International Business Chapters 7,8,9 (Quiz 3)

Treevia is a country that has just received a loan from the IMF. Because the IMF operates in a no-strings-attached manner, Treevia is free to enact its own policy reforms to enable repayment of the loan.

False

The Doha Round refers to a round of the World Trade Organization (WTO) negotiations to reduce agricultural subsidies, slash tariffs, and strengthen intellectual property protection.

True

The gold standard was essentially a global peg system with little volatility and a great deal of predictability and stability.

True

The most basic way for a nonfinancial company to cope with potential currency risks is to invoice customers in their own currency.

True

Today we live in a post-Bretton Woods system which has no official common denominator and is characterized by a diversity of exchange rate systems.

True

Under the gold standard, every central bank needed to maintain gold reserves in order to be able to redeem its currency in gold at a fixed price.

True

In the aftermath of ____ the world began to unify behind global economic integration, which has the fundamental goal of promoting peace.

a. WWII

What is the difference between a clean float and a dirty float?

c. A dirty float uses selective government interventions to determine exchange rates

The 1999 Doha Round, held by the WTO in Seattle, attracted a huge public outcry including 30,000 protestors.

True

The Association of Southeast Asian Nations (ASEAN) was founded in 1967 after being inspired by the EU's success.

True

The original motivations for European integration were economic in nature.

False

A capital flight will lead to increase in exchange rate.

False

Andean Community is relatively more protectionist and suspicious of the United States, whereas Mercosur is more pro-free trade.

False

Given the slowdown of multilateralism and the acceleration of regionalism, managers should focus their attention more at global levels than regional levels.

False

In the context of currency management, a country with high currency risk must be totally avoided to prevent currency risk.

False

In the context of currency risk management, many large, internationally experienced firms choose currency hedging since it is highly predictable

False

In the context of foreign exchange rate, an appreciation is a loss in the value of a currency.

False

In the short term, variations in interest rates have an insignificant effect on exchange rates and foreign funds

False

Protectionist policies promote free trade and economic gains.

False

Regional economic integration refers to efforts to reduce trade and investment barriers around the globe.

False

The Doha Round was successful because most countries delivered on their promise to reduce agricultural subsidies

False

The European Union (EU) is now a political union.

False

The International Monetary Fund (IMF) offers grants to member countries.

False

The nature of the electronically linked global foreign exchange market is leading to firms taking more time on decisions about buying and selling on the foreign exchange market

False

Forward discount is a condition under which the forward rate of one currency relative to another currency is higher than the spot rate.

True

Global economic integration refers to efforts to reduce trade and investment barriers around the globe.

True

In 2008, Andean Community and Mercusur countries agreed to form the Union of South American Nations (USAN).

True

In managed float exchange rate policy, a main objective for government intervention in deciding the exchange rate is to prevent erratic fluctuations that may trigger macroeconomic turbulence.

True

Mexico has arguably been NAFTA's biggest beneficiary, almost tripling per capita GDP in two decades.

True

North American Free Trade Agreement (NAFTA) is a free trade agreement (FTA) among Canada, Mexico, and the United States.

True

Purchasing power parity (PPP) is usually used to capture the differences in cost of living between countries.

True

The free trade area formed by Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua-plus the Dominican Republic is called the _____.

a. Central America Free Trade Agreement (CAFTA)

Which of the following is true of the theory of purchasing power parity (PPP)?

a. It suggests that in the long run, exchange rates should move toward levels that would equalize the prices of an identical basket of goods in any two countries.

An Indian tourist visits the US and exchanges rupees for dollars at a foreign exchange counter at the airport. In this case, which of the following type of foreign exchange transaction has the tourist used?

a. Spot transaction

_____ means spreading out activities in a number of countries in different currency zones in order to offset any currency losses in one region through gains in other regions.

a. Strategic hedging

Which of the following was the General Agreement on Tariffs and Trade's (GATT's) successor?

a. The World Trade Organization (WTO)

_____ was established in 1995 as the global multilateral trading system and the organization that supports it.

a. The World Trade Organization (WTO)

Lumeria, a country, headquarters many multinational enterprises. Its inflation rate is high relative to other countries. In this case, which of the following is most likely to happen?

a. The exchange rate of Lumeria's currency will drop.

In 2013 in Bali, Indonesia, 159 members of the WTO struck deal that would cut red tape at customs posts around the world and serve as the only tangible achievement of the Doha Round. This deal was known as the:

a. Trade Facilitation Agreement (TFA)

Which of the following improvements resulted after the establishment of the General Agreement on Tariffs and Trade (GATT)?

a. Trade growth consistently outpaced the gross domestic product (GDP) growth.

The _____ consists of exports minus imports of merchandise and services, plus income on a country's assets abroad minus payments on foreign assets in the focal country, plus unilateral government transfers and private remittances.

a. current account balance

The North Symorian Trade Confederate (NSTC) was established to promote regional economic integration within six countries belonging to the same subcontinent. This free trade area has imposed common external policies on nonparticipants. In this case, NSTC is a _____.

a. customs union

The Bretton Woods system came to an end because:

a. of a combination of rising productivity elsewhere and US inflationary policies.

The demand for dollars is much stronger than any other currency because:

a. the dollar is the common transaction currency involving both US. imports and US. exports.

In the context of balance of payments (BOP), a country experiencing a current account surplus:

a. will see its currency appreciate.

Which of the following customs unions in South America is more pro-free trade?

b. Andean Community

Which of the following is a disadvantage of global economic integration?

b. Critics may not be happy with the environmental impact.

Which of the following will result from global economic integration?

b. Its fundamental goal is to promote peace among countries.

In a fixed exchange rate policy, which of the following involves setting the exchange rate of the domestic currency in terms of another currency?

b. Pegging

Which of the following was a result of the Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA or CER)?

b. Tariffs and nontariff barriers between the countries were removed.

Which of the following was agreed upon and launched at the end of the Uruguay Round in 1994?

b. The World Trade Organization (WTO)

Investors-currency traders, foreign portfolio investors, and average citizens-may move in the same direction at the same time, like a herd, resulting in the _____.

b. bandwagon effect

The North West Trading Zone (NWTZ) is a free trade area comprising eleven countries in the Moresian continent. The member countries of this free trade area use different currencies. In addition to imposing common external policies, the NWTZ permits the free movement of goods and people. In this case, the NWTZ is a _____.

b. common market

The region consisting of eighteen European countries using a common currency is called the _____.

b. euro zone

The International Monetary Fund receives its funds from _____.

b. member countries' quota

Lumberne is a continent comprising 18 countries. Currently, Lumberne is a free trade area and an economic union including all 18 countries as members of free trade. Although each country is politically independent, governments of at least 12 countries are negotiating to form a common government. If Lumberne comes to be led by a single government, it would be a _____.

b. political union

The _____ refers to a system of flexible exchange rate regimes with no official common denominator

b. post-Bretton Woods system

In the context of foreign exchange, _____ are the classic single-shot exchange of one currency for another.

b. spot transactions

In the context of interest rates and money supply, quantitative easing:

b. tends to stimulate inflation with more currency.

The Bretton Woods system was centered on _____ as the common denominator.

b. the US dollar

Which of the following countries is a member country of Asia-Pacific Economic Cooperation (APEC)?

c. Chile

Grenasia is a developed country. The exchange rate of Grenasia's currency is higher than other currencies in the world. In this case, which of the following is the effect of such a high exchange rate?

c. Grenasia will attract foreign funds.

Which of the following is an economic benefit of global economic integration?

c. It allows for disputes to be handled constructively.

Which of the following statements is true of global economic integration?

c. It stimulates the economic growth of countries.

The _____, signed in 2007 and enacted in 2009, amended the Maastricht Treaty that served as a constitutional basis for the European Union (EU).

c. Lisbon Treaty

The most (in)famous loophole in merchandise trade created through the General Agreement on Tariffs and Trade (GATT) was the _____.

c. Multifiber Arrangement (MFA)

Which of the following statements is true of the relationship between a commodity's supply and demand?

c. Oversupply of a commodity will result in price drops.

Which of the following is also known as the "law of one price"?

c. Purchasing power parity

Simon is a citizen of Belgium. He can travel to places such as France, Germany, and Greece without a passport. These states of the European Union are referred to as the _____.

c. Schengen

Which of the following is a difference between the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)?

c. The GATT does not cover Intellectual Property (IP) protection, whereas the WTO includes IP protection.

The South East Trading Zone (SETZ) is a monetary union comprising eleven member countries. In this case, which of the following statements is true?

c. The member countries will integrate political and economic affairs of a region.

Praziland is one of the five countries in a free trade area (FTA). In this case, which of the following is likely to be true of the FTA?

c. The members of the FTA will remove trade barriers among themselves.

_____ has been developing because Asia-Pacific Economic Cooperation (APEC) is too big and too difficult to get anything meaningful done.

c. Trans-Pacific Partnership (TPP)

In the context of foreign exchange rate, a(n) _____ is an increase in the value of a currency.

c. appreciation

Lumberne, a country, reviews its international transaction statement to assess its performance in international trade. This transaction statement contains accurate details on merchandise trade, service trade, and capital movement. Such a transaction statement is called the _____.

c. balance of payments (BOP)

In the context of the World Trade Organization's (WTO's) trade dispute settlement mechanisms, the losing country:

c. can defy the WTO ruling by doing nothing and suffer trade retaliation by the winning country.

The Greyon Bank in Australia has an excess balance of euros but is in need of dollars. Similarly, Huran Bank in the US has an excess of dollars and is currently in need of euros. The two banks agree to exchange euros for dollars now and dollars for euros at a later date. This type of foreign exchange transaction is an example of _____.

c. currency swap

In the context of exchange rate policies, _____ is a pure market solution to determine exchange rates.

c. free float

Today's EU established a _____ when 18 EU members adopted of the euro.

c. monetary union

Which of the following scenarios exemplifies the purchasing power parity (PPP) theory?

d. A cell phone manufactured in Russia costs the same in UK and Egypt.

The benefits of Association of Southeast Asian Nations (ASEAN) free trade area (AFTA) are limited because:

d. ASEAN's main trading partners are outside the region.

_____ refers to a transaction that protects traders and investors from exposure to the fluctuations of the spot rate.

d. Currency hedging

Which of the following is a difference between currency hedging and strategic hedging?

d. Currency hedging is done through in-house financial specialists, whereas strategic hedging is done through sourcing or foreign direct investment.

Which of the following statements is NOT true of the IMF?

d. Each member country has equal capacity to borrow money from the IMF and equal voting powers.

Chang Lee deals with foreign exchange. He exchanged 800 Chinese yuan for US dollars. He sold the US dollars 180 days after his initial transaction. In this scenario, which of the following types of foreign exchange transaction has Chang Lee used?

d. Forward transaction

Which of the following is true of the gold standard used from 1870 to 1914?

d. Gold was used as the common denominator for all currencies.

Which of the following is true of a floating exchange rate policy?

d. Governments believe in the free market and allow it to determine exchange rates.

Which of the following is a disadvantage of regional economic integration?

d. It may result in some loss of sovereignty in an economic dimension.

Which of the following statements is NOT a criticism of the IMF?

d. Many countries run immediately to the IMF to fix their financial problems instead of adopting reforms within.

The Forman Free Trade Agreement (FFTA) is an economic union established to promote regional economic integration among its five member countries. In this case, which of the following is likely to be true?

d. Members of the FFTA coordinate and harmonize monetary, fiscal, and taxation policies.

According to the Bretton Woods system, which of the following statements is true?

d. Only the US dollar was convertible to gold.

According to the economic theory, which of the following factors determines a commodity's price?

d. Supply and demand

Which of the following agreements was signed among Canada, Mexico, and the United States?

d. The North American Free Trade Agreement (NAFTA)

In comparison with the General Agreement on Tariffs and Trade (GATT), which of the following statements is true of the World Trade Organization (WTO)?

d. The World Trade Organization (WTO) includes effective trade dispute settlement mechanism.

Which of the following is a reason that enforcement by the WTO faces controversy?

d. The losing country experiences some loss of sovereignty.

Which of the following is a disadvantage of the General Agreement on Tariffs and Trade's (GATT's) policies?

d. Trade in services and intellectual property (IP) protection was not covered.

Which of the following was NOT an ambition set out by the Doah Round?

d. increasing tariffs

Mexico recently printed more currency, causing the supply of the peso to increase while demand stayed the same. Which of the following is NOT a likely outcome of this scenario?

d. inevitable investor sell-offs will cause the appreciation of the peso