Business Environment and International Business MCQ Quiz - Objective Question with Answer for Business Environment and International Business - Download Free PDF

The correct answer is - Greenfield investment

Key Points

• Greenfield investment
  • Refers to the establishment of new assets and production facilities in the host country.
  • This type of Foreign Direct Investment (FDI) involves creating infrastructure from the ground up, including factories, offices, and distribution networks.
  • It is often undertaken by companies seeking to expand operations in a new geographical market without relying on pre-existing entities or structures.
  • This investment type fosters economic development by contributing to job creation, capital infusion, and technological advancement in the host country.

Additional Information

• Brownfield investment
  • Involves acquiring or leasing pre-existing assets or facilities in the host country.
  • Typically focuses on upgrading or repurposing existing infrastructure rather than creating new facilities.
  • Brownfield investments are often quicker to implement compared to Greenfield investments but may involve additional costs for renovation and compliance.
• Merger and acquisition
  • Refers to a company acquiring an existing business or merging with it to establish a presence in the host country.
  • This type of FDI is commonly used to gain market share, access to resources, or an established customer base.
• Strategic alliances
  • Involves two or more companies collaborating to achieve mutual business goals without creating new facilities or acquiring existing assets.
  • Focuses on leveraging shared expertise, technology, or market access.

The correct answer is - Franchising

Key Points

• Franchising
  • McDonald’s utilizes franchising as its primary international market entry strategy. This approach allows the company to expand rapidly across different countries while minimizing risks and costs.
  • In franchising, McDonald’s grants rights to local businesses to operate under its brand name, following its operational procedures, and using its menu and recipes.
  • This strategy ensures consistent quality and brand identity worldwide while leveraging local expertise in market dynamics and customer preferences.
  • Franchising is highly effective for industries like fast food, where maintaining standardization and scalability is crucial.

Additional Information

• Other Market Entry Strategies
  • Licensing: In licensing, a company permits another firm to use its intellectual property, such as trademarks or patents, in exchange for royalties. McDonald’s does not primarily rely on licensing for its international expansion.
  • Strategic Alliance: A partnership between companies to achieve mutual benefits, such as sharing resources or knowledge. While McDonald’s may collaborate with suppliers and service providers, its main entry strategy is franchising.
  • Acquisition: Acquiring another company or its assets to enter a market. McDonald’s typically avoids acquisitions for market entry, focusing instead on its franchising model to grow organically.
• Advantages of Franchising
  • Enables rapid global expansion with reduced financial risk.
  • Leverages the local expertise of franchisees to adapt to cultural and consumer preferences.
  • Maintains brand consistency and operational standards worldwide.
  • Generates steady revenue through franchise fees and royalties.

The correct answer is - Personalised sales contract

Key Points

• Personalised sales contract
  • This term does not represent a formal mode of entry into International Business.
  • Modes of entry refer to structured methods through which companies expand their operations globally, such as exporting, licensing, or foreign direct investment.
  • A personalised sales contract is simply an agreement tailored between parties and does not constitute a recognized strategy for entering international markets.
  • Understanding the difference between entry modes and contractual agreements is crucial for exam preparation.

Additional Information

• Direct exporting
  • Involves selling goods or services directly to foreign buyers without intermediaries.
  • It is a common mode of entry for businesses venturing into international markets.
  • Advantages include greater control over operations and higher profit margins.
• Indirect exporting
  • Involves using intermediaries such as export agents or trading companies to sell goods internationally.
  • This mode is typically chosen by companies with limited experience in foreign markets.
  • It reduces risk but offers less control compared to direct exporting.
• Intercorporate transfers
  • Refers to the movement of goods, services, or resources between different divisions or subsidiaries of the same company located in different countries.
  • It is a strategic mode used by multinational corporations to optimize efficiency and resource allocation.

The correct answer is - To acquire benefits and tax concession from the Govt.

Key Points

• Corporate Social Responsibility (CSR) is a framework for businesses to voluntarily integrate social and environmental concerns into their operations.
• The primary goals of CSR include:
  • Ensuring environmental sustainability, such as reducing carbon footprints, waste management, and promoting renewable energy.
  • Promoting empowerment of women and marginalized communities through education, skill development, and employment opportunities.
  • Developing awareness about social issues, such as health, education, and poverty alleviation.
• However, acquiring benefits and tax concessions from the Government is not an ethical or primary goal of CSR. Such motives deviate from the altruistic purpose of CSR.

Additional Information

• Benefits of CSR
  • CSR enhances a company’s brand image and reputation among stakeholders.
  • It fosters customer loyalty by showcasing the company’s commitment to social and environmental causes.
  • CSR initiatives improve employee morale and retention by creating a sense of purpose within the organization.
• Legal Mandates in India
  • Under Section 135 of the Companies Act, 2013, companies meeting specific criteria are required to spend at least 2% of their average net profits on CSR activities.
  • Eligible activities are listed in Schedule VII of the Act, including areas like education, health, gender equality, and environmental sustainability.
• Misuse of CSR
  • Some companies may attempt to exploit CSR for financial or tax benefits, which undermines its ethical foundation.
  • Regulatory bodies monitor CSR activities to ensure compliance with the intended objectives.

The correct answer is - National union

Key Points

• National union
  • National union is not a recognized or formal level of regional economic integration.
  • The levels of regional economic integration are defined based on agreements that reduce trade barriers and enhance economic cooperation between countries.
  • National union does not fit into any of the standard classifications used in international trade and economic studies.
  • It is likely a distractor option in this question to test your understanding of the correct levels of economic integration.

Additional Information

• Levels of Regional Economic Integration
  • Free Trade Area
    • Member countries remove trade barriers such as tariffs and quotas among themselves.
    • Each country maintains its own trade policies towards non-members.
    • Example: NAFTA (North American Free Trade Agreement).
  • Customs Union
    • In addition to removing trade barriers, member countries adopt a common external tariff policy towards non-members.
    • Example: MERCOSUR (Southern Common Market).
  • Common Market
    • Allows free movement of goods, services, capital, and labor among member countries.
    • Example: European Economic Community (EEC).
  • Economic Union
    • Member countries integrate their economies further by adopting common economic policies and potentially a shared currency.
    • Example: European Union (EU).
• Exam Tip
  • Focus on understanding the key differences between the levels of integration to differentiate them easily in objective-type exams.
  • Memorize examples of each level for quick identification during tests.

The correct answer is Washington D. C.

Key Points

• International Monetary Fund headquarters is located at Washington D. C in the United States. It was founded in 1944.
• International Monetary Fund is an Organization of 190 countries.
• It is working to secure financial stability, facilitate international trade, promote high employment and economic growth and reduce poverty around the world.

Important Points

• The IMF was founded in July 1944 at the United Nations Bretton Woods Conference in New Hampshire, United States.
•  Kristalina Ivanova Georgieva is a Bulgarian economist serving as chair and managing director of the International Monetary Fund since 2019.

Additional Information

​The correct answer is 1995.

Key Points

• WTO (World Trade Organization) was established in 1995.
• The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.
• It acts as a forum for negotiating trade agreements, it settles trade disputes between its members and it supports the needs of developing countries.
• The WTO has over 160 members representing 98 per cent of world trade. Over 20 countries are seeking to join the WTO.
• Ngozi Okonjo-Iweala is the seventh Director-General of the WTO. She took office on 1 March 2021, becoming the first woman and the first African to serve as Director-General.

Additional Information

• The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.
• At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.
• Over the past 20 years, WTO members have agreed with major updates to the WTO rulebook to improve the flow of global trade. The WTO's membership has expanded to 164 members, representing over 98% of international trade. In 2015.
• The WTO reached a significant milestone with the receipt of its 500th trade dispute for settlement.

The Association of Southeast Asian Nations, or ASEAN, was established on 8 August 1967 in Bangkok, Thailand. Currently, there are 10 permanent members of this association. Its headquarter is in Jakarta (Indonesia).

Key Points

1. The creation of ASEAN was motivated by a common fear of communism.
2. The Association of Southeast Asian Nations is a regional intergovernmental organization comprising ten countries in Southeast Asia, which promotes intergovernmental cooperation and facilitates economic, political, security, military, educational, and sociocultural integration among its members and other countries in Asia.
3. Members are Indonesia, Philippines, Vietnam, Thailand, Myanmar, Malaysia, Cambodia, Laos, Singapore, and Brunei. Observers are East Timor and Papua New Guinea. 
4. India could not become a member of this association due to its geographical location. India is a part of South-Asia while ASEAN is an organization of South-East Asian Nations. On July 23, 1996; ASEAN gave advisory status to India.

Thus, option 1 is the correct answer.

The correct answer is external sector.Key Points

• The balance of payments summarizes an economy's international economic dealings. 
• These transactions consist of transfer payments as well as the export and import of products, services, and financial assets (like foreign aid).
• The current account, the capital account, and the financial account are the three primary subcategories of the BOP.
• The influx and outflow of goods and services into a nation are represented by the current account.
• All overseas capital transfers are noted in the capital account.
• International monetary flows associated with investments in companies, properties, bonds, and stocks are recorded in the financial account.
• The BOP should be 0 when the current account is in balance with the total of the capital and finance accounts, but this rarely happens.

Additional Information

• The balance of payments deficit is the shortfall when autonomous foreign exchange payments exceed autonomous foreign exchange receipts.
• Foreign exchange transactions that are done independently of the state's balance of payments and for a person's own benefit are referred to as autonomous transactions.

The correct answer is Balance of trade ​.

Key Points

• The difference between the value of a country's exports and the value of its imports for a certain period is known as the balance of trade (BOT).
• The main component of a country's balance of payments is the balance of trade (BOP).
• The balance of trade between a country's goods and the balance of trade between its services are sometimes reported separately. The trade balance, also known as the international trade balance, commercial balance, or net exports, is a term used to describe the balance of commerce.
• The total value of exports minus the total value of imports is a simple method for determining the BOT. The BOT is a metric used by economists to assess a country's economic strength.
• A trade deficit or a negative trade balance is when a country buys more products and services in terms of value than it exports. A trade surplus or positive trade balance occurs when a country exports more products and services than it imports.

Bretton Woods Conference resulted in the establishment of the IMF and IBRD.

Explanation:

1. It was an agreement negotiated in July 1944 by 730 delegates from 44 Nations at the United Monetary & Financial conference held in Bretton Woods, New Hampshire thus getting its name 'Bretton Woods Agreement'.
2. Under this system, Gold was the basis for the US Dollar and the currencies of other Nations were pegged to the US Dollar's value.
3. The agreement ceased to operate in 1970 when US President Richard M Nixon denounced that the US would no longer exchange gold monetary value for US Currency.
4. The principal goals of institutionalizing an efficient foreign exchange system, prevention of arbitrary devaluation of currencies, and promotion of International Economic Growth were central focus which led to the creation of 2 important organization:
   • The International Monetary Fund(IMF)
   • The World Bank.
5. Post Bretton Wood agreement dissolution in the 1970s, the IMF & World Bank have still remained functional and pillars for the exchange of international currencies.
6. British Economist John Maynard Keynes and American Chief International Economist of the US Treasury Department Harry Dexter White were the designers of the Bretton Wood System which envisaged to establish a global central bank to ensure modest lending fund and a greater role for the US Dollar.
7. IMF monitors the exchange rates and identifies those Nations which require monetary support to balance their deficit financing.
8. World Bank also called the International Bank for Reconstruction & Development(IBRD) was established to manage funds and provide financial assistance to the devastated countries post world war 2 era.
9. World Bank also supports developmental cooperation by providing loans and grants to governments.

The correct answer is 1966.

• ADB (Asian Development Bank) was established in 1966.

Key Points

• Asian Development Bank(ADB):
  • It was established on 19 December 1966.
  • Its headquarters is in Manila, Phillippines.
  • It has currently 68 members.
  • Masatsugu Asakawa is the current President.
  • The ADB is a social development organization that is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration.
  • ADB provide loans, grants and information sharing in infrastructure, health care services, financial and public administration systems, helping nations prepare for the impact of climate change or better manage their natural resources for its member states.

Important Points

•  India is a member of ADB.

The Consumer Protection Act, 1986:

1. An important landmark in the history of consumer protection legislation in India is the consumer protection Act,1986, which provides for a system for the protection of consumer rights and the redressal of consumer disputes. 
2. The Consumer Protection Act, 2019 received the assent of the President on 9th August 2019, and subsequently got notified on 20.07.2020. The old Act namely Consumer Protection Act, 1986 will be replaced by a new Act namely Consumer Protection Act,2019.

Consumer Disputes Redressal Agencies 

1. A District Forum in each State and
2. A State Commission in each State and
3. A National Commission.

• The National Commission was established by the Central Government in August 1988.
• The responsibility for the establishment of the other two agencies.
• The prior approval of the Central Government rests with the respective State Governments. 

The District Forum shall consist of:

1. A person who is has been, or is qualified to be a District Judge nominated by the State Government who shall be its President,
2. A person of eminence in the field of education, trade or Commerce, and
3. A lady social worker. 
   • Each State Commission shall consist of a person who is or has been a Judge of a High Court, appointed by the State Government (who shall be its President) and two other members who shall be a person of ability, integrity, and standing and have adequate knowledge or experience of or have shown capacity in dealing with a problem relating to economic, law, commerce, accountancy, industry, public affairs or administration, one of whom shall be a woman. 
   • The National Commission shall consist of a person who is or who has been a Judge of Supreme Court, appointed by the Central Government (who shall be its President) and two other members who shall be a person of ability, integrity, and standing and have adequate knowledge or experience of or have shown capacity in dealing with problem-related to economic, law, commerce, accountancy, industry, public affairs or administration, one of whom shall be a woman. 

The Consumer Protection Act, 1986 made provisions for the establishment of Consumer Protection Councils and other authorities for resolving consumers’ disputes. The Consumer Protection Councils would be set up at national and state levels (Section 6 of Consumer Protection Act).

Key Points

 The Consumer Protection Act provides for six rights of consumers. The consumer protection councils set up under the Act are intended to promote and protect the various rights of consumers.

• Right to Safety: The consumer has a right to be protected against goods and services which are hazardous to life and health.
• Right to be Informed: The consumer has a right to have complete information about the product he intends to buy including its ingredients, date of manufacture, price, quantity, directions for use, etc.
• Right to Choose: The consumer has the freedom to choose from a variety of products at competitive prices.
• ​Right to be Heard: The consumer has a right to file a complaint and to be heard in case of dissatisfaction with a good or service.
• Right to seek Redressal: The consumer has a right to get relief in case the product or service falls short of his expectations.
• Right to Consumer Education: The consumer has a right to acquire knowledge about the product and to be a well-informed consumer throughout life.

Thus, it is clear that the government enacted the Consumer Protection Act as the Right to choose, educate, and safety.

Foreign Exchange Management Act – FEMA

1. The main objective for which FEMA was introduced in Indian was to facilitate external trade and payments.
2. In addition to this, FEMA was also formulated to assist the orderly development and maintenance of the Indian forex market.
3. FEMA outlines the formalities and procedures for the dealings of all foreign exchange transactions in India.
4. These foreign exchange transactions have been classified into two categories — Capital Account Transactions and Current Account Transactions.

Foreign Exchange Means Foreign Currency and Includes:

1. Deposits, credits, and balances payable in any foreign currency
2. Drafts, traveler's cheques, letters of credit, or bills of exchange expressed or drawn in Indian currency but payable in any foreign currency.
3. Drafts, traveler's cheques, letters of credit, or bills of exchange drawn by banks, institutions, or persons outside India but payable in Indian Currency.

• According to FEMA, foreign exchange includes drafts drawn by banks outside India and payable in Indian currency but it does not include any drafts drawn by banks outside India and payable in foreign currency.