Answer to Question 1
The four strategies are home replication, multidomestic, global, and transnational. A home replication strategy means that the organization simply replicates what has worked in the home market in its markets abroad. A multidomestic strategy suggests that a firm operates differently in its various markets based on local market characteristics. A global strategy means that the firm attempts to develop global efficiencies by standardizing its activities from country to country. A transnational strategy suggests that the firm attempts to respond to local market preferences while achieving global efficiencies. The appropriate strategy is based on a firm's need for local responsiveness and its need for global efficiencies. The components are distinctive competence, scope of operations, resource deployment, and synergy.
Answer to Question 2
This theory states that the prices of tradable goods, when expressed in a common currency, will tend to equalize across countries as a result of exchange rate changes. Purchasing power parity occurs because the process of buying goods in the cheap market and reselling them in the expensive market affects the demand for, and the price of, the foreign currency, as well as the market price of the good itself in the two product markets in question. When purchasing power parity occurs, there is no reason to cross borders to purchase the products.
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