IIA IIA Certifications IIA-CIA-PART4 Questions & Answers

• Question 461:

  A corporation produces uniforms that it sells and rents to businesses. The corporation recently acquired a textile mill that produces synthetic cloth. This acquisition is an example of:

  A. Horizontal integration Forward integration

  B. Horizontal integration Backward integration

  C. Vertical integration Forward integration

  D. Vertical integration Backward integration

  Correct Answer: D

  The degree of backward and forward vertical integration along the value chain varies with the industry. The corporation acquired one of its suppliers, which is on a different level of the value chain. Thus, the combination involved vertical integration. Moreover, the acquisition of a supplier is characteristic of backward integration.

• Question 462:

  The retail petroleum industry consists of a few large firms that sell a standardized product.Which of the following best describes this industry?

  A. Monopoly.

  B. Oligopoly.

  C. Monopolistic competition.

  D. Pure competition.

  Correct Answer: B

  An oligopoly consists of a few large firms. If products are standardized, competition may be based solely on price. If products are partially differentiated, each firm may attempt to lead the industry regarding a given attribute, e.g., price, quality, service, or features. The retail petroleum industry is dominated by a small number of firms that control a vast majority of the market. Furthermore, it is an example of an industry that sells a standardized product, with competition based primarily on price.

• Question 463:

  According to Arthur D Little, a competitor firm that can act independently and sustain itslong-termstatus irrespective of the behavior of others holds which of the following competitive positions?

  A. A dominant position.

  B. A strong position.

  C. A favorable position.

  D. A tenable position.

  Correct Answer: B

  Evaluating a competitor's market position is necessary to judge how and whether to challenge it. A firm in a strong competitive position can act independently and sustain its long-term status irrespective of the behavior of others.

• Question 464:

  A strategic group analysis does all but which of the following?

  A. Determines what mobility barriers exist.

  B. Forecasts future group actions and trends.

  C. Considers how the firm compares with the competitors within the chosen strategic group.

  D. Predicts reaction patterns to events such as competitive attacks.

  Correct Answer: C

  An overall industry analysis, not a strategic group analysis, considers how the firm compares with the competitors within the chosen strategic group, e.g., on the basis of its scale of operations, the intensity of group rivalry, and the differences in the ability of the group members to implement their strategies.

• Question 465:

  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 466:

  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 467:

  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 468:

  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 469:

  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 470:

  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.