International Business Exam 2

________ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

A forward exchange

The Bretton Woods agreement created which two multinational institutions?

International Monetary Fund and the World Bank

________ is a pact among Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area.

Mercosur

________ justifies some limited government intervention to support the development of certain export-oriented industries.

New trade theory

The investment manager at AllRight Time Inc. reminds the board that the foreign exchange market is a mixed system. The investment manager wants the board to realize that rates are driven by

a combination of government intervention and speculative activity.

In a floating exchange rate system, a current account deficit is likely to be corrected by

a depreciation in its exchange rate.

________ involves the establishment of a new operation in a foreign country.

a greenfield investment

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.

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

According to Porter, which factor endowment would be classified as an advanced factor?

communication infrastructure

A(n) _____ refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

currency swap

A(n) _____ system refers to one in which a country's currency is nominally allowed to float freely against other currencies but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value.

dirty-float

Karvel lives in northern California where there is sufficient land and labor to successfully grow grapes for wine. Heckscher-Ohlin would consider the land and labor to be

factor endowments

The economic and strategic advantages that accrue to early entrants into an industry are called

first-mover advantages

In countries that adopt a _____ exchange rate system, the values of currencies are set against each other at some mutually agreed-on exchange rate.

fixed

The exchange rate for converting the U.S. dollar into other currencies is continuously adjusted depending on the laws of supply and demand. This illustrates a _____ exchange rate.

floating

Advocates of the floating rate system argue that

floating rates help adjust trade imbalances

When Norway, Iceland, Liechtenstein, and Switzerland were joined by the EFTA, all barriers to the free flow of goods and services between the countries was removed. Member nations are allowed to determine the level of trade protection for goods coming from all other nations. What level of economic integration does this represent?

free trade area

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.

The World 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

Translation exposure refers to the

impact of currency exchange rate changes on the reported financial statements of a company.

A(n) _____ market is one in which prices do not reflect all available information.

inefficient

Royal Chocolatier, a British manufacturer of chocolates, granted U.S. company American Candy Inc. the right to produce and sell Royal Chocolatier's products in the United States In return, American Candy Inc. has to pay a royalty fee on every unit sold. According to this information, what is being done by Royal Chocolatier?

licensing

The government of the Republic of Senna enforces tariffs and quotas to limit imported goods, while exports are subsidized. By using these instruments, the government seeks to achieve a surplus in the balance of trade. Based on this information, which approach most influences the Republic of Senna's approach to international trade?

mercantilism

Which approach suggests that nations may benefit from trade even when they do not differ in resource endowments or technology?

new trade theory

The currency of Panama, the balboa, is fixed relative to the U.S. dollar. As a result, the U.S. dollar exchange rate determines the exchange rate between the Panama balboa and other currencies. This is an example of a _____ exchange rate.

pegged

A country that wants to create the highest level of economic integration would enter into a(n)

political union

The rate at which a foreign exchange dealer converts one currency into another currency on a particular day is the

spot exchange rate.

A currency is considered freely convertible when

the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

One of the main benefits that FDI provides to the home country is

the home country's balance of payments benefits from the inward flow of foreign earnings.

In his theory of absolute advantage, Adam Smith advocated that ________ should determine what a country imports and what it exports.

the market mechanism

The Republic of Monaslu has the world's most efficient car manufacturing industry, while the country of Ingora has the world's most efficient electronics industry. The Republic of Monaslu trades cars with Ingora in exchange for consumer electronics. This form of trade between the two countries illustrates

the theory of absolute advantage

The basic message of ________ is that potential world production is greater with unrestricted free trade than it is with restricted trade.

theory of comparative advantage

The stock of FDI refers to the

total accumulated value of foreign-owned assets at a given time.

A situation in which an economic gain by one country results in an economic loss by another is called a

zero-sum game

Carlos is the manager of an American company. He expects the value of the British pound to appreciate in the near future and so delays the collection of payments from British customers until the next month. Which tactic is Carlos using to minimize the foreign exchange exposure?

lag strategy

Under the fixed exchange rate regime established at Bretton Woods, _____ served as the reference point for all other currencies.

the U.S. dollar

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.