IIA IIA Certifications IIA-CIA-PART4 Questions & Answers

• Question 511:

  A firm ships its product to a foreign subsidiary and charges a price that may increase import duties but lower the income taxes paid by the subsidiary. The most likely reason for these effects is that the:

  A. Price is an arm's-length price.

  B. Price is a cost-plus price.

  C. Transfer price is too low.

  D. Transfer price is too high.

  Correct Answer: D

  A transfer price is the price charged by one subunit of a firm to another. When the subsidiarybuyer is in a foreign country, the higher the transfer, the higher the potential tariffs.However, the tax levied on a subsequent sale by the subsidiary will be lower because of its higher acquisition cost.

• Question 512:

  A firm buys new computer equipment from bankrupt companies and resells it in foreign markets at prices significantly below those charged by competitors. The firm is

  A. Engaged in dumping.

  B. Engaged in price discrimination.

  C. Operating in a gray market.

  D. Operating in a black market.

  Correct Answer: C

  In a gray market, products imported from one country to another are sold by persons trying to make a profit from the difference in retail prices between the two countries. In essence, the seller firm in this case was exploiting a price difference between markets.

• Question 513:

  Gray market activity is in essence a form of arbitrage. To prevent this activity by their distributors, multinational firms:

  I. Raise prices charged to lower-cost distributors.

  II. Police the firms' distributors.

  III.

  Change the product.

  A.

  I only.

  B.

  I and II only.

  C.

  II and Ill only.

  D.

  I, II, and Ill.

  Correct Answer: D

  In a gray market, products imported from one country to another are sold by persons trying to make a profit from the difference in retail prices between the two countries. These activitiesclearly lower the profits in some markets of the multinational firm that was the initial seller. One response is to monitor the practices of distributors and retaliate if necessary. A second response is to charge higher prices to the low-cost distributors to reduce their incentives to participate in a gray market. A third response is to differentiate products sold in different countries, e.g., by adapting the product or offering distinct service features.

• Question 514:

  A firm that manufactures refrigerators sold ice boxes in urban areas of less developed countries. Many residents lacked electricity to power refrigerators but could purchase blocks of ice from local vendors for use in ice boxes. According to Keegan's model of adaptation strategies, this firm adopted a strategy of

  A. Product adaptation.

  B. Dual adaptation.

  C. Backward invention.

  D. Forward invention.

  Correct Answer: C

  Using a product invention strategy, a new product is created specifically for a certain country or regional market. A product may either include advancements for developed countries or have certain elements removed in places where a lower cost is a key selling point. Thus, an ice box, a precursor of the modern refrigerator, is a backward invention.

• Question 515:

  A firm wishing to sell its well-known brand of men's clothing in a certain foreign country redesigned the products because of the greater average size of consumers in that country. However, the firm retained the same basic advertising campaign. According to Keegan's model of adaptation strategies, this firm has adopted a strategy of

  A. Straight extension.

  B. Product adaptation.

  C. Forward invention.

  D. Backward invention.

  Correct Answer: B

  Using a product adaptation strategy, a firm makes changes to the product for each market but not its promotion. This can reduce profit potential but may also provide a marketing advantage by taking into account local wants and needs.

• Question 516:

  A firm sells the same product in different countries and uses the same promotion methods. According to keegan's model of adaptation strategies, this firm has adopted a strategy of

  A. Straight extension.

  B. Product adaptation.

  C. Product invention.

  D. Dual adaptation.

  Correct Answer: A

  Using a straight extension strategy, a higher profit potential exists because virtually no changes are made in the products or its promotion. There is a downside potential if foreign consumers are not familiar with this type of product or do not readily accept it.

• Question 517:

  Firms that sell products worldwide are most likely to have the lowest costs with a marketing mix that is

  A. Adapted to each market.

  B. Standardized for all markets.

  C. A combination of new and adapted products in each market.

  D. A combination of standardized products and adapted promotions.

  Correct Answer: B

  Firms that operate globally must choose a marketing program after considering the need for adaptation to local circumstances. The possibilities lie on a continuum from a purely standardized marketing mix to a purely adapted marketing mix. The former chooses to standardize products, promotion, and distribution. The latter adapts the elements of the mix to each local market. Worldwide standardization of all elements should be the lowest cost marketing strategy. However, even well established global brands ordinarily undergo some adaptation to local markets.

• Question 518:

  U.S

  firm most likely may decide to enter the Australian market because of

  A.

  Geography.

  B.

  The unmet needs of an undeveloped country.

  C.

  Psychic proximity.

  D.

  Population.

  Correct Answer: C

  Attractiveness of a foreign market is a function of such factors as geography, income, climate, population, and the product. Another major factor is the unmet needs of a developing nation, for example, China or India. Entry into a market abroad may be based on many factors, for example, psychic proximity. Thus, a first-time venture abroad might be in a market with a related culture, language, or laws.

• Question 519:

  Michael E Porter developed what is popularly known as the diamond model for determining national advantages in the global business environment. According to this model.

  A. Factor conditions are production advantages that are nature-made or inherited.

  B. Foreign markets exert less influence than home markets on a firm's ability to detect demand trends.

  C. Reliance on related and supporting industries in the home country weakens a firm's international competitiveness.

  D. Cooperation with domestic competitors clearly aids international competitiveness.

  Correct Answer: B

  Home demand conditions determine the inherent demand for goods or services that originate within the home country. Porter believes that home markets exert a much higher influence on a firm's ability to recognize consumer trends than those in a foreign market. Moreover, home demand offsets innovation and product development. Home demand is a function of

  (1)

  the mixture of customer needs and wants,

  (2)

  their scope and growth rate,

  (3)

  the means by which domestic preferences are communicated to international markets. Moreover, a national advantage is achieved when home demand provides more timely and clear trend indicators to domestic firms than to foreign firms.

• Question 520:

  Which of the following is a regional free-trade zone currently limited to South American nations?

  A. APEC

  B. Mercosul.

  C. The Triad Market.

  D. NAFTA.

  Correct Answer: B

  Mercosul is a free-trade agreement among South American nations. They include Argentina, Brazil, Uruguay, and Paraguay. Chile and Bolivia are associate members.