BUS2000 final
When a country adopts a strict currency board system, it means that
The government lacks the abillity to set interest rates A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. Under a strict currency board system, interest rates adjust automatically. Under this arrangement, the currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it. This limits the ability of the government to print money and, thereby, create inflationary pressures.
bandwagon effect
The movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions, is called
Advocates of the floating rate system argue that
Those in favor of floating exchange rates argue that floating rates help adjust trade imbalances. Critics question the closeness of the link between the exchange rate and the trade balance. They claim trade deficits are determined by the balance between savings and investment in a country, not by the external value of its currency. In other words, a depreciating exchange rate will not boost exports and reduce imports, as advocates of floating rates claim; it will simply boost price inflation.
Under the fixed exchange rate regime established at Bretton Woods, _____ served as the reference point for all other currencies.
US dollar, To understand why the system collapsed, one must appreciate the special role of the U.S. dollar in the system. As the only currency that could be converted into gold and as the currency that
What organization was created to implement he GATT agreement
WTO
Paul Krugman characterizes the strategic trade policy as being
a boost to national income aimed at establishing domestic firms in a dominant position in a global industry is a beggar-thy-neighbor policy that boosts national income at the expense of other countries.
Rae feels it is best for her company to pay their foreign supplier in Panama this month even though they will receive product for another six months. She recently learned that the currency in Panama is expected to appreciate and, by paying the supplier now, her company will save money. This is an example of
a lead strategy
Cost of FDI to Home Country
adverse balance-of-trade payments, sometimes FDI exports jobs aborad
floating exchange rate
an exchange rate policy under which a government permits its currency to be traded on the open market without direct government control or intervention SUPPLY + DEMAND
Assume the euro/dollar exchange rate quoted in Tokyo at 6 a.m. is €1 = $1.00. If the New York euro/dollar exchange rate at the same time (5 p.m. New York time) is €1 = $1.35, a dealer could make a profit through
arbitrage
A country is said to be in _____ when the income its residents earn from exports is equal to the money its residents pay to other countries for imports.
balance of trade equilibrium
Countries that adopt a pragmatic stance beleive that FDI should be allowed as long as
benifits outweigh the costs
pegged exchange rate
currency value is fixed relative to a reference currency
One example of a(n) ________ effect of foreign direct investment is when a foreign MNE employs a number of host-country citizens.
direct
import quota
direct restriction on the quantity of some good that may be imported into a country
What would provide a comany with a hedge against currency fluctuations like vulnerability to unpredictable exchange rates.
dispersing production to different location locations around the globe
quota rent
extra profit producters make when suppy is artifally limited by an import quota
It is one of Garrett's job responsibilities to report the amount of foreign direct investment undertaken by the government over a one-year time period. Garrett reports the ________ of FDI.
flow
According to Dunning, it makes sense for a firm to locate production facilities in those countries where the cost and skills of local labor is most suited to its particular production processes because
....
Mercosur pact countries
Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area.
Uruguay Round
a trade agreement to dramatically lower trade barriers worldwide; created the World Trade Organization in 1995
Three reasons a firm will prefer FDI to licensing
-firm has valuble know-how that cannot be adequatley protected by a licensing contract -needs tight control over a foreign entity in order to maximize its market share and earnings in that country -firm's skills and capabilities are not amendable to licensing
Assume that the exchange rate between the euro and the dollar is €1.00 = $1.50. An American tourist in Germany is buying a product whose price is €80. How much in U.S. dollars would the tourist have to pay to buy the product?
120
A country that relies on the pragmatic nationalist view would say that
A country that relies on the pragmatic nationalist view would say that
Free market view on FDI
A political view that suggests that FDI unrestricted by government intervention is the best.
Oligopoly
An oligopoly is an industry composed of a limited number of large firms (e.g., an industry in which four firms control 80 percent of a domestic market would be defined as an oligopoly). A critical competitive feature of such industries is interdependence of the major players: What one firm does can have an immediate impact on the major competitors, forcing a response in kind. By cutting prices, one firm in an oligopoly can take market share away from its competitors, forcing them to respond with similar price cuts to retain their market share.
Earnings from a foreign subsidiary to the parent company are recorded as ______ on the balance-of-payments accounts.
Capital OUTFLOW
The Brenton woods agreement created which two multilateral institutions
IMF and World Bank
Subsidies and quotas are examples of ________ barriers a county might impose
nontariff
Radical Veiw
t
Most economists would agree that the best interests of international business are found in a nation with a
free trade policy most economists would probably argue that the best interests of international business are served by a free trade stance but not a laissez-faire stance. It is probably in the best long-run interests of the business community to encourage the government to aggressively promote greater free trade by, for example, strengthening the WTO. Business probably has much more to gain from government efforts to open protected markets to imports and foreign direct investment than from government efforts to support certain domestic industries in a manner consistent with the recommendations of strategic trade policy.
How did President Trump react to the two multilateral trade agreements, the Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership, that were being pursued by the Obama administration?
he pulled hte US out of the negotiatons
The world banks inital mission was to
help finance the building of Europe's economy by providing low-interest loans The official name for the World Bank is the International Bank for Reconstruction and Development (IBRD). When the Bretton Woods participants established the World Bank, the need to reconstruct the war-torn economies of Europe was foremost in their minds. The bank's initial mission was to help finance the building of Europe's economy by providing low-interest loans.
One reason the British electorate voted to exit the European Union is because of an increase in ________ within Europe.
immigration
A tariff rate quota provides a lower tariff rate to
imports on the quota
Benefits of FDI to host country
improvement in the balace of payments as a result of inward flow of forein earnings, postive emplyment effects and benifits from a revrese resoruce-transfer effect.
law of one price
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 the same currency
The lowering of barriers to trade and investments among countres within a trade group will probably be followed by
increase in price competition
Inefficent Market
is one in which prices do not reflect all available information
Agri-Cor sells farm equipment throughout the euro zone. The company has noticed that some customers travel to countries where equipment sells for less to obtain a better deal. What implication of adopting the euro as a common currency does this situation demonstrate?
it makes it easier to compare prices across Europe
what is a political argument for regional economic integration
it reduces the potential for violent conflict
When FDI occurs through greenfield investment, it will ...
it will decrease competition in a market and iincrease economic welfare.
The task of the IMF
maintain order in the international monetary system and that of the World Bank would be to promote general economic development
transWare Inc., based in Atlanta, has a plant in Russia that builds road equipment. Each year this plant has been profitable, but TransWare Inc. is not able to convert the profits into U.S. dollars and take them out of the country. What type of convertibility does this represent?
nonconvertable
Hedging
protecting against cost increases with contracts that allow a company to buy supplies in the future at designated prices
Volintary export restraint
quota on trade imposed by the exporting country FOrein producers agree to this because they fear more damaging punitive tariffs or import quotas might follow if they do not
The single European act was put in place in attempt to
remove all impediments of the formation of a single market
Ownership restraint is a method of
restricting inward FDI by host country
currency swap
simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
An economist would say that the benefits of regional integration are determined by
the amount of trade creation
infant indutries
the infant industry argument is by far the oldest economic argument for government intervention and was proposed by Alexander Hamilton in 1792. According to this argument, to allow manufacturing to get a toehold, governments should temporarily support new industries (with tariffs, import quotas, and subsidies) until they have grown strong enough to meet international competition.
Radical Veiw
the radical view traces its roots to Marxist political and economic theory. Radical writers argue that the multinational enterprise (MNE) is an instrument of imperialist domination. They see the MNE as a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.
The stock of FDI refers to
the total accumulated value of foreign-owned assets at a given time
the creation of a single market increases price competition for businesses, in other words its creates a
threat
Licensing is a good option to enter a foreign market when
tight control of the foreign operation is not required.
A country that imports more goods than it exports experiences a
trade deficit/ current account deficit