int bus ch 7, sd 8, xzcfx 10, international business ch 6
Capital flight is most likely to occur when A) the value of the domestic currency is depreciating rapidly because of hyperinflation. B) a country's economic prospects are solid and promising. C) the value of the domestic currency is appreciating rapidly. D) the value of the foreign currency is depreciating rapidly.
a
Company A entered the production of office software before its competitors. Because of this, the company's products are more familiar among and favored by customers. This situation exemplifies the A) first-mover advantage. B) diminishing marginal returns. C) economies of scale. D) constant marginal returns.
a
Country A can produce product X, but it can also buy it at a cheap rate from Country B. Which of the following courses of action is suitable in this situation according to Adam Smith's theory of absolute advantage? A) Country A should import product X from Country B and it should not attempt to produce it at home. B) Country A should partly import the product and produce it domestically. C) Country A should produce more of product X and should attempt to obtain an absolute advantage for the product. D) Country A should subsidize the production of product X to obtain an absolute advantage over Country B.
a
Country X, a poor country, invents a revolutionary electronic product. The country markets this new product in other poor countries to garner large profits. This occurrence is against the idea of A) product life-cycle theory. B) Ricardo's theory. C) theory of absolute advantage. D) theory of comparative advantage.
a
Identify the correct statement about the PPP theory. A) It predicts that exchange rates are determined by relative prices. B) It yields accurate predictions of short-run movements in exchange rates. C) It best predicts exchange rate changes for countries with low rates of inflation. D) It includes transportation costs and trade tariffs.
a
Identify the theory that seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets. A) internalization theory B) product life-cycle theory C) perfect markets theory D) random walk theory
a
Recent years have seen a ________ in the number of countries that adhere to a radical ideology regarding FDI. A) marked decline B) slight decline C) marked increase D) slight increase
a
Tariffs do not benefit A) consumers. B) domestic producers. C) governments. D) domestic firms.
a
The ________ argues that a large proportion of the world's new products had been developed by U.S. firms. A) product life-cycle theory B) Porter's diamond C) new trade theory D) Leontief paradox
a
The ________ is a global network of banks, brokers, and foreign exchange dealers connected by electronic communications systems. A) foreign exchange market B) united global database C) global marketplace D) foreign market database
a
The ________ is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day. A) spot exchange rate B) forward exchange rate C) futures exchange rate D) spread
a
WTO rules allow countries to ________ foreign goods that are being sold cheaper than at home, or below their cost of production, when domestic producers can show that they are being harmed. A) impose antidumping duties on B) subsidize C) lower the import quota on D) place countervailing duties on
a
Who benefits from an import tariff? A) the government B) consumers C) foreign producers D) everyone
a
After the Uruguay Round of GATT negotiations extended global trading rules to cover trade in services, the first two industries targeted for reform by the WTO were A) textiles and technology. B) telecommunications and financial services. C) automotive and aerospace. D) agriculture and consulting services.
b
An ____ is a direct restriction on the quantity of some good that may be imported into a country. A) import tariff B) import quota C) import subsidy D) ad valorem tariff
b
Assume that the interest rate on borrowing in Japan is 1 percent, while the interest rate on deposits in Australian banks is 5 percent. A trader borrows in yen and then converts the money into Australian dollars and deposits it in an Australian bank to make a 4 percent margin. Which type of trade is this an example of? A) swing trade B) carry trade C) channel trade D) price action trade
b
Assume that the law of one price holds. A shirt that retails for $120 in New York sells for £60 in London. The exchange rate between the British pound and the dollar is £1 = $1.50. Assuming away transportation costs and trade barriers, this creates a profit-making opportunity called A) currency swap. B) arbitrage. C) carry trade. D) straddle.
b
A quota rent is A) a quota on trade imposed by the exporting country. B) levied as a fixed charge for each unit of a good imported. C) levied as a proportion of the value of the imported good. D) the extra profit producers make when supply is artificially limited by an import quota.
d
According to the law of one price, if the exchange rate between the British pound and the dollar is £1 = $1.50, a shirt that retails for $120 in New York should sell for ________ in London. A) £180 B) £50 C) £60 D) £80
d
Antidumping duties are often called A) special circumstance duties. B) positive duties. C) retroactive duties. D) countervailing duties.
d
When a tourist goes to a bank in a foreign country to convert money into the local currency, the exchange rate used is the A) currency swap rate. B) forward rate. C) carry trade. D) spot rate.
d
Which of the following is a statement that supports the theory of comparative advantage? A) International trade is a zero-sum gain where one nation's gain is another's loss. B) Domestic industries are at risk when a country engages in free trade. C) A country should maintain a trade surplus to succeed in global trade. D) Global production is greater with free trade than it is with restricted trade.
d
Which of the following is the main principle of mercantilism? A) Protection of domestic industries is not essential for a nation's welfare. B) Government intervention is not required in global trade. C) Countries should encourage absolute free trade. D) It is in a country's best interests to maintain a trade surplus.
d
Which of the following is true regarding Porter's diamond theory? A) It predicts that countries should be importing products from those industries where all four components of the diamond are favorable. B) Porter's theory has been proven to be an accurate predictor of the importing and exporting patterns of countries. C) It predicts that countries should be exporting products from those industries where all four components of the diamond are those areas where the components are not favorable. D) Porter's theory has not been subjected to detailed empirical testing, so we do not know if it is correct.
d
Which of the following observations concerning Knickerbocker's theory is true? A) It does not explain imitative FDI behavior by firms in oligopolistic industries. B) Economists favor this theory as an explanation for FDI compared to the internalization theory. C) It addresses the issue of whether FDI is more efficient than exporting or licensing for expanding abroad. D) It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license.
d
Which of the following theories stress the role of luck, entrepreneurship, and innovation in the production and export of a good or service by the firms in a country? A) product life-cycle theory B) Ricardo's theory C) theory of comparative advantage D) new trade theory
d
________ and its extensions can help to explain imitative FDI behavior by firms in oligopolistic industries. A) Internalization theory B) The eclectic paradigm C) The noninterventionist theory D) Knickerbocker's theory
d
Until 1995, GATT rules applied only to A) services. B) industrial goods. C) textiles. D) agricultural products.
b
What concept is concerned with the long-run effect of changes in exchange rates on future prices, sales, and costs? A) translation exposure B) economic exposure C) transaction exposure D) risk exposure
b
Which political view allows FDI so long as the benefits outweigh the costs? A) the traditional view B) the pragmatic nationalist view C) the radical view D) the free market view
b
________ in agriculture could jump-start economic growth among the world's poorer nations and alleviate global poverty. A) Quota rents B) Free trade C) Strategic trade policy D) Subsidies
b
Tariff rates on agricultural products are generally A) much lower than tariff rates on manufactured products or services. B) much lower than import fees on electronics. C) much higher than tariff rates on manufactured products or services. D) much higher than import fees on electronics.
c
The Fisher Effect states that A) a country's "real" rate of interest is the sum of the "nominal" interest rate and the expected rate of inflation over the period for which the funds are to be lent. B) there is a weak relationship between inflation rates and interest rates. C) a country's "nominal" interest rate is the sum of the required "real" rate of interest and the expected rate of inflation over the period for which the funds are to be lent. D) when investors are free to transfer capital between countries, "nominal" interest rates will be the same in every country.
c
What has made the United States an attractive target for foreign direct investment? A) its unstable economy B) its unfavorable political environment C) its wealthy domestic markets D) its closed society
c
What is double taxation in the context of FDI? A) taxation at twice the normal rate for foreign companies B) taxing the producers as well as suppliers C) taxation of income in both home and host country D) taxation of both income as well as dividends paid
c
What term refers to a situation in which a government does not attempt to restrict what its citizens can buy or sell to another country? A) tariffs B) import quotas C) free trade D) subsidies
c
If a country has an externally convertible currency A) neither residents nor nonresidents are allowed to convert it into a foreign currency. B) both residents and nonresidents can purchase unlimited amounts of a foreign currency with it. C) only nonresidents may convert it into a foreign currency without any limitations. D) the government limits convertibility to preserve foreign exchange reserves.
c
If foreigners suddenly reduced their investments in the United States, what would happen? A) The value of the dollar on foreign exchange markets would increase. B) The action would have no impact on the U.S. economy. C) The foreigners would sell U.S. dollars for another currency. D) The price of U.S. exports would increase.
c
Import tariffs A) reduce the price of foreign goods. B) create efficient utilization of resources. C) reduce the overall efficiency of the world economy. D) are generally pro-consumer and anti-producer.
c
In 1997, two South Korean manufacturers of semiconductors, LG Semicon and Hyundai Electronics, were accused of selling dynamic random access memory chips (DRAMs) in the U.S. market at below their costs of production. It was alleged that the firms were trying to unload their excess production in the United States. This is an example of A) an ad valorem tariff. B) a subsidy. C) dumping. D) an import quota.
c
In which of the following situations would FDI improve the current account of the host country's balance of payments? A) if the foreign subsidiary imports a substantial number of its inputs from abroad B) if the FDI reduces existing employment opportunities C) if the FDI is a substitute for imports of goods or services D) if the FDI results in substitution of products produced domestically
c
In which way can the source country's balance of payments benefit from FDI made in a foreign country? A) from cash outflow during the initial investment to finance the FDI B) if the purpose of the foreign investment is to serve the home market from a low-cost production location C) from the inward flow of foreign earnings D) if FDI is a substitute for direct exports
c
Inadequate protections for intellectual property A) increase the incentive for innovation. B) led to the Smoot-Hawley Act. C) reduce the incentive for innovation. D) are one of the issues addressed by the local content requirement.
c
International businesses use foreign exchange markets for many reasons. Which of the following is one of these reasons? A) to receive payments from domestic investors that are in local currencies B) to pay a foreign company for its products or services in its native country's currency C) to invest for short terms in money markets when they have spare cash D) to cover themselves from all risks involved in currency speculation
c
One of the advantages of being the first mover in a market is A) there is little risk involved. B) to benefit from a higher cost structure. C) the ability to capture scale economies ahead of later entrants. D) local governments are more favorable to the first movers.
c
Since World War II, the largest source country for FDI has been A) China. B) Japan. C) the United States. D) the Netherlands.
c
Strategic trade policy suggests that a government should use ________ to support promising firms that are active in newly emerging industries. A) tariff rate quotas B) quota rents C) subsidies D) ad valorem tariffs
c
Strategic trade policy suggests that in industries where the existence of substantial scale economies implies that the world will profitably support only a few firms, countries may predominate in the export of certain products simply because they had firms that were able to A) influence the assignment of tariffs. B) receive government subsidies. C) capture first-mover advantages. D) capitalize on late-mover advantages.
c
The Japanese government was pressured by the U.S. government to place limits on the number of vehicles exported to the United States by Japanese automobile producers in 1981. This is an example of A) tariff rate quota. B) specific tariffs. C) voluntary export restraint. D) ad valorem tariff.
c
The ________ helps consumers compare the relative prices of goods and services in different countries. A) interest rate B) GDP growth rate C) exchange rate D) tariff rate
c
The ________ states that, for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries. A) purchasing power parity theory B) efficient market theory C) International Fisher Effect D) law of one price
c
The ________ theory argues that the pattern of international trade is determined by differences in factor endowments. A) comparative advantage B) Leontief Paradox C) Heckscher-Ohlin D) absolute advantage
c
The pragmatic nationalist view highlights ________ of FDI. A) only the benefits B) only the costs C) both the benefits and costs D) neither the benefits nor the costs
c
The principle of mercantilism views trade as a(n) ________ game. A) advantage B) positive-sum C) zero-sum D) negative-sum
c
The variety of goods that a country can produce is limited by the size of the market in industries where ________ are important. A) factor endowments B) current account deficits C) economies of scale D) current account surpluses
c
Walmart makes bulk purchases from its vendors and hence it is able to get better deals than its competitors. This allows Walmart to offer greater discounts to its customers. In this case, Walmart benefits from A) first-mover advantage. B) constant marginal returns. C) economies of scale. D) absolute advantage of production.
c
What will happen, according to Paul Samuelson's critique, if a rich country enters into a free trade agreement with a poor country? A) Both the countries will incur losses due to the exchanges between them. B) The productivity of the poor country will decline rapidly. C) The poor country will rapidly improve its productivity. D) Both the countries will garner benefits from the exchanges between them.
c
When two parties agree to exchange currency and execute the deal immediately, the transaction is a A) futures exchange. B) carry trade. C) spot exchange. D) forward exchange.
c
Which of the following factors, according to Porter, is most likely to give a country competitive advantage over another country? A) natural resources B) climate C) skilled labor D) demographics
c
Which of the following is a consequence of subsidies? A) Subsidies make domestic producers vulnerable to foreign competition. B) Subsidies lead to lowered production. C) Subsidies protect inefficient domestic producers. D) Subsidies produce revenue for the government.
c
Which of the following is a direct consequence of the interdependence between firms in an oligopoly? A) increased regulation B) increased consumer welfare C) imitative behavior D) longer product life cycles
c
Which of the following is a major benefit of engaging in free trade? A) It helps to reduce the financial volatility in global markets. B) It helps countries protect the jobs that are available to their citizens. C) It gives countries access to products that they cannot produce. D) It allows governments to exert more control on businesses.
c
According to the ________ policy, subsidies can help a firm achieve a first-mover advantage in an emerging industry. A) strategic trade B) antidumping C) tariff quota D) free trade
a
Advantages that arise from using resource endowments or assets that are tied to a particular place and that a firm finds valuable to combine with its own unique assets are known as A) location-specific advantages. B) capital-specific advantages. C) absolute advantages. D) production factor advantages.
a
An Italian car manufacturer purchases a U.S. producer of car tires. This is an example of A) an acquisition. B) an absolute advantage. C) a greenfield investment. D) a merger.
a
Assuming the 30-day forward exchange rate was $1 = 130 and the spot exchange rate was $1 = ×120, the dollar is selling at a ________ on the 30-day forward market. A) premium B) margin C) discount D) subsidy
a
By lowering production costs, ________ help domestic producers compete against foreign imports. A) subsidies B) duties C) quotas D) tariffs
a
Economic problems during the Great Depression were compounded in 1930 when the U.S. Congress passed the ________, aimed at avoiding rising unemployment by protecting domestic industries and diverting consumer demand away from foreign products. A) Smoot-Hawley Act B) Antidumping Act C) Helms-Burton Act D) D'Amato Act
a
FDI can benefit the home country's ________ if the foreign subsidiary creates demands for home-country exports of capital equipment, intermediate goods, complementary products, and the like. A) balance of payments B) oligopolistic industry C) current accounts D) licensing endeavors
a
How can FDI undertaken to serve the home market stimulate economic growth in the home country? A) by freeing home-country resources to concentrate on activities where the home country has a comparative advantage B) by importing more goods and services than it is exporting C) by circumventing trade barriers that may have prevented direct exports in the past D) by reducing demand for home-country exports of capital equipment, intermediate goods, and complementary products
a
If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it, what will happen? A) The dollar will appreciate against the yen. B) The dollar will depreciate against the yen. C) The exchange rates will remain the same. D) The yen will appreciate against the dollar.
a
Inflation occurs when A) the quantity of money in circulation rises faster than the stock of goods and services. B) the stock of goods and services increases and the quantity of money in circulation decreases. C) output increases faster than the money supply. D) the money supply decreases and the output increases.
a
Local content regulations A) protect domestic producers by limiting foreign competition. B) lower the prices of imported components. C) tend to benefit consumers and not producers. D) encourage outsourcing of production units.
a
Many firms, of all national origins, increasingly depend on ________ for their competitive advantage. A) globally dispersed production systems B) specific tariffs C) infant industries D) subsidies
a
Professor Baldwin believes that early in the life cycle of a U.S. product, demand in other advanced countries is limited to high-income groups. Consequently, it is seldom worthwhile for firms in those countries to start producing the product. This view conforms to A) the product life-cycle theory. B) Ricardo's theory. C) the theory of absolute advantage. D) the theory of comparative advantage.
a
The TRIPS regulations established at the 1995 Uruguay Round A) established regulations on patents and copyrights. B) set a new level of agriculture subsidies. C) organized OECD countries to eliminate tariffs on textiles. D) established new tariff levels on technology.
a
The ________ raised tariff barriers in the hope of protecting jobs and diverting consumer demand away from foreign products. A) Smoot-Hawley Act B) Helms-Burton Act C) General Agreement on Tariffs and Trade D) Buy America Act
a
The ________ states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency. A) law of one price B) principle of consistent pricing C) model of fair pricing D) rational price theory
a
The ________ theory was based on the observation that for most of the twentieth century a very large proportion of the world's new products had been developed by U.S. firms and sold first in the U.S. market. A) product life-cycle B) Heckscher-Ohlin C) new trade D) Ricardo
a
The country of Manystan has adopted neither a radical policy nor a free market policy, but rather one that posits that FDI has both benefits and costs. This is best described as A) pragmatic nationalism. B) postmodernism. C) the free market view. D) the noninterventionist principle.
a
The extra profit that producers make when supply is artificially limited by an import quota is referred to as a A) quota rent. B) specific tariff. C) tariff rate quota. D) subsidy.
a
The theories of international trade claim that promoting free trade is generally in the best interests of A) a country, although it may not always be in the best interest of an individual firm. B) all multinational corporations. C) an individual firm, although it may not always be in the best interest of a country. D) the World Trade Organization.
a
What is the term that describes when two or more enterprises encounter each other in different regional markets, national markets, or industries? A) multipoint competition B) monopoly C) location-specific competition D) oligopoly
a
What primarily explains why developing nations are characterized by a lower percentage of cross-border mergers and acquisitions compared to developed nations? A) fewer target firms to acquire in developing nations B) fierce opposition to mergers and acquisitions in developed nations C) unwillingness of foreign companies to invest in developing nations D) presence of import quotas in developing nations
a
What was the result of the Smoot-Hawley Act? A) Other countries reacted by raising their own tariff barriers. B) Other countries reacted by lowering their trade barriers. C) U.S. exports increased. D) The United States began to get out of the Great Depression.
a
When transportation costs are added to production costs, it becomes unprofitable to ship some products over a large distance. This is particularly true of products that A) have a low value-to-weight ratio. B) have a high value-to-weight ratio. C) can be produced only in one region. D) require locally sourced raw materials.
a
Which branch of economic theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets? A) internalization theory B) product life-cycle theory C) multipoint competition theory D) strategic behavior theory
a
Which of the following best describes an industry composed of a limited number of large firms? A) an oligopoly B) a monopoly C) an oligarchy D) a perfectly competitive market
a
Which of the following involves borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high? A) carry trade B) swing trade C) channel trade D) price action trade
a
Which of the following is a drawback of government intervention? A) It may invite retaliation and trigger a trade war. B) The policies may be captured by foreign investors and turned to their advantage. C) Despite being well executed, the intervention is unlikely to work. D) They usually establish new tariff levels on technology—to the detriment of all in the industry.
a
Which of the following is a home-country policy aimed at restricting outward FDI flow? A) taxing domestic companies' foreign earnings at a higher rate than their domestic earnings B) implementation of government-backed insurance programs to cover major types of foreign investment risk C) eliminating double taxation of foreign income D) persuading host countries to relax their restrictions on inbound FDI
a
Which of the following is a major disadvantage of the product life-cycle theory introduced by Vernon? A) The theory's arguments seem ethnocentric and increasingly dated. B) The theory failed to explain the dominance of developed nations. C) The theory applies only when a poor nation invents a new product. D) The theory cannot be used to explain the production of luxury products.
a
Which of the following is a way in which governments increase the attractiveness of FDI and licensing relative to exporting? A) by implementing import quotas B) by imposing FDI limits in industries C) by increasing tax rates D) by limiting free flow of capital
a
Which of the following is an example of a greenfield investment? A) A Chinese sugar maker sets up a sugar crushing facility in Cuba. B) A Serbian automobile company purchases a Croatian component manufacturer. C) A Finnish mobile phone manufacturer expands its production facility in Finland. D) An Indian oil exploration company acquires an oil refining company.
a
Which of the following is one of the main instruments of trade policy? A) tariffs B) credit portfolios C) opportunity costs D) countervailing duties
a
Which of the following is the most important foreign exchange trading center? A) London B) New York C) Tokyo D) Singapore
a
Which of the following observations about subsidies is true? A) Government subsidies must be paid for, typically by taxing individuals and corporations. B) Subsidies are used to reduce exports from a sector, often for political reasons. C) Whether subsidies generate national benefits that exceed their national costs is debatable. D) Subsidies help foreign producers gain a competitive advantage over domestic producers.
a
Which of the following observations is consistent with Michael Porter's theory of national competitive advantage? A) Factors such as domestic demand and domestic rivalry explain nations' dominance in production. B) Countries should produce only those goods for which they have a comparative advantage. C) Interplay between the factors of production cause international marketing decisions. D) International differences in labor productivity determine nations' supremacy in production.
a
Which of the following occurs when the quantity of money in circulation in a country rises faster than the country's stock of goods and services? A) inflation B) credit squeeze C) deflation D) production surplus
a
Which of the following statements concerning a voluntary export restraint is true? A) It benefits domestic producers by limiting import competition. B) In most cases, it benefits consumers. C) It lowers the domestic price of an imported good. D) It is a variant of the ad valorem tariff.
a
Why do governments limit currency convertibility? A) to preserve foreign exchange reserves B) to spend foreign exchange reserves C) to keep domestic companies from investing abroad D) to allow nonresidents to convert money to foreign currencies
a
With which of the following would a follower of the inefficient market school of thought agree A) Companies would be better off investing in foreign exchange forecasting services. B) Forward exchange rates do the best possible job of forecasting future spot exchange rates. C) Companies can optimize their foreign exchange transactions by using forward markets. D) Forward rates reflect all available information about likely future changes in exchange rates.
a
_______ are reported on a real-time basis on many financial websites and are continually changing—their value being determined by supply and demand for that currency relative to others. A) Spot exchange rates B) Currency swaps C) Forward exchange rates D) Future exchange rates
a
________ is a quota on trade imposed by the exporting country, typically at the request of the importing country's government. A) Voluntary export restraint B) Specific tariff quota C) Trade reconciliation D) Ad valorem tariff
a
________ is essentially the service-industry version of licensing, although it normally involves much longer-term commitments. A) Franchising B) Subsidizing C) Greenfield investment D) Patenting
a
________ is quoted for 30 days, 90 days, and 180 days into the future. A) A forward exchange rate B) A currency swap C) A spot exchange rate D) An arbitrage
a
________ occurs when a firm legally allows the right to produce its product, to use its production processes, or to use its brand name or trademark to another firm. A) Licensing B) Acquisition C) Internalization D) Merger
a
________ refers to a range of barter-like agreements by which goods and services can be traded for other goods and services. A) Countertrade B) Carry trade C) Dumping D) Capital flight
a
________ stresses that in some cases countries specialize in the production and export of particular products because the world market can support only a limited number of firms. A) New trade theory B) Absolute advantage C) The world market theory D) Mercantilism
a
________ traces its roots to Marxist political and economic theory. A) The radical view B) Pragmatic nationalism C) The free market view D) The noninterventionist principle
a
________ uses price and volume data to determine past trends, which are expected to continue into the future. A) Technical analysis B) Fundamental analysis C) Efficient market theory D) Value investing
a
A French wind power company gives an Indonesian company the right to produce and sell wind turbines in return for a royalty fee on every unit sold. Which business practice is this an example of? A) acquisition B) licensing C) exporting D) greenfield investment
b
A country has an absolute advantage in the production of a product when it A) has the capability to produce the product within its boundaries. B) is more efficient than any other country in producing it. C) has the largest domestic demand for the product. D) has access to the raw materials needed to produce the product.
b
A country's balance-of-payments accounts keep track of the A) basic factor endowments and advanced factor endowments that the nation possesses. B) payments to and receipts from other countries for a particular time period. C) income taxes paid by domestic firms and the spending on the firms. D) total value of taxes paid by domestic firms and the spending on the firms.
b
A key goal of the 1986 Uruguay Round was to A) extend GATT to cover trade in commodities. B) extend GATT rules to cover trade in services. C) increase agricultural subsidies. D) loosen the GATT's monitoring and enforcement mechanisms.
b
A lag strategy involves A) attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate. B) delaying collection of foreign currency receivables if that currency is expected to appreciate. C) paying foreign currency payables before they are due when a currency is expected to appreciate. D) delaying collection of foreign currency receivables if that currency is expected to depreciate.
b
According to Ricardo's theory of comparative advantage, a country should produce goods A) for which it has access to raw materials. B) that it produces most efficiently. C) that have the highest domestic demand. D) for which it has an absolute advantage.
b
According to the infant industry argument, many developing countries have a potential ________ in manufacturing, but new manufacturing industries cannot initially compete with established industries in developed countries. A) absolute advantage B) comparative advantage C) opportunity cost D) competitive advantage
b
Assume that the yen/dollar exchange rate quoted in Tokyo at 3:00 p.m. is ¥120 = $1, and the yen/dollar exchange rate quoted in New York at the same time is ¥123 = $1. A dealer in New York uses dollars to purchase yen and then immediately sells the yen to buy dollars in Tokyo, thereby making a profit. The dealer has engaged in A) a currency swap. B) an arbitrage. C) an carry trade. D) a straddle.
b
Business firms that lobby their governments to engage in protectionism may miss the opportunity to build ________ by constructing a globally dispersed production system. A) an absolute advantage B) a competitive advantage C) a strategic trade advantage D) a comparative advantage
b
Country A exports electronic goods from Country B although there are no underlying differences in factor endowments between the two countries. Which of the following theories explains this anomaly? A) comparative advantage theory B) new trade theory C) Ricardo's theory D) Smith's theory
b
Developing nations currently account for ________ of FDI in the form of cross-border mergers and acquisitions. A) well over half B) about one-third or less C) about 50 percent D) the largest share
b
Economies of scale have a number of sources, including the ability A) to average out the variable costs of production. B) of large-volume producers to utilize specialized employees and equipment. C) to adjust the scale of production based upon product saturation in the marketplace. D) to utilize nonspecialized employees interchangeably.
b
Economist Paul Krugman suggests that strategic trade policy aimed at establishing domestic firms in a dominant position in a global industry is a beggar-thy-neighbor policy that A) provides enhanced protection for intellectual property of those firms. B) boosts national income at the expense of other countries. C) reduces domestic agricultural profits. D) depletes national income to the benefit of other countries.
b
FDI occurs when a firm A) ships its products from one country to another. B) invests directly in facilities to produce a product in a foreign country. C) invests in the shares of another company operating in the same country. D) grants permission to another company in a different country to use its brand name.
b
From the perspective of a firm negotiating the terms of an investment with a host government, the firm's bargaining power is high when the A) firm has a short time in which to complete the negotiations. B) host government places a high value on what the firm has to offer. C) number of comparable alternatives open to the firm is low. D) host government does not places a high value on the firm's offering.
b
Host country citizens that are employed by an MNE following an FDI are an example of A) an internality. B) a direct effect. C) an externality. D) an indirect effect.
b
How is the adverse effect of the balance of payments for the home country due to FDI usually offset? A) by increased imports to the home country as a result of the FDI B) by the subsequent inflow of foreign earnings C) by substituting direct exports made earlier from the home country D) by further investments usually made to expand foreign operations
b
If a domestic industry lacks the capacity to meet demand, an ________ can raise prices for both the domestically produced and the imported good. A) import tariff B) import quota C) import subsidy D) ad valorem tariff
b
Which of the following is a trade barrier that affects a firm's strategy? A) Tariffs lower the cost of exporting. B) Quotas may enhance a firm's ability to serve a country from outside of that country. C) To conform to local content regulations, a firm may have to locate more production activities in a given market than it would otherwise. D) The threat of antidumping actions promotes the firm's ability to use aggressive pricing to gain market share in a country.
c
Which of the following is an example of a basic factor that a nation will possess as proposed by Porter? A) communication infrastructure B) skilled labor C) natural resources D) technological knowledge
c
Which of the following is one of the most important trading centers in the foreign exchange market? A) Beijing B) Sau Paulo C) Zurich D) Seoul
c
Which of the following is the reason most economists prefer Heckscher-Ohlin theory to Ricardo's theory? A) Heckscher-Ohlin stresses the differences in productivity between nations. B) Ricardo's theory considers factor endowments to describe national competitiveness. C) Heckscher-Ohlin theory makes fewer simplifying assumptions. D) Ricardo's theory considers the law of marginal returns.
c
Which of the following refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country? A) economic patriotism B) protectionism C) free trade D) offshoring
c
Which of the following specifically reduces the viability of an exporting strategy specifically for products with low value-to-weight ratios? A) foreign exchange controls B) trade barriers C) transportation costs D) output quality
c
Which of the following theories suggests that first-mover advantage is significant in the export of a good? A) product life-cycle theory B) Ricardo's theory C) new trade theory D) theory of comparative advantage
c
Which term refers to the rate at which one currency is converted into another? A) basis point B) spread C) exchange rate D) interchange rate
c
Which view of FDI traces its roots to classical economics and the international trade theories of Adam Smith and David Ricardo? A) imperialist B) conservative C) free market D) radical
c
Why is it said that not all the new jobs created by FDI represent net additions in employment? A) because of the uncertainty of the overall economic environment B) because most of the job creation is indirect in nature C) because jobs created by an investment may be offset by the jobs lost in domestic companies D) because the unemployment rate more or less remains constant over the short term
c
________ a requirement that some specific fraction of a good be produced domestically. A) Administrative trade policies are B) The Buy American Act is C) A local content requirement is D) Bureaucratic rules are
c
________ are levied as a proportion of the value of the imported good. A) Specific tariffs B) Import quotas C) Ad valorem tariffs D) Tariff rate quotas
c
________ arise(s) from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets. A) Multipoint competition B) The eclectic paradigm C) Location-specific advantages D) Outflow of FDI
c
________ gives a firm tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability. A) Licensing B) Internalization C) Foreign direct investment D) A merger
c
________ is the impact of currency exchange rate changes on the reported financial statements of a company. A) Economic exposure B) Financial exposure C) Translation exposure D) Transaction exposure
c
________ refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country. A) Fair trade B) Trade theory C) Free trade D) Mercantilism
c
hich of the following is a theory that can be used to justify limited government intervention to support the development of certain export-oriented industries? A) comparative advantage theory B) Ricardo's theory C) new trade theory D) Heckscher-Ohlin theory
c
A ________ helps domestic producers to compete against foreign imports. A) An ad valorem tariff B) A specific tariff C) An import quota D) A subsidy
d
A capital-intensive country exports products that are capital intensive. Which theory is this an example of? A) new trade B) Leontief paradox C) Porter's diamond D) Heckscher-Ohlin
d
A common hybrid of a quota and a tariff is known as A) an import tariff quota. B) a voluntary export restraint. C) an ad valorem tariff. D) a tariff rate quota.
d
A company that sells its product in a foreign market below the cost of production may be accused of A) pandering. B) profiteering. C) carnivorous behavior. D) dumping.
d
A country rejects FDI proposals in certain industries. It does so because the tangible advantages of such investments are lesser than potential costs like loss of employment and reduction of overall well-being. However, it aggressively pursues inviting foreign investments in sectors like infrastructure, education, and health care because of the benefits that accrue with them. Which political view of FDI is discussed in this example? A) the pure market view B) the free market view C) the radical view D) the pragmatic nationalist view
d
A country's ________ keep track of its payments to and its receipts from other countries. A) federal payments ledgers B) concurrent accounts C) checks-and-balances accounts D) balance-of-payments accounts
d
A currency is said to be freely convertible when A) its exchange rate with respect to other currencies is decided by the central bank of the country. B) residents alone are allowed to convert it into a foreign currency without any limitations. C) neither residents nor nonresidents are allowed to convert it into a foreign currency. D) both residents and nonresidents are allowed to purchase unlimited amounts of a foreign currency with it.
d
If, for example, the textile industry in a nation is characterized by vigorous domestic rivalry, which of the following observations of this nation's international competency is most likely to be true? A) The nation will have access to such basic factors of the textile industry as natural resources. B) The nation's textile firms will have a competitive advantage in international trade. C) The domestic customers of the textile firms will be less demanding. D) The nation's textile industry will lack the advanced factors that are necessary to be internationally competent.
b
In the United States, the only firms allowed to import cheese are certain trading companies, each of which is allocated the right to import a maximum number of pounds of cheese each year. This is an example of A) a subsidy. B) an import quota. C) a local content requirement. D) an ad valorem tariff.
b
It follows from the Fisher Effect that if the real interest rate is the same worldwide, any difference in interest rates between countries reflects differing expectations about A) foreign exchange rates. B) inflation rates. C) unemployment rates. D) GDP growth rates.
b
Porter contends that government A) can influence the domestic demand conditions and the domestic rivalry components of the diamond, but not the other two components. B) can influence each of the four components of the diamond either positively or negatively. C) can influence the factor endowments and the related and supporting industries components of the diamond, but not the other two components. D) has little or no effect on the four components that shape the environment in which firms compete.
b
Suppose the price of a Big Mac in New York is $3.00 and the price of a Big Mac in Paris is equivalent to $3.75 at the prevailing euro/dollar exchange rate. Using the concept of purchasing power parity, the euro is A) undervalued by 25 percent against the dollar. B) overvalued by 25 percent against the dollar. C) appreciating relative to the dollar. D) depreciating relative to the dollar.
b
Tariff rate quotas are common in agriculture, where their goal is to A) reduce the use of synthetic fertilizers. B) limit imports over quota. C) increase agricultural imports. D) increase foreign competition.
b
The Heckscher-Ohlin theory predicts that countries will A) export those goods that make intensive use of factors that are locally scarce. B) export those goods that make intensive use of factors that are locally abundant. C) import those goods that make intensive use of factors that are locally abundant. D) import those goods that make intensive use of factors that are available worldwide.
b
The Netherlands exports tulip bulbs to almost every country in the world except Japan. This was because in Japan, customs inspectors insisted on checking every tulip bulb by cutting it vertically down the middle. This is an example of which of the following trade barriers? A) export restraint B) administrative trade policies C) local content requirement D) ad valorem
b
The WTO's GATS has taken the lead in A) providing enhanced protection for intellectual property. B) extending free trade agreements to services. C) reducing agricultural subsidies. D) enforcing GATT rules.
b
The ________ school of thought argues that forward exchange rates do the best possible job of forecasting future spot rates and therefore investing in forecasting services would be a waste of money. A) inefficient market B) efficient market C) random walk D) speculative
b
The ________ specifies that government agencies must give preference to American products when putting contracts for equipment out to bid unless the foreign products have a significant price advantage. A) General Agreement on Tariffs and Trade B) Buy America Act C) American Reinvestment Act D) Smoot-Hawley Act
b
The foreign exchange market is A) open for only 12 hours in a day. B) the market never sleeps. C) open for most of the day, but closes for three hours each day—between 2:00 a.m. and 5:00 a.m. Greenwich Mean Time. D) open during normal business hours (9:00 a.m. to 5:00 p.m., local time) in each of the primary locations from which it operates: Tokyo, London, and New York.
b
The main tenet of mercantilism is that it is in a country's best interests to A) maintain a trade deficit. B) maintain a trade surplus. C) import goods made from products that it does not have in abundance. D) import more than it exports.
b
The purchasing power parity (PPP) theory tells us that a country with a high inflation rate will A) export more goods to other countries. B) see depreciation in its currency exchange rate. C) import more goods from other countries. D) see an appreciation in its currency exchange rate.
b
The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates is known as A) currency arbitrage. B) currency speculation. C) currency hedging. D) currency risk mitigation.
b
The stock of FDI refers to the A) amount of FDI undertaken over a given period of time. B) total accumulated value of foreign-owned assets at a given time. C) flow of FDI out of a country. D) amount of foreign direct investment made by domestic companies over a given period of time
b
The theory of comparative advantage provides strong rationale for supporting the idea of A) business nationalism. B) free trade. C) protectionist trade policies. D) governmental intervention in trade.
b
The theory of comparative advantage suggests that trade is a ________ game in which all countries that participate realize economic gains. A) net-sum B) positive-sum C) zero-sum D) negative-sum
b
The two most common methods of restricting inward FDI are ownership restraints and A) resource endowments. B) performance requirements. C) national sovereignty. D) incentives.
b
Through their choice of policies, home countries can both encourage and restrict FDI by local firms. Policies designed to encourage outward FDI include which of the following? A) tax rebates B) political pressure C) expropriation D) domestic risk insurance
b
What was the purpose of the establishment of the Common Agricultural Policy (CAP) by the European Union? A) to increase imports and raise prices B) to protect the jobs of Europe's farmers C) to increase the import of grapes for the wine industry D) to make farmers in Europe more productive
b
When a company brings capital and/or technology to a host country, the host country benefits from the A) political effect of FDI. B) resource-transfer effect of FDI. C) balance-of-payments effect of FDI. D) bandwagon effect of FDI.
b
When two parties agree to exchange currency and execute the deal at some specific time in the future, a ________ occurs. A) currency swap B) forward exchange C) hedging D) spot exchange
b
Which of the following arises when a country is importing more goods and services than it is exporting? A) current account surplus B) trade deficit C) trade surplus D) trade balance
b
Which of the following is a flaw associated with mercantilism? A) Mercantilists do not support government intervention in trade. B) Mercantilists view trade as a zero-sum game. C) Mercantilists recommend policies to maximize imports. D) Mercantilists recommend countries maintain a negative trade balance
b
Which of the following is a major drawback of using Knickerbocker's theory in explaining FDI? A) It ignores the fact that firms invest in a foreign country when demand in that country will support local production. B) It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license. C) It fails to identify when it is profitable to invest abroad. D) It ignores the fact that licensing as an entry strategy has its limitations.
b
Which of the following is one of the four attributes present in Porter's diamond? A) economies of scale B) factor endowments C) structural innovation D) procedural innovation
b
Which of the following observations about tariffs is true? A) Tariffs are generally anti-producer and pro-consumer. B) Export tariffs are used to raise revenue for the government. C) Export tariffs are far more common than import tariffs. D) Import tariffs increase the overall efficiency of the world economy.
b
Which of the following occurs when traders start moving as a herd in the same direction at the same time? A) Fisher Effect B) bandwagon effect C) arbitrage D) decoupling of markets
b
Which of the following statements is true about the growth of foreign direct investment in the world economy over the last few decades? A) FDI has experienced a slower growth than world output. B) FDI has accelerated faster than world trade growth. C) FDI has remained the same over the past few decades. D) FDI has dropped dramatically.
b
Which of the following terms refers to a nation's position in factors of production, such as skilled labor or the infrastructure necessary to compete in a given industry? A) current accounts B) factor endowments C) national balance D) national accounts
b
Which of the following terms refers to the unit cost reductions associated with large sized outputs? A) absolute advantage of production B) economies of scale C) constant marginal returns D) diminishing marginal returns
b
_______ includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies. A) Economic exposure B) Transaction exposure C) Corporate financial exposure D) Translation exposure
b
________ are exchange rates governing some specific future date foreign exchange transactions. A) Spot exchange rates B) Forward exchange rates C) Future exchange rates D) Currency swaps
b
________ are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk. A) Carry trades B) Currency swaps C) Arbitrages D) Currency pairing
b
________ are unit cost reductions associated with a large scale of output. A) Current account deficits B) Economies of scale C) Current account surpluses D) Factor endowments
b
________ argues that FDI is a benefit to both the source country and the host country. A) Pragmatic nationalism B) The free market view C) The noninterventionist principle D) The radical view
b
________ arises from volatile changes in exchange rates. A) Translational exposure B) Foreign exchange risk C) Economic exposure D) Transactional exposure
b
________ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. A) Comparative advantage B) Multipoint competition C) Competitive advantage D) Economic advantage
b
________ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. A) Horizontal integration B) Multipoint competition C) An oligopoly D) Vertical integration
b
________ draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements. A) Lead strategy B) Fundamental analysis C) Lag strategy D) Technical analysis
b
________ is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value. A) Export restraint B) Dumping C) Local content requirement D) Ad valorem
b
________ seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets. A) Knickerbocker's theory B) Internalization theory C) The noninterventionist theory D) The eclectic paradigm
b
________ supports the idea that countries should export more than they import. A) Absolute advantage B) Mercantilism C) The world market theory D) New trade theory
b
A country's ________ accounts keep track of both its payments to and its receipts from other countries. A) current B) offshore C) balance-of-payments D) currency
c
A key issue in the "millennium round" of the WTO was to A) increase barriers to cross-border trade in agricultural products. B) extend GATT to cover trade in commodities. C) further reduce barriers to cross-border trade and investment. D) extend GATT rules to cover trade in services.
c
A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct? A) The United States offers a better deal. B) The deal is the same in both countries. C) Britain offers a better deal. D) A trader can make money by buying the shoes in Britain and selling in the United States at $50.
c
A(n) ________ involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate. A) A follower strategy B) An interim strategy C) A lead strategy D) A lag strategy
c
According to ________, some specific fraction of a good must be produced domestically. A) import quotas B) voluntary export restraints C) local content requirements D) antidumping duties
c
According to the ________ argument, governments should temporarily support new industries until they have grown strong enough to meet international competition. A) retaliatory action B) human rights C) infant industry D) antidumping
c
According to the strategic trade policy argument, A) government intervention is not required because firms can borrow money from the capital markets to finance the required investments. B) selling goods in a foreign market at below their "fair" market value is legally and ethically justified. C) government support can help domestic firms overcome the first-mover advantages enjoyed by foreign competitors. D) a government should use subsidies to support promising firms that are active in old, established industries.
c
Administrative trade policies are A) requirements that some specific fraction of a good be produced domestically. B) quotas on trade imposed by the exporting country. C) bureaucratic rules designed to make it difficult for imports to enter a country. D) designed to punish foreign firms that engage in dumping.
c
Although a foreign exchange transaction can involve any two currencies, most transactions involve ________ on one side. A) pounds B) yen C) dollars D) euros
c
An exchange rate of €1 = $1.30 indicates that A) $1 is worth 1.30 euros. B) one could get 1.30 euros for $1. C) one euro buys 1.30 dollars. D) one euro buys 0.77 dollars.
c
As transportation costs or trade barriers increase, exporting becomes unprofitable, and the choice is between FDI and A) subsidies. B) incentives. C) licensing. D) resource endowments.
c
Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive A) $1,000. B) $750. C) $1,500. D) $667.
c
Currency ________ typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. A) hedging B) risk mitigation C) speculation D) arbitrage
c
David Ricardo's theory of comparative advantage explains global trade in terms of the A) first-mover advantage that certain countries and firms enjoy. B) geographical differences between various countries. C) international differences in labor productivity. D) late-mover advantage that certain countries and firms possess.
c
Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the expectations of the foreign exchange market about A) anticipated currency swap rates. B) stability in the global marketplace. C) future currency movements. D) the carry trades that will occur.
c
FDI undertaken to serve the home market is known as A) outsourcing. B) FDI substitution. C) offshore production. D) home market FDI.
c
Foreign producers typically agree to voluntary export restrictions because A) their manufacturing capacity is limited. B) they can divert their exports to other countries and charge more for their products. C) they fear far more damaging punitive tariffs or import quotas might follow if they do not. D) they are required to by the World Trade Organization.
c
Governments use ________ to boost exports and restrict imports. A) subsidies B) local content requirements C) administrative trade policies D) formal instruments of trade policy
c
Identify the theory that argues that advanced nations have an incentive to develop new consumer products and hence such nations always tend to create a good or service for the first time. A) absolute advantage B) Ricardo C) product life-cycle D) Heckscher-Ohlin
c
According to Knickerbocker's theory A) when a firm has valuable know-how that cannot be adequately protected by a licensing contract, it engages in FDI. B) when a firm's skills and know-how are not amenable to licensing, it usually prefers the FDI route. C) by placing tariffs on imported goods, governments indirectly increase the cost of exporting relative to foreign direct investment and licensing. D) when a firm that is part of an oligopolistic industry expands into a foreign market, other firms in the industry will be compelled to make similar investments.
d
According to the Buy America Act, if a company wishes to win a contract from a U.S. government agency to provide some equipment, it must ensure that at least 51 percent of the product by value is manufactured in the United States. This is an example of A) antidumping duties. B) voluntary export restraints. C) import quotas. D) local content requirements.
d
According to the ________ view of FDI, multinational enterprises (MNE) extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange. A) imperialist B) conservative C) free market D) radical
d
An American company today invests some of its spare cash in a Hungarian money market account that will earn 8 percent for two months. Which of the following, if it happens during the next two months, would imply that the company will earn less than 8 percent on its investment? A) The Hungarian forint rises in value against the dollar. B) Interest rates in the United States move down. C) Short-term interest rates in Hungarian money markets shoot up. D) The dollar appreciates against the Hungarian forint.
d
An aspect of ________ is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants. A) the radical view B) the noninterventionist principle C) the free market view D) pragmatic nationalism
d
China has the infrastructure and the skilled labor that has enabled it to become a world manufacturing leader. This relates to which of Porter's attributes of a nation? A) firm strategy, structure, and rivalry B) related and supporting industries C) demand conditions D) factor endowments
d
Diminishing returns to specialization occur when A) each additional unit is produced with lesser number of laborers. B) a nation's gross domestic product declines for a few years. C) production possibility frontier appears as a rectangle. D) more units of resources are required to produce each additional unit.
d
Economist Paul Krugman has suggested that trade policy designed to retaliate against another country's trade policy would A) benefit the multinational firms of both countries. B) benefit the citizens of both countries. C) hurt the multinational firms of both countries. D) hurt the citizens of both countries.
d
Factor endowments refer to the extent to which a country A) supports education, research, and development. B) develops the infrastructure to support industrialism. C) supports free trade. D) has such resources as land, labor, and capital.
d
Free trade as a government policy was first officially embraced by Great Britain in 1846, when the British Parliament repealed a law that placed a high tariff on A) all agricultural products. B) wheat. C) textiles. D) corn.
d
Identify the theory that predicts that countries will export those goods that make intensive use of factors that are locally abundant. A) theory of comparative advantage B) Ricardo theory C) new trade theory D) Heckscher-Ohlin theory
d
Identify the theory that supports the view that, in some cases, countries export for the reason that the world market can support only a limited number of firms. A) Heckscher-Ohlin theory B) Smith's theory C) Ricardo's theory D) new trade theory
d
Identify the true statement about trade barriers. A) They lower the costs of exporting products to a country. B) They may put a firm at a competitive advantage to indigenous competitors. C) They may help a firm to serve a country from locations outside of that country. D) To conform to local content regulations, a firm may have to locate more production activities in a given market than it would otherwise.
d
If the FDI is a substitute for imports of goods or services, the effect can be to improve the ________ of the host country's balance of payments. A) offshore account B) currency account C) market imperfections D) current account
d
In which of the following situations does the internalization theory recommend FDI as opposed to licensing? A) when the firm has know-how that can be adequately protected by a licensing contract B) when the firm produces products that have a low value-to-weight ratio C) when a firm's skills and know-how are amenable to licensing D) when the firm needs tight control over a foreign entity
d
The infant industry argument is criticized because it relies on an assumption that A) new manufacturing industries in developing nations can initially compete with established industries in developed countries. B) selling goods in a foreign market at below their "fair" market value is legally and ethically justified. C) the domestic industry in a developing nation lacks the capacity to meet demand. D) firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market.
d
The majority of cross-border investment in the developed world is in the form of A) hostile takeovers. B) greenfield investments. C) competitive investments. D) mergers and acquisitions.
d
The purchasing power parity (PPP) theory argues that the exchange rate will A) increase if a country is experiencing inflation. B) change even if relative prices remain unchanged. C) increase if a country is experiencing deflation. D) change if relative prices change.
d
The simple comparative advantage model assumed that trade A) changes efficiency with which a country utilizes resources. B) changes a country's stock of resources. C) allows for dynamic changes in the marketplace. D) does not change a country's stock of resources.
d
What are the two main functions of the foreign exchange market? A) trading foreign company equities and converting currency B) reducing currency volatility and setting interest rates C) insuring companies against interest rate risk and enabling imports and exports D) converting currency and providing some insurance against foreign exchange risk
d
What is the primary reason Africa has attracted FDI in recent years? A) growth of the services sector B) complete deregulation of markets C) wave of privatization D) raw material availability
d
When contemplating FDI, why do firms apparently prefer to acquire existing assets rather than undertake greenfield investments? A) Greenfield investments are characterized by reduced management control. B) Mergers and acquisitions are preferred because most greenfield investments fail. C) It is easier and less risky for a firm to build strategic assets than acquire similar assets. D) Mergers and acquisitions are quicker to execute than greenfield investments.
d
Which of the following factors has had a positive effect on the volume of foreign trade investments? A) emerging social democracies B) fluctuating current rates C) aging demographics D) world economy globalization
d
Which of the following is a political reason for governments to intervene in markets? A) to help citizens obtain jobs in foreign markets B) to aid their country's businesses in foreign markets C) to subsidize multinational companies D) to protect jobs and industries
d
Which of the following is a reason for the pressure for greater protectionism that occurred during the 1980s and early 1990s? A) The U.S. Congress erected an enormous wall of tariff barriers. B) Japanese economic failure strained the world trading system. C) The persistent trade surplus in the United States strained the world trading system. D) Many countries found ways to get around GATT regulations.
d
Which of the following is referred to as the purchasing power parity puzzle? A) reduced levels of inflation in countries where the growth in the money supply is faster than the growth in its output B) the reason countries with high inflation rates see depreciation in their currency exchange rates C) identical products being sold in different countries for the same price when their price is expressed in terms of the same currency D) the failure to find a strong link between relative inflation rates and exchange rate movements
d
Which of the following refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates? A) currency pairing B) carry trade C) currency exchange D) currency swap
d
Which of the following statements is true of the Leontief paradox? A) It shows an anomaly that occurs when a nation has high domestic demand for a product. B) It explains the relationship between domestic demand and comparative advantage. C) It disproved Ricardo's theory of comparative advantage. D) It raised questions about the validity of the Heckscher-Ohlin theory.
d
Which of the following theories emphasizes the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods? A) Porter's theory B) Smith's theory C) Ricardo's theory D) Heckscher-Ohlin theory
d
________ are the highest rate that can be charged, which is often, but not always, the rate that is charged. A) Ad valorem tariff rates B) Tariff rents C) Specific tariff rates D) Bound tariff rates
d
________ argued that countries should specialize in the production of goods for which they have an absolute advantage. A) Paul Krugman B) David Hume C) David Ricardo D) Adam Smith
d
________ is most likely to occur when the value of the domestic currency is depreciating rapidly because of hyperinflation or when a country's economic prospects are shaky in other respects. A) The random walk effect B) The Fisher Effect C) The International Fisher Effect D) Capital flight
d
________ is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. A) An arbitrage B) A carry trade C) A spot exchange D) A currency swap
d
According to pragmatic nationalist view, FDI should be allowed so long as A) the benefits outweigh the costs. B) they do not aggressively court domestic firms. C) the costs outweigh the benefits. D) the MNE does not seek tax breaks or grants.
a
According to the 1986 Uruguay Round, the ________ was to be created to implement the GATT agreement. A) World Trade Organization B) International Monetary Fund C) United Nations D) World Bank
a
) Which of the following balance-of-payment accounts records onetime changes in the stock of assets? A) capital account B) current account C) financial account D) monetary account
a
23) The rate at which one currency is converted into another is known as the A) exchange rate. B) currency swap rate. C) fluctuation rate. D) carry over rate.
a
A(n) ________ is one in which prices do not reflect all available information. A) inefficient market B) speculative market C) efficient market D) externally convertible market
a
According to Adam Smith, a country should specialize in the production of a good when it has A) an absolute advantage in the production of the good. B) a strong domestic demand for the good. C) the ability to help country increase its national output. D) the necessary raw materials for production.
a
According to Ricardo's theory of comparative advantage, countries should A) specialize in the production of those goods that it produces most efficiently. B) specialize in the production of those goods that their competitors in the world market currently have monopolies on. C) produce all the products for which they have an absolute advantage. D) produce only the products for which they have an absolute advantage.
a
Licensing would be a good option for firms in which of the following industries? A) It would be a good option in high-technology industries in which protecting firm-specific expertise is of paramount importance. B) It would be a good option in global oligopolies, in which competitive interdependence requires that multinational firms maintain tight control over foreign operations. C) It would be a good option in industries in which intense cost pressures require that multinational firms maintain tight control over foreign operations. D) It would be a good option in fragmented, low-technology industries in which globally dispersed manufacturing is not an option.
d
New trade theory suggests that nations A) increase their commitment to research and development. B) adopt policies that promote strong competition within domestic markets. C) cannot benefit from trade when they do not differ in resource endowments or technology. D) may benefit from trade even when they do not differ in resource endowments or technology.
d
One issue at the forefront of the current agenda of the WTO is the A) decrease in antidumping policies. B) low level of protectionism in agriculture. C) strong protection for intellectual property rights in many nations. D) continued high tariff rates on nonagricultural goods and services in many nations.
d
Porter argues that a nation's firms gain competitive advantage if A) their domestic consumers lack technical awareness. B) they function in a labor-intensive market. C) the country has an abundant supply of unskilled workers. D) their domestic consumers are demanding.
d
Purchasing power parity theory states that given relatively efficient markets, the price of a "basket of goods" should be A) much less in industrialized countries. B) much less in third world countries. C) variable depending upon the current rate of exchange between the producer and consumer of the products in the "basket." D) roughly equivalent in each country.
d
Restrictions on external convertibility can A) hamper foreign companies wishing to do business in that country. B) allow domestic companies to freely invest abroad. C) limit the amount of product a foreign company can produce in that country. D) limit domestic companies' ability to invest abroad.
d
Specific tariffs are A) levied as a proportion of the value of the imported good. B) government payment to domestic producers. C) in the form of manufacturing or production requirements of goods. D) levied as a fixed charge for each unit of a good imported.
d
TRIPS regulations oblige WTO members to A) grant and enforce patents lasting at least 100 years. B) grant and enforce copyrights lasting 100 years. C) comply with the rules within five years in the case of the rich countries. D) comply with the rules within 10 years in the case of the poorest countries.
d
The International Fisher Effect has A) proven to have substantial power at predicting long-run changes in forward exchange rates. B) proven to have substantial power at predicting short-run changes in spot exchange rates. C) not proven to be a good predictor of long-run changes in forward exchange rates. D) not proven to be a good predictor of short-run changes in spot exchange rates.
d
The Smoot-Hawley Act was aimed at A) diverting consumer demand toward foreign products. B) promoting unrestricted free trade. C) limiting global warming. D) avoiding rising unemployment.
d
The U.S. government has used the threat of punitive trade sanctions to try to get the Chinese government to enforce intellectual property laws. This is an example of government intervention based on A) human rights protection. B) national security. C) consumer protection. D) retaliation
d
The WTO argues that removing tariff barriers and subsidies in the agricultural sector could A) protect domestic agriculture in developed nations. B) lower the overall level of agricultural trade. C) restrict global economic growth. D) lower prices to consumers.
d
The ________ and Knickerbocker's theory of FDI tend to be less useful from a business perspective because they are descriptive rather than analytical. A) noninterventionist theory B) internalization theory C) eclectic paradigm D) product life-cycle theory
d
The ________ of FDI refers to the amount of FDI undertaken over a year. A) stock B) net value C) accumulated value D) flow
d
The ________ states that a country's "nominal" interest rate is the sum of the required "real" rate of interest and the expected rate of inflation over the period for which the funds are to be lent. A) PPP theory B) efficient market theory C) law of one price D) Fisher Effect
d
The ________ suggests that a firm will establish production facilities where foreign assets or resource endowments that are important to the firm are located. A) product life-cycle theory B) internalization theory C) multipoint competition theory D) eclectic paradigm
d
The ________ suggests that given relatively efficient markets, the price of a "basket of goods" should be roughly equivalent in each country. A) random walk theory B) theory of competitive advantage C) theory of price inflation D) purchasing power parity theory
d
The commercial aircraft industry can support only a limited number of firms, largely because the existence of established firms would make it difficult to be competitive. This is a basic tenet of A) mercantilism. B) the theory of absolute advantage. C) Heckscher-Ohlin theory. D) new trade theory.
d
The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values is known as ________ exposure. A) economic B) financial C) translation D) transaction
d
The free market view argues that international production should be distributed among countries according to the A) eclectic paradigm. B) theory of competitive advantage. C) new trade theory. D) theory of comparative advantage.
d
