econ 103 exam 3 - lenz
A tourist in Japan bought a souvenir that costs 1800yen. How much is this in dollars if the exchange rate is $1 to Y400.
$4.50
Steven converted $1,000 to ¥105,000 for a trip to Japan. However, he spent only ¥50,000. During this period, the value of the dollar weakened against the yen. Using a current exchange rate of $1 = ¥100, how many dollars does Steven have left?
$550
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 €50. How much in U.S. dollars would the tourist have to pay to buy the product?
$75
According to the US Department of Commerce, an interest of ______ in a foreign business is needed to achieve FDI.
10% or more
As of _____, all members of WTO were participating in one or more regional trade agreements.
2018
Approximately how many regional trade agreements are currently in force?
280
Free trade agreements account for nearly ____ of regional economic agreements.
90%
________ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.
A forward exchange
The purchase of Volvo by Li Shufu is called a
Acquisition.
Cause of political unrest & armed conflict, what region has typically received the smallest amount of inward investment?
Africa
You hear that the United Kingdom wants to leave the European Union and you think that the British pound will depreciate against the U.S. dollar in the future. What can you do to hedge against foreign exchange risk?
Agree to a forward exchange of British pound for U.S. dollar.
The Yuan depreciated from 2015 to 2016. This meant that the Yuan was less valuable relative to other currencies like the U.S. dollar. How does a depreciation in the Yuan affect Chinese goods in the U.S.?
Americans buy more Chinese goods because they are cheaper.
Does the USMCA create trade, divert trade, both, or neither?
Both creates and diverts trade.
__is when one borrows currency & interest rates are low, then invests that into another country& interest rates are high
Carry Trade
What does a Foreign Exchange Market do?
Converts currency of one country into currency of another
In the past, most foreign direct investment has been directed at _____ nations.
Developed
Which group has been receiving a greater share of foreign direct investment (FDI) inflows over time?
Developing regions like Latin America and Southeast Asia.
What kind of exposure affects a firm's future international earning power?
Economic Exposure
The most ambitious attempt at regional economic integration is the _____.
European Union
The effect of bulky or heavy products on transportation costs can make _______ an inappropriate strategy.
Exporting
What is it called when only Nonresidents can convert their currency into a foreign currency without limitations?
Externally Convertible
When a firm invests directly in a business or venture in another country, it is called ______.
FDI
When a firm participates in ______, it evolves into a multinational enterprise.
FDI
The 2014 Mustang would meet the regional content requirement in the USMCA.
False
True/False: The globalization of the world economy is having a negative effect on the volume of FDI.
False
True/False: When a firm exports its products to a foreign country, foreign direct investment occurs.
False
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
__ is the function called when the Foreign Exchange Market provides insurance against volatile changes in exchange rates
Foreign Exchange Risk
The ________ view argues that international production should be distributed among countries according to the theory of comparative advantage and countries should specialize in the production of goods they can produce most efficiently.
Free Market
A lack of barriers to the trade of goods and services among member countries is found in a
Free Trade Area
The least integrated form of economic integration is a
Free Trade Area
FDI can be in the form of a ___ which occurs when a firm establishes a new operation in a foreign market.
Greenfield Investment
FDI occurs when a company invests in facilities
In a foreign country
There has been a(n) _____ in regional economic integration in the past two decades.
Increase
What type of market does not reflect all available information?
Inefficient Market
More companies are investing in businesses in Scandinavia. These investments represent__of FDI for the Scan. countries.
Inflow
The USMCA specifies free trade in North America, so why is it criticised for diverting trade?
It contains regional content requirements for automobiles that incentivize regional production rather than international trade.
What is Purchasing Power Parity
It links changes in the exchange rate between two countries
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.
Concrete Forms International needs immediate access to steel in order to produce a new product line. It cannot afford to wait and establish a new operation in a foreign country where steel is prevalent, so it decides to purchase an existing company instead. Why did Concrete Forms decide to make this purchase?
Mergers and acquisitions are quicker to execute than greenfield investments.
__of FDI refers to the value of outward direct investment made by residents of reporting economy to external economies
Outflows
The European Parliament plays an important role in the European Union and creates a(n) _____ to coordinate the economic, social, and foreign policy of the member states.
Politcal Union
What is it called when two separate parties agree to exchange currency and have the deal go through immediately?
Spot Exchange
The anticipated exit of _____ from the European Union has cast a level of doubt about the future of the project.
The United Kingdom
In the previous lecture we learned about SelectUSA which is a resource for foreign investors looking to directly invest in the United States. Which of the following is not a reason why the United States is a good destination for foreign direct investment.
There is an investment policy such that investors who make more money receive preferential treatment under the law.
Why is the United States cut out of the Regional Comprehensive Economic Partnership?
There may be a loss of respect for the United States in the Asia-Pacific region. There is a lack of support for the partnership in the United States. The ASEAN countries are becoming less reliant on participation from the United States in trade deals. There is a popular idea that the United States is being taken advantage of through international trade deals like RCEP and TPP.
Some Latvians and Lithuanians feel negative about the adoption of the euro and joining the European Union. Why?
They are worried about a loss of national sovereignty. They feel a loss of identity as they drop their home currency for the euro. They fear inflation as their regional neighbor, Estonia, experienced inflation after adopting the euro.
Exchange rates quoted in different markets are essentially the same. Therefore, it is commonly thought that arbitrage opportunities do not exist.
True
Historically, most FDI has been directed at the developed nations of the world.
True
One function of the foreign exchange market is to provide people insurance against sudden changes in an exchange rate that could adversely affect their business.
True
The Regional Comprehensive Economic Partnership (RCEP) is a regional trade agreement between Asia-Pacific nations for free trade and economic integration.
True
What country has consistently been the largest source of FDI since World War II?
United States
The stock of foreign direct investment refers to the total
accumulated value of foreign-owned assets at a given point in time.
Briefly describe the concept of regional economic integration.
an agreement between groups of countries in a geographic region, to reduce and ultimately remove tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other.
Kendall Wood Products Corp. purchased securities on the London Stock Exchange and then immediately resold them on the New York Stock Exchange at a higher price. The profits from this transaction were used to buy new machinery for the mill. This company engaged in
an option
The U.S. dollar to Euro exchange rate changed from $1.15 per Euro to $1.00 per Euro. This is an example of U.S. dollar
appreciation.
A(n) ________ has no barriers to trade among member countries, includes a common external trade policy, and allows factors of production to move freely among members, but does not have a common currency.
common market
An investment made to profit from future currency movements is called
currency speculation.
The harmonization of member nations' tax rates is required to form a(n)
economic union.
TickTock Inc., an American watchmaker, makes custom watches in California, which it then ships to Brazil for sale there. Based on this information, TickTock Inc. is involved in
exporting
When a currency depreciates relative to another currency, ________ typically increase.
exports
If the firm is facing the threat of trade barriers such as high import tariffs or quotas and the firm has proprietary technology, the firm should consider
foreign direct investment.
Identify the correct sequence of economic integration starting from the least integrated to the most integrated.
free trade area, customs union, common market, economic union, and political union
Jacob is the chief financial officer for RinseAll Detergent products. His company is interested in investing in a facility in Indonesia, but he is worried about unpredictable fluctuations in future exchange rates, which could cost his company millions of dollars. One way to ensure against this exchange risk is for Jacob to use
hedging
One reason the British electorate voted to exit the European Union is because of an increase in ________ within Europe.
immigration
When a currency appreciates relative to another currency, ________ typically increase.
imports
Latvians are positive about the adoption of the euro and joining the European Union because
it means more investment from Europe and greater security from Russia.
Assume that the exchange rate between the U.S. dollar and the Japanese yen is $1 = ¥150. A book that retails for $10 in New York should sell for ¥1,500 in Tokyo, if there are no trade barriers and transportation costs, according to the
law of one price
A key advantage of adopting the euro is that it
lowers foreign exchange and hedging costs in Europe.
A country that wants to create the highest level of economic integration would enter into a(n)
politcal union
An economist would say that the benefits of regional integration are determined by
the amount of trade creation.
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
the bandwagon effect.
When stock traders purchased shares of Gamestop (GME) on the expectation that the GME stock price would increase (and it did), this is an example of
the bandwagon effect.
The creation of a single market increases price competition for business. In other words, it creates a(n)
threat.
Gear Electronics used to buy all of its component parts from a local plant in Cleveland, Ohio, but this year it has decided to buy the parts from a lower-cost facility located in Tijuana, Mexico. This is an example of
trade creation
A country that imports more goods than it exports experiences a
trade deficit.
Many thought that NAFTA would slow illegal immigration from Mexico to the United States because
workers in Mexico would not need to come to the United States for economic opportunities.
