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Question 1:

The least risky method of entering a market in a foreign country is by

A. Indirect exports.

B. Licensing.

C. Direct exports.

D. Direct investments.

Correct Answer: A

An indirect export strategy operates through intermediaries, such as home-country merchants who buy and resell the product, home-country agents who negotiate transactions with foreign buyers fora commission, cooperatives that represent groups of sellers, and export-management firms that receive fees for administering the firm\’s export efforts. Indirect export requires lower investment than direct export and is less risky because of the intermediaries\’ expertise.


Question 2:

The three major factors favoring globalization are

A. Cultural, commercial, and technical.

B. Flexibility, proximity, and adaptability.

C. Political, technological, and social.

D. Ambition, positioning, and organization.

Correct Answer: C

The new economy is driven by the digital revolution that facilitates international commerce by providing capabilities that did not exist a relatively few years ago. It is also driven by such political events as the fall of the Soviet Union, the participation of China in the world economic system, the emergence of the European Union, and the creation of other regional free trade zones. These technological and political factors are intertwined with social changes, for example, greater concern for the rights of women and minorities; the advance of multilingualism; and the convergence of tastes in fashion, music, and certain other cultural factors. Accordingly, these factors favor globalization by reducing trade barriers, reducing cost of coordination, increasing economies of scale, and encouraging standardization and global branding.


Question 3:

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 4:

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 5:

According to keegan\’s model of adaptation strategies, a firm that decides to operate globally by changing its product and its promotion methods has chosen

A. A dual adaptation strategy.

B. The backward variant of a product invention strategy.

C. The forward variant of a product invention strategy.

D. A straight extension strategy.

Correct Answer: A

Communication adaptation is a strategy that does not change the products, but advertising and marketing campaigns are changed to reflect the local culture and beliefs. In contrast, a dual adaptation strategy changes both the product and the promotion to provide the best chance of acceptance in a foreign market.


Question 6:

Managerial attitudes toward global operations are viewed by researcher HowardPerl mutteras a key to understanding multinational firms. A polycentric attitude is indicated by

A. An identification with the nationality of the owner.

B. Evaluation and control standards that are both local and global.

C. High information flow in multiple directions.

D. Relatively little decision making by the central administrative authority.

Correct Answer: D

A polycentric attitude assumes that cultural differences require local managers to make most decisions because they are more knowledgeable about local conditions than are central administrators. Thus, development of local managerial talent is crucial. Another result is that foreign operating performance is primarily evaluated based on results. As a consequence,methods, training, and incentives vary significantly among subsidiaries. Furthermore, control is predominantly local, the firm is identified with the nationality of the host nation, and relatively little communication occurs with central administration or among subsidiaries. One disadvantage is that local operations may have inefficiencies because of duplication of activities. Another disadvantage is loss of goal congruence between local entities and the firm as a whole. Advantages are more capable and motivated local managers, better results in local markets, local development of new product ideas, and stronger support by host governments.


Question 7:

According to Edward T. Hall, the perception of time is monochronic or polychronic. Which cultures perceive time as monochronic?

A. Northern European.

B. Latin American.

C. Arabic.

D. Mediterranean.

Correct Answer: A

The perception of time as it relates to business and social life varies with the culture. Polychronic time is based on a perception that time is nonlinear, flexible, and multidimensional. This perception is typical of Mediterranean, Latin American, and Arabic cultures. Monochronic time is based on a perception that time is the same for everyone and is measurable in standard units. This perception is common in Northern Europe and the U.S. These western cultures believe in punctuality and that time is money and should not be wasted.


Question 8:

In some regions of the world, business is conducted more often through personal relationship building than through legal contracts. This is an example of a

A. Cultural factor.

B. Commercial factor.

C. Technical factor.

D. Legal factor.

Correct Answer: A

In high-context cultures (e.g., Japanese, Chinese, Arabic, and Korean), much meaning is transmitted by nonverbal cues and situational circumstances. Thus, a person\’s status in a firm, rank in society, and reputation convey the primary message. In low-context cultures (e.g., Northern Europe and North America), primary messages are transmitted verbally. Hence, precise written contractual agreements are highly valued. In contrast, social events aremore highlyvalued in a high-context culture. Attitudes, tastes, behavior, and social codes are culturalfactors. Accordingly, a preference for personal relationships rather than precise writtencontracts is a cultural factor.


Question 9:

Firm X is considering entry into an industry. To analyze competition within the industry, Firm X evaluated its strategic groups. According to Michael E. Porter,

A. The members of a strategic group pursue different competitive strategies.

B. Intergroup competition is increased by market interdependence.

C. Low barriers to mobility among strategic groups promote profitability.

D. High substitutability of products reduces competition among groups.

Correct Answer: B

Intergroup competition is increased by market interdependence, which is the extent to which groups pursue the same customers. The greater the interdependence, the stronger the competition among groups.


Question 10:

According to a model developed by Arthur D Little, a firm with a better-than-average chance to improve its competitive position is in a

A. Favorable position.

B. Dominant position.

C. Tenable position.

D. Weak position.

Correct Answer: A

A firm in a favorable position has strengths that it can exploit. Thus, it has better-than average chance to improve its position but is not as well placed as a dominant or strong firm.


Question 11:

During the growthstage of a product\’s life cycle:

A. The quality of products is poor.

B. New product models and features are introduced.

C. There is little difference between competing products.

D. The quality of the products becomes more variable and products are less differentiated.

Correct Answer: B

In the growth stage, sales and profits increase rapidly, cost per customer decreases, customers are early adopters, new competitors enter an expanding market, new product models and features are introduced, and promotion spending declines or remains stable. The firm enters new market segments and distribution channels and attempts to build brand loyalty and achieve the maximum share of the market. Thus, prices are set to penetrate the market, distribution channels are extended, and the mass market is targeted through advertising. The strategy is to advance by these means and by achieving economies of productive scale.


Question 12:

While auditing a marketing department, the internal auditor discovered that the product life cycle model was used to structure the marketing mix. Under such a philosophy, the opportunity for cost reductions would be greatest in which stage of the life cycle?

A. Introduction stage.

B. Growth stage.

C. Maturity stage.

D. Decline stage.

Correct Answer: B

During the growth stage, the opportunity for cost reductions is at its maximum because production volume is increasing at a high rate. Thus, fixed costs are being spread over more units of production, and the benefits of the learning curve are being realized.


Question 13:

Which of the following is not a limit on emerging industry development?

A. Raw materials and components.

B. Subsidies.

C. Product quality.

D. Regulatory approval.

Correct Answer: B

Subsidies are a structural characteristic of an emerging market. If a subsidy is given by the government or other party, it usually assists the growth of the new industry instead of hindering it. Subsidies tend to focus on radically new technology or technology in which societal concern is strong.


Question 14:

A firm is most likely to leave a declining industry because

A. The remaining pockets of demand include price-insensitive buyers.

B. It is the only part of a vertically integrated business that is affected.

C. Buyers have high switching costs.

D. Mobility barriers are high.

Correct Answer: B

Vertical integration of a business may require exit of the entire chain when the reasons for decline affect all its parts. However, when only one part of the vertically integrated business is in a declining industry, integration is an argument for exit of the affected part. Divestiture prevents the weak link from harming the entire chain.


Question 15:

In a declining industry with a favorable structure, a firm may have the ability to recover additional investment or to earn above-average returns in the remaining pockets of demand. Such a firm is most likely to follow a:

A. Quick divestment strategy.

B. Harvest strategy or quick divestment strategy.

C. Leadership strategy or harvest strategy.

D. Leadership strategy or niche strategy.

Correct Answer: D

A leadership strategy is pursued by a firm that believes it can achieve market share gains to become the dominant firm. An assumption is that additional investment can be recovered. A second assumption is that success will put the firm in a better position to hold its ground or subsequently to follow a harvest strategy. A niche strategy seeks a market segment (pocket of demand) with stable or slowly decreasing demand with the potential for above-average returns. Some of the moves undertaken when following a leadership strategy may be appropriate. The firm may eventually change to a harvest or divest strategy.