Test Review IB #3 MC

According to the law of one price, identical products sold in different countries must sell for the same price when: A. their price is expressed in terms of the same currency. B. their price is based on the lowest price available. C. they are sold by the same company. D. they are sold by competing companies.

A

Economist Martin Feldstein has coined the term ________ money to pertain to long-term, cross-border capital flows. A. patient B. speculative C. short D. long

A

Nicaragua bases the valuation of its currency on the U.S. dollar. The value of Nicaragua's currency is changed based on the changes in the value of the dollar. This is an example of a ________ exchange rate system. A. pegged B. free float C. managed float D. currency board

A

The Bretton Woods agreement implemented a system of ________ exchange rates. A. fixed B. flexible C. strict D. negative

A

The architects of the Bretton Woods agreement built limited flexibility into the fixed exchange rate system in order to: A. avoid high unemployment. B. facilitate competitive currency devaluations. C. widen balance-of-payments gap between countries. D. increase money supply and thereby price inflation

A

Two factors that helped global capital markets take off in the last decades of the 20th century were ________ and ________. A. information technology; deregulation by governments. B. personal computers; cellular phones C. the growth of the Asian tigers; the attractiveness of the U.S. assets. D. privatization; the rise of regulation.

A

Under the gold standard, what occurs when Japan has a trade surplus? A. There will be a net flow of gold from the United States to Japan. B. The United States will experience negative price inflation. C. The prices of commodities will be low in the United States. D. No other countries will trade gold with Japan.

A

Which of the following elements does NOT support the argument for floating exchange rates? A. uncertainty B. monetary policy autonomy C. crisis recovery D. trade balance adjustments

A

Which of the following is less likely to add to the pressure for a firm to be locally responsive? A. Switching costs for consumers B. Differences in infrastructure and traditional practices C. National differences in consumer tastes and preferences D. Host-government demands

A

The objective of establishing the World Bank was to: A. revive the gold standard. B. promote general economic development. C. control and manage the International Monetary Fund. D. promote a floating exchange rate system.

B

The short-term movement of funds from one currency to another as an attempt to profit from shifts in exchange rates is called A. currency arbitrage. B. currency speculation. C. currency supposition. D. short selling.

B

Under a fixed exchange rate regime, what would be the result if a country rapidly increased its money supply by printing currency? A. It would lead to an increase in the worth of the currency. B. The prices of imports would become more attractive in the country. C. The country's goods would be highly competitive in world markets. D. Trade surplus in the country would increase.

B

When is a currency said to be externally convertible? A. When both residents and nonresidents can purchase unlimited amounts of a foreign currency with it. B. When only nonresidents can convert it into a foreign currency without limitations. C. When neither residents nor nonresidents are allowed to convert it into a foreign currency D. When only residents can convert it into a foreign currency.

B

Unlike firms pursuing a global standardization strategy, firms pursuing an international strategy A. Focus solely on local market demands. B. Have no interest in expanding their market presence. C. Are not confronted with pressures to reduce their cost structure. D. Strive for uniformity in product offerings.

C

Which of the following is true about core competence? A. the term core competence refers to the design, creation, and delivery of the product. B. firms that transfer core competence to foreign markets can realize location economies. C. core competence skills are typically expressed in product offerings that other firms find difficult to match or imitate. D. R&D, human resources, logistics, and general management are not considered core competence skills.

C

Which of the following refers to the institutional arrangements that govern exchange rates? A. Generally accepted accounting principles B. General agreement on tariffs and trade C. International monetary system D. General agreement on trade in services

C

_____ are sold outside of the borrower's country and are denominated in the currency of the country in which they are issued. A. Micro bonds B. Eurobonds C. Foreign bonds D. Regulatory bonds

C

Investors using the global capital market have a wider range of investment opportunities than a purely domestic capital market. One of the most significant consequences of their choice is that they: A. are exposed to significantly greater risk. B. can easily set up shell operations in tax havens to escape significant tax obligations. C. do not have to worry about translation or transaction exposure. D. can reduce their risk to below what could be achieved in a strictly domestic market.

D

Firms respond to pressures for cost reduction by trying to: A. diversify product lines B. be locally responsive C. undertake product differentiation D. lower the costs of value creation

D

Firms that pursue a transnational strategy are trying to simultaneously do many things. Which of the following is one of those things? A. achieve higher costs through location economies B. standardize their product offering for the global market. C. avoid economies of scale D. foster a multidirectional flow of skills between different subsidiaries.

D

If a country increases its money supply rapidly under a fixed exchange rate regime, then: A. imports will become less attractive in that country. B. the trade deficit would get smaller in that country. C. demand for the country's products will increase in world markets. D. the country will face high levels of price inflation.

D

Which of the following was the initial mission of the World Bank? A. Maintaining order in the international monetary system B. Financing the building of Europe's economy by providing low-interest loans C. Taking over as the successor to the International Monetary Fund D. Reviving the gold standard system

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

A Japanese tourist in New York goes to a bank to convert his yen into dollars. The exchange rate that will be used for conversion will be the A. futures exchange rate B. forward exchange rate C. spot exchange rate D. historical exchange rate

C

A South Korean firm wants to hedge against unpredictable movements in foreign exchange rates which can make the global capital market riskier. What should the company do to achieve this? A. borrow from the IMF B. restrict transactions to the London market, which has favorable regulations C. enter into a forward contract D. adjust the timing of the payments and receipts to stay ahead of speculative movements.

C

A ________ occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate. A. Trade surplus B. Hyperinflation C. Currency crisis D. Budget deficit

C

A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a ________ rate. A. free float exchange B. managed floating C. fixed exchange D. flexible exchange

C

A function of a capital market is to: A. Regulate international trade agreements. B. Facilitate currency exchange. C. Bring together those who want to invest money with those who want to borrow money. D. Control inflation rates.

C

A localization strategy focuses on increasing profitability by A. Standardizing products for global markets. B. Reducing production costs through automation. C. Customizing the firm's goods or services to local conditions. D. Expanding market reach through aggressive advertising.

C

A pen costs £50 in Britain. An identical pen costs $70 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct? A. Britain offers a better deal. B. The deal is the same in both countries C. The U.S. offers a better deal D. A trader can make money by buying the pen in Britain and selling it in the U.S. at $70

C

An equity loan is made when A. a corporation pledge equities or other assets to borrow money. B. corporations avail cash loans from individuals. C. a corporation sells stock to investors. D. corporations issue bonds to individual investors

C

Assuming the 60-day forward exchange rate was $1 = ¥110 and the spot exchange rate was $1 = ¥120, the dollar is selling at a(n) ________ on the 60-day forward market. A. premium B. margin C. discount D. subsidy

C

If many people want euros and euros are in short supply, and a few people want Japanese yen and yen are in plentiful supply, the yen is likely to ________ against the euro. A. remain stable B. appreciate C. depreciate D. strengthen

C

Increasingly, the International Monetary Fund (IMF) has been acting as the macroeconomic police of the world economy by A. Advocating for complete economic deregulation. B. Promoting isolationist trade policies. C. Insisting that countries seeking significant borrowings adopt IMF-mandated macroeconomic policies. D. Encouraging unrestricted government spending.

C

One characteristic of learning effects is that they: A. are more significant after two or three years of the introduction of a new process. B. will be less significant in an assembly process involving 1,000 complex steps than in one of only 100 simple steps. C. typically disappear after a while, in spit of the complexity of the task. D. tend to be less significant when a technologically complex task is repeated.

C

People from every nation rely on the same petroleum and steel to drive their cars and build their homes. These two products are examples of ________ needs. A. Regional B. Essential C. Universal D. Customary

C

The ________ shows all of the different positions a firm can adopt with regard to adding value to the product and low cost, assuming the firm's internal operations are configured efficiently to support a particular position. A. Production curve B. Cost curve C. Efficiency frontier D. Market equilibrium

C

The experience curve refers to: A. cost savings that come from learning by doing. B. reductions in unit cost achieved by producing a large volume of a product in a location economy. C. systematic reductions in production costs that have been observed to occur over the life of a product. D. reductions in unit cost achieved by core competence.

C

One of the consequences of the global financial crisis of 2008 and 2009 for hedge funds, which are private investment funds, was a(n) A. Surge in popularity and increased investor confidence. B. Decrease in government oversight and regulations. C. Enhanced stability in financial markets. D. Growing concern that deregulation had gone too far.

D

The Eurocurrency market has two significant drawbacks: ________ and ________. A. nonconvertibility; deregulation B. EU strict banking regulations; economic exposure C. translation exposure; transaction exposure D. higher probability of bank failure; foreign exchange risk

D

The International Monetary Fund was established at the Bretton Woods conference to: A. Promote international trade and economic cooperation. B. Facilitate global currency stability. C. Foster political alliances among member nations. D. Maintain order in the international monetary system.

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

Which of the following observations is true of the Bretton Woods agreement? A. The participating countries were required to exchange their currencies for gold. B. Devaluation was accepted as a tool of competitive trade policy. C. The agreement called for a system of floating exchange rates. D. For weak currencies, devaluation of up to 10 percent was allowed without any formal approval by the International Monetary Fund.

D

Without currency devaluation, a country in "fundamental disequilibrium" would experience: A. a persistent trade surplus. B. a balance-of-payments equilibrium. C. an increase in exports. D. high unemployment.

D

Jake's multinational company wants to reduce its costs by leveraging economies of scale, and it doesn't want to customize its products offerings or marketing plans for local conditions because that will increase costs. Which strategy should Jake's firm pursue? A. International strategy B. Global standardization strategy C. Transnational strategy D. Localization strategy

B

The idea that each country should be allowed to choose its own inflation rate is called the ________ argument. A. Exchange rate stability B. Monetary autonomy C. Fiscal responsibility D. Trade liberalization

B

A U.S. company imports raw materials from Africa, has manufacturing facilities in China, and uses a company in India for assembly. This company is benefiting from ________ economies. A. experience B. standard C. translation D. location

D

A global capital market benefits borrowers by lowering the cost of capital and A. Decreasing the supply of funds available for borrowing. B. Reducing access to international investments. C. Creating barriers to financial transactions. D. Increasing the supply of funds available for borrowing.

D

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

D

A managed float is the exchange rate policy where the government: A. Fixes the exchange rate to a specific value. B. Allows the exchange rate to fluctuate freely in the market. C. Intervenes in the exchange rate system frequently. D. Intervenes in the exchange rate system only in a limited way.

D

Dimitri's company is interested in a hedge fund that positions itself to make "long bets." That means it will invest in funds that are anticipated to: A. offset the value of a "short bet. "B. decline in value C. maintain their value D. increase in value

D