors will vary with each business. The measurements will provide the values on the exes of the matrix.

• Question 869:

  According to the Boston Consulting Group's portfolio model for competitive analysis, the strategy fora strong cash cow should be

  A. Harvest.

  B. Divest.

  C. Hold.

  D. Build.

  Correct Answer: C

  A hold strategy is used for strong cash cows. It is necessary if the business is to continue to generate large net cash inflows. Harvesting might impair a strong cash cow's ability to generate long-term positive net cash inflows.

• Question 870:

  General Electric (GE) portfolio model for competitive analysis of strategic business units (SBUs) is presented in a matrix format. This matrix

  A. Has four quadrants.

  B. Shows SBUs as circles directly proportional to their business strength.

  C. Classifies its cells into nine zones.

  D. Classifies each variable in one of three categories.

  Correct Answer: D

  The GE model is a multifactor portfolio matrix with two variables. Business strength or competitive position (BUS) is on one axis, and market attractiveness (MAT) is on the other. BUS is classified as strong, medium, or weak, and MAT is classified as high, medium, or low. Thus, the matrix in this model is 3 x 3 and has nine cells.