QUIZ 2
A balance of trade deficit indicates an excess of imports over exports.
TRUE
Assume that some U.S. firms will purchase supplies from either China or from U.S. firms. If the Chinese yuan appreciates against the dollar, it should reduce the U.S. balance of trade deficit with China.
TRUE
Outsourcing allows some MNCs to reduce costs but shifts jobs to other countries.
TRUE
Portfolio investments represent transactions involving long-term financial assets (such as stocks and bonds) between countries that do not affect the transfer of control.
TRUE
Regarding the U.S. balance of payments, capital account items are relatively minor compared to the financial account items.
TRUE
The J curve effect is the initial worsening of the U.S. trade balance due to a weakening dollar because of established trade relationships that are not easily changed; as the dollar weakens, the dollar value of imports initially rises before the U.S. trade balance is improved.
TRUE
The World Bank frequently enters into cofinancing agreements. Under these agreements, financing is provided by the World Bank and/or official aid agencies, export credit agencies, or commercial banks.
TRUE
The balance of payments is a measurement of all transactions between domestic and foreign residents over a specified period of time.
TRUE
The sale of patent rights by a U.S. firm to a Russian firm reflects a credit to the U.S. balance of payments account.
TRUE
Which of the following is not a goal of the International Monetary Fund (IMF)?
To enhance a country's long-term economic growth via the extension of structural adjustment loans
__ represent aid, grants, and gifts from one country to another.
Transfer payments
Which of the following would likely have the least direct influence on a country's current account?
a tax on income earned from foreign stocks.
The North American Free Trade Agreement (NAFTA) increased restrictions on:
a. trade between Canada and Mexico. b. trade between Canada and the U.S. c. direct foreign investment in Mexico by U.S. firms. ANSWER: NONE OF THESE
Which of the following will probably not result in an increase in a country's current account balance (assuming everything else constant)?
An appreciation of the country's currency
Also known as the "central banks' central bank," the ____ attempts to facilitate cooperation among countries with regard to international transactions and provides assistance to countries experiencing a financial crisis.
Bank for International Settlements (BIS)
Which of the following countries purchases the largest amount of exports by U.S. firms?
Canada
___ purchases more U.S. exports than the other countries listed here.
Canada
A U.S. purchase of patent rights from a firm in Mexico reflects a credit to the U.S. balance of payments account.
FALSE
A balance of trade surplus indicates an excess of imports over exports.
FALSE
A balance of trade surplus indicates an excess of merchandise imports over merchandise exports.
FALSE
A tariff is a maximum limit on imports.
FALSE
A weakening of the U.S. dollar with respect to the British pound would likely reduce U.S. exports to the U.K. and increase U.S. imports from the U.K.
FALSE
An American tourist visiting Germany and spending money there (for lodging, food, etc.) will reduce the U.S. current account deficit and reduce Germany's current account balance.
FALSE
Direct foreign investment by U.S.-based MNCs occurs primarily in the Bahamas and Brazil.
FALSE
Exporting of products by one country to other countries at prices below cost is called elasticity.
FALSE
The Central American Trade Agreement (CAFTA) is intended to raise tariffs and regulations between the U.S., the Dominican Republic, and Central American countries.
FALSE
The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations.
FALSE
The capital account reflects changes in country ownership of long-term (but not short-term) assets.
FALSE
The current account represents the investment in fixed assets in foreign countries that can be used to conduct business operations.
FALSE
The primary component of the capital account is the balance of trade.
FALSE
U.S. government officials would likely prefer that China devalue the yuan against the dollar.
FALSE
__ is (are) income received by investors on foreign investments in financial assets (securities).
Factor income
Like the International Monetary Fund (IMF), the ____ is composed of a collection of nations as members. However, unlike the IMF, it uses the private rather than the government sector to achieve its objectives.
International Financial Corporation (IFC)
Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance of trade position (increase its exports or reduce its imports)?
It could attempt to reduce its home currency's value
The primary component of the current account is the:
balance of trade
A high home inflation rate relative to other countries would ____ the home country's current account balance, other things equal. A high growth in the home income level relative to other countries would ____ the home country's current account balance, other things equal.
decrease; decrease
According to the "J curve effect," a weakening of the U.S. dollar relative to its trading partners' currencies would result in an initial ____ in the current account balance, followed by a subsequent ____ in the current account balance.
decrease; increase
Recently, the U.S. experienced an annual balance of trade representing a ____
deficit
A country's net outflow of funds ____ affect its interest rates, and ____ affect its economic conditions.
does; does
The International Financial Corporation was established to:
enhance economic development of the private sector through investment in stock of corporations.
The World Bank was established to:
enhance economic development through non-subsidized loans (at market interest rates).
Dumping" is used in the text to represent the:
exporting of goods at prices below cost.
A weak home currency may not be a perfect solution to correct a balance of trade deficit because:
foreign companies may reduce the prices of their products to stay competitive.
If a country's government imposes a tariff on imported goods, that country's current account balance will likely ____ (assuming no retaliation by other governments).
increase
Over the last several years, international trade has generally:
increased for most major countries.
The direct foreign investment positions by U.S. firms have generally ____ over time. Restrictions by governments on direct foreign investment have generally ___ over time.
increased; decreased
In recent years, the U.S. has had a relatively (compared to other countries) ____ balance of trade ____ with China.
large; deficit
Without the international capital flows, there would be ____ funding available in the U.S. across all risk levels, and the cost of funding would be ____ regardless of the firm's risk level.
less; higher
Japan's annual interest rate has been relatively ____ compared to other countries for several years, because the supply of funds in its credit market has been very ____.
low; large
According to the text, international trade (exports plus imports combined) as a percentage of GDP is:
lower in the U.S. than in European countries.
As a result of the European Union, restrictions on exports between ____ were reduced or eliminated.
member countries
The World Bank's Multilateral Investment Guarantee Agency (MIGA):
offers various forms of political risk insurance.
If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things equal (assume that substitutes are readily available in the countries, and that the prices charged by firms remain the same).
reduce
The demand for U.S. exports tends to increase when:
the currencies of foreign countries strengthen against the dollar.
The "J curve" effect describes:
the short-run tendency for a country's balance of trade to deteriorate even while its currency is depreciating.
