International Business Final Quiz Review

________ was a multilateral agreement established in 1947 whose objective was to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like. -Asia-Pacific Economic -Cooperation (APEC) -North American Free Trade Agreement (NAFTA) -General Agreement on Tariffs and Trade (GATT) -Smoot-Hawley Act -Trans Pacific Partnership (TPP)

General Agreement on Tariffs and Trade (GATT)

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 the United States out of these negotiations. -He attempted to expand these agreements to include other nations. -He quickly signed the agreements after taking office. -He asked that the United States control more than 50 percent of the involved nations. -He agreed that even more multilateral trade agreements should be established.

He pulled the United States out of these negotiations.

How did the Marshall Plan overshadow efforts by the World Bank? -It let the United States loan money directly to European nations for rebuilding efforts. -It provided low-interest loans to domestic corporations. -It created multi-point competition within the agriculture industry. -It damaged forward exchange rates, thus making them useless. -It increased competition for funds from the IMF.

It let the United States loan money directly to European nations for rebuilding efforts.

Mexico agreed to NAFTA after it was determined that the country's oil industry would be controlled by Mexico. Why did Mexico fight for this right? -It wanted to undermine oil producers in the United States. -It believed that without this control, all oil-related jobs would be moved to Canada. -It wanted to maintain national sovereignty. -It wanted to share in the specialization of production of goods and services. -It was the only export the country shared with three European nations.

It wanted to maintain national sovereignty.

When a country adopts a strict currency board system, it means that -the government has the ability to print money. -the government lacks the ability to set interest rates. -demand and supply create exchange rates. -the currency board can always issue additional domestic notes and coins. -exchange rates are based on domestic reserves.

exchange rates are based on domestic reserves.

Identify the correct sequence of economic integration starting from the least integrated to the most integrated. -free trade area, customs union, economic union, political union, and common market -free trade area, customs union, common market, economic union, and political union -common market, free trade area, customs union, economic union, and political union -free trade area, common market, customs union, economic union, and political union -common market, free trade area, customs union, political union, and economic union

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 -forecasting. -hedging. -currency speculation. -countertrade. -arbitrage.

hedging.

In order to encourage the agricultural industry, the French government provided low-interest loans for the purchase of seeds and fertilizers. The government also gave cash grants and made tax reductions. Which instrument of trade policy is being used by the French government? -tariffs -voluntary export restraints -subsidies -local content requirements -import quotas

subsidies

A weakness of the Bretton Woods system was that it could not work if -the U.S. dollar was under speculative attack. -the value of the British pound increased against the Japanese yen. -Japan's economy grew. -the U.S. inflation rate remained low. -Germany's unemployment rate increased.

the U.S. dollar was under speculative attack.

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 Sullivan principle. -capital flight. -the bandwagon effect. -the Fisher effect. -the spot effect.

the bandwagon effect.

According to ________, location-specific advantages are of considerable importance in explaining both the rationale for and the direction of foreign direct investment. -the infant industry argument -Knickerbocker's theory -the eclectic paradigm -internalization theory -market imperfections theory

the eclectic paradigm

The creation of a single market increases price competition for business. In other words, it creates a(n) -opportunity. -threat. -strength. -dynamism. -weakness.

threat.

Licensing is a good option to enter a foreign market when -transportation costs are minor. -the technical know to be shared is extremely valuable. -tight control of the foreign operation is not required. -the competitive advantage of a firm is based upon managerial knowledge that is embedded in the routines of the firm. -trade barriers between countries are trivial in nature.

tight control of the foreign operation is not required.

The stock of FDI refers to the -total accumulated value of foreign-owned assets at a given time. -the net position of FDI flows after comparing inflows and outflows during a period. -the outflows of FDI from a country. -amount of FDI undertaken over a given time period. -the inflows of FDI into a country.

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

A country that relies on the pragmatic nationalist view would say that -international production should be distributed among countries according to the theory of comparative advantage. -FDI should be allowed so long as the benefits outweigh the costs. -no country should ever permit foreign corporations to undertake FDI. -FDI is a benefit to both the source country and the host country. -the multinational enterprise (MNE) is an instrument of imperialist domination.

FDI should be allowed so long as the benefits outweigh the costs.

The Bretton Woods agreement created which two multinational institutions? -United Nations and the World Bank -World Trade Organization and the International Monetary Fund -World Bank and the G20 -International Monetary Fund and the World Bank -United Nations and the World Trade Organization

International Monetary Fund and the World Bank

What is a political argument for regional economic integration? -It reduces the potential for violent conflict. -It creates opportunities for entrepreneurism. -It tends to increase national sovereignty. -It stimulates economic growth. -It increases trade diversion.

It reduces the potential for violent conflict.

________ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. -Perfect competition -Collusion -Monopoly -Multipoint competition -Cartel

Multipoint competition

The European Community was established by the -Maastricht Treaty. -Treaty of Lisbon. -Treaty of Rome. -Single European Act. -Treaty of Paris.

Treaty of Rome.

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 -dynamic competitive forces. -supply and demand. -the interplay of big business and Western practices. -a combination of government intervention and speculative activity. -the globalization of developing nations.

a combination of government intervention and speculative activity.

One focus of strategic trade policy is to help domestic companies gain -more competition to lower prices. -less competition to raise prices. -monopoly status. -a first-mover advantage. -exclusive intellectual property rights.

a first-mover advantage.

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 lag strategy. -a lead strategy. -buying swaps. -a forecast strategy. -a spot exchange rate contract.

a lead strategy.

A customs union differs from a free trade area because it allows for -removal of barriers to the trade of goods and services among member countries. -adoption of a common external trade policy. -mobility of factors of production among member countries. -harmonization of tax rates of member countries. -adoption of a common monetary and fiscal policy among member countries.

adoption of a common external trade policy.

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 -economic union -free trade area -customs union -political union

common market

An American company sold heavy building materials to the government of Taiwan. Instead of receiving U.S. dollars, the company agreed to take payment in the form of Taiwanese goods. This is an example of -short selling. -countertrade. -capital flight. -a carry trade. -arbitrage.

countertrade.

A(n) _____ refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. -currency swap -carry trade -hedge -option trade -forward exchange

currency swap

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 -licensing. -exporting. -franchising. -outsourcing. -using a greenfield investment.

exporting.

Advocates of the floating rate system argue that -floating rates boost exports. -floating rates help adjust trade imbalances. -there is no connection between the floating rate system and trade balance. -floating rates boost imports. -floating rates help keep inflation rates close to zero.

floating rates help adjust trade imbalances.

Assume that the interest rate on borrowings in Argentina is 3 percent, but the interest rate on deposits in British banks is 9 percent. A trader borrows 1 million Argentine pesos, then converts the money into British pounds and deposits it in a British bank. What is the trader involved in? -countertrade -carry trade -purchasing power parity -forward exchange -arbitration

forward exchange

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? -common market -political union -free trade area -customs union -economic union

free trade area

Most economists would agree that the best interests of international business are found in a nation with a -laissez-faire policy. -command economy. -free trade policy -planned economy. -mercantilist view.

free trade policy

As an investor studying the gold standard, Kyle knows that he would need 44 euros to purchase one ounce of gold. These 44 euros represent the -gold par value. -gold mix ratio. -balance-of-trade equilibrium. -gold reserve ratio. -gold margin.

gold par value.

A tariff rate quota provides a lower tariff rate to -all imports in a specific industry. -imports within the quota. -only domestic producers. -agricultural products. -imports that are over the quota.

imports within the quota.

High tariff barriers and subsidies in the agricultural industry ultimately lead to -the lack of overproduction of products. -an increased volume of agricultural trade. -increased prices for consumers. -stronger competition from foreign suppliers. -lower overall prices for the end-user.

increased prices for consumers.

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? -spot exchange rate contracts -buying swaps -lead strategy -lag strategy -forecast strategy

lag strategy

Internalization theory is used to explain why a company prefers FDI over ________ as a way to enter a foreign market. -exporting -franchising -a greenfield investment -licensing -acquisitions

licensing

An implication of trade barriers for business practice is that they -reduce the cost of importing products to a country. -put a foreign firm at a competitive advantage to indigenous competitors in that country. -allow for efficient allocation of production functions. -limit a firm's ability to serve a country from locations outside of that country. -encourage governments to engage in foreign direct investment.

limit a firm's ability to serve a country from locations outside of that country.

When companies behave recklessly because they know they will be saved if things go wrong, it is called a -prisoner's dilemma. -lemon law. -moral hazard. -currency crisis. -dirty float.

moral hazard.

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? -freely convertible -carry convertible -proconvertible -nonconvertible -externally convertible

nonconvertible

Subsidies and quotas are examples of ________ barriers a county might impose. -antidumping -tariff -nontariff -content requirements -export restraint

nontariff

SmileBright, a dental products manufacturing company, has a market share of 30 percent in India. Three of its competitors together control 55 percent of the market. Whenever SmileBright raises or lowers the prices of its products, the other three companies quickly imitate its action. What is the market structure of this industry in India? -fair market -monopoly -oligopoly -perfect competition -pure competition

oligopoly

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. -dirty-float -flexible -floating -pegged -fixed

pegged

The Single European Act was put in place in an attempt to -convince Great Britain to remain in the EU. -determine the viability of a common currency. -expand the role of the EU into northern Africa. -remove all impediments to the formation of a single market. -create a planned economy.

remove all impediments to the formation of a single market.

Ownership restraint is a method of -encouraging inward FDI by a host country. -restricting inward FDI by a host country. -encouraging outward FDI by a home country. -restricting outward FDI by a home country. -restricting outward FDI by a host country.

restricting inward FDI by a host country.

A foreign government was not enforcing its intellectual property rights, which resulted in massive copyright infringements. In turn, this was costing U.S. companies millions of dollars in lost sales revenues. To force the country to play by the rules, the United States threatened to impose trade sanctions on a range of imports from the country's businesses. The underlying motive for intervention by the U.S government was -to protect national security. -to further support foreign policy objectives. -retaliation. -to increase the trade surplus of the United States. -to protect human rights.

retaliation.

A tax of 32 cents is levied for each pair of eyeglasses imported into a nation. This is an example of a(n) -quota rent. -specific tariff. -ad valorem tariff. -import quota. -local content requirement.

specific tariff.

In terms of the approaches to exchange rate forecasting, _____ is based on the premise that there are analyzable market trends and waves and that previous trends and waves can be used to predict future trends and waves. -chart analysis -technical analysis -behavioral equilibrium model -fundamental analysis -portfolio balance model

technical analysis

Under the fixed exchange rate regime established at Bretton Woods, _____ served as the reference point for all other currencies. -the British pound -gold -the Mexican peso -silver -the U.S. dollar

the U.S. dollar

A currency is considered freely convertible when -both residents and nonresidents are allowed to purchase a limited amount of a foreign currency with it. -only residents may convert it into a foreign currency without any limitations. -only nonresidents may convert it into a foreign currency without any limitations. -neither residents nor nonresidents are allowed to convert it into a foreign currency. -the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

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

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? -A greenfield investment will provide quickest access to the steel forms. -FDI flows are similar between developed and developing nations. -Mergers and acquisitions are quicker to execute than greenfield investments. -The higher percentage of mergers and acquisitions in developing nations compared to developed nations indicate the low valuation of target firms in developing countries. -It is easier and less risky for a firm to build up through a greenfield investment rather than through acquisitions.

Mergers and acquisitions are quicker to execute than greenfield investments.