,1. Which of the following theories explains how firms can benefit
from the imperfections in international markets?
- a) Comparative advantage theory
- b) Gravity model
- c) Internalization theory
- d) Product life cycle theory
- Answer: c) Internalization theory
Rationale: Internalization theory explains why firms prefer
foreign direct investment (FDI) over licensing by exploiting
market imperfections.
2. The Eclectic Paradigm (OLI model) integrates which of the
following advantages?
- a) Ownership, Location, Internalization
- b) Organizational, Linguistic, Investment
- c) Operational, Legal, Institutional
- d) Ownership, Legal, Innovation
- Answer: a) Ownership, Location, Internalization
Rationale: The OLI model, proposed by John Dunning,
identifies three tiers of advantages—Ownership, Location, and
Internalization—that influence FDI decisions.
, 4. Which factor is most commonly assessed through Porter's
Diamond Model?
- a) Market saturation
- b) Competitive advantage in a nation
- c) International trade policies
- d) Currency exchange rates
- Answer: b) Competitive advantage in a nation
Rationale: Porter's Diamond Model analyzes competitive
advantage through four determinants: factor conditions, demand
conditions, related and supporting industries, and firm strategy,
structure, and rivalry.
5. Which international agreement aims to eliminate tariffs and
other trade barriers among member countries?
- a) NAFTA
- b) Bretton Woods Agreement
- c) GATS
- d) Kyoto Protocol
- Answer: a) NAFTA
Rationale: NAFTA was established to create a trilateral trade
bloc in North America by reducing trade barriers.
### Fill-in-the-Blank Questions
6. __________ is a financial instrument used to protect against
foreign exchange risk.
- Answer: Hedging
Rationale: Hedging involves utilizing financial instruments to
minimize the risk of adverse price movements.
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