Test 3 International Business (FINAL EXAM PREP)

ASEAN is

Association of Southeast Asian Nations

A _______________ crisis refers to a loss confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits.

Banking

A ____________ market has no barriers to trade among member countries, includes a common external trade policy and allows factors of production to move freely among members.

Common

The role of the IMF is to avoid the repetition of a global economic chaos through a combination of ____________ and _____________.

Discipline and Flexibility

_______________ exposure is the extent to which a firm's future international earning power is affected by changes in exchange rates.

Economic

Falling demand for U.S. dollars and rising demand for euros translated into a ______ in the value of the dollar against the euro.

Fall

Adopting a pegged exchange rate regime increases the inflationary pressures in a country.

False

An effective business strategy to reduce economic exposure is to contract out high-value-added manufacturing.

False

Fixed exchange rates lead to speculation and uncertainty in the value of currencies.

False

If the spot exchange rate is £1 = $1.50 when the market opens, and £1 = $1.48 at the end of the day, the pound has appreciated, and the dollar has depreciated.

False

If the spot rate is $1 = 120, and the 30-day forward rate is $1 = ×130, the dollar is selling at a discount in the forward market.

False

Implementing a fixed exchange rate regime increases price inflation in countries.

False

The IMF does not expect governments to meet any obligations except to pay back the money it borrows.

False

There are many impediments to the free flow of goods and services in an efficient market.

False

There is no evidence that psychological factors play an important role in determining the expectations of market traders as to likely future exchange rates.

False

To minimize the risk of an unanticipated change in exchange rates, a company can protect itself by entering into a spot exchange contract.

False

________ exchange rates were declared as acceptable in the Jamaica agreement of the International Monetary Fund.

Floating

A ______________ crisis is a situation in which a country cannot service its foreign debt obligations, whether private-sector or government debt.

Foreign Debt

How does NAFTA seem to increase the international competitiveness of U.S. and Canadian firms?

It allows them to take advantage of lower labor costs in Mexico.

A __________ exchange rate happens when the value of the currency is fixed relative to a reference currency.

Pegged

A currency _______________- totally involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. move freely among members.

Speculation

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?

The United States offers a better deal.

Which of the following arguments strengthen the idea of floating exchange rates?

Trade deficits can be corrected through changes in exchange rates

__________________ exposure is the extent to which the income from individual transactions is affected by fluctuations in foreign exchange values.

Transaction

A benefit to companies of economic integration is the opportunity to centralize their production and reduce costs.

True

A key benefit resulting from the adoption of the euro is the ability to compare prices across member markets.

True

A regional free trade agreement will benefit the world only when the amount of trade it creates exceeds the amount of trade it diverts.

True

Brigitte lives in France and is in the market for a new car. Because of the adoption of the euro, Brigitte can easily compare car prices across countries in Europe.

True

Bryce lives in a country where there are no barriers to the trade of goods and services. This is called a free trade area/zone.

True

The European Union is an example of an economic union.

True

The International Monetary Fund's original function was to provide a pool of money from which members could borrow in the short term.

True

The agreement reached at Bretton Woods established the International Monetary Fund (IMF) and the World Bank.

True

The efficient market school argues that investing in exchange rate forecasting services would be a waste of money.

True

When Lana traveled from the United States to Italy, she had to change her money from dollars into euros. Lana was participating in the currency exchange market.

True

Country X and Country Y reach an agreement to boost bilateral trade. They agree to remove all barriers to the trade of goods and services. They, however, are free to determine their own trade policies with regard to nonmembers. This is an example of which level of economic integration?

a free trade area

A common market differs from a customs union in that a common market

allows factors of production to move freely among members

Supporters of floating exchange rates

argue that floating rates help adjust trade imbalances

Trade ________ occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area.

creation

The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates is known as

currency speculation

Which level of economic integration eliminates trade barriers between member countries and adopts a common external trade policy?

customs union

The rate at which one currency is converted into another is known as the

exchange rate

When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a ________ regime.

floating exchange rate

A country's trade balance is in surplus when

its exports are more than its imports.

What was the main objection raised by those in the United States and Canada who opposed the ratification of the NAFTA?

job losses

The currency of Lebanon is fixed relative to the U.S. dollar. This means that the exchange rate between the Lebanese pound and other currencies is determined by the dollar exchange rate. This reflects a

pegged exchange rate

Suppose a government increases the money supply. As a result, there is a surge in the demand of goods as consumers rush to spend their extra money, but producers cannot keep up with demand. What will be the result?

price inflation

Milo is traveling to Ireland on vacation. When he arrives, he goes to a bank to convert his U.S. dollars into the local currency—the euro. What exchange rate will be used to handle this transaction?

spot exchange rate

A country is said to be in balance-of-trade equilibrium when

the income its residents earn from exports is equal to the money its residents pay to other countries for imports.

________ is quoted for 30 days, 90 days, and 180 days into the future.

A forward exchange rate

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive

$1,500