Quiz 2

False

The International Monetary Fund can force countries to adopt the policies required to correct economic mismanagement.

False

The euro/dollar exchange rate is 1 eruo= $1.20. If it costs $36 to buy a European product, the stated price of the product would be 36 euros.

E) purchasing power parity puzzle

The failure to find a strong link between relative inflation rates and exchange rate movements has been referred to as the:

A) a combination of government intervention and market forces

The fall in the value of the u.s. dollar between 1985 and 1988 was caused by:

False

The flow of foreign direct investment refers to the number of countries a firm is investing in at any given point in time.

False

The foreign exchange market offers complete insurance against foreign exchange risk.

False

The forward exchange market is an accurate predictor of future exchange rates.

False

The forward exchange rate refers to the rate at which a foreign exchange dealer converts one currency to another currency on a particular day.

False

The globalization of the world economy is having a negative effect on the volume of FDI.

True

Inflation occurs when the money supply in a country increases faster than output increases.

E) balance-of-payments position

Many host countries are concerned that a foreign-owned manufacturing plant may import many components from its home country, which has negative implications for the host country's:

True

Some IMF economists argue that higher inflation rates might be good if the consequence is greater growth in aggregate demand.

True

Although a foreign exchange transaction can involve any two currencies, most transactions involve dollars on one side.

B) eliminates double taxation of foreign income

As an incentive to encourage domestic firms to undertake FDI, many countries have:

False

Companies engage in currency speculation to get minimal but assured returns from idle cash.

False

Contracting out manufacturing may be more appropriate for high-value-added manufacturing.

C) is likely to have greater value.

In international business, a product that is not widely available in a foreign market and satisfies an unmet need:

False

FDI has grown significantly slower than world trade and world output.

False

For price discrimination to work, arbitrage opportunities must be unlimited.

A) foreign investors put their money back in low-risk u.s. assets such as low-yielding u.s. government bonds.

From mid-2008 through early 2009, the value of the dollar moderately increased against major currencies, despite the fact that the American economy was suffering from a serious financial crisis. Which of the following was a reason for this phenomenon?

True

Greenfield investment involves the establishment of a new operation in a foreign country.

False

Historically, most FDI has been directed at the least developed nations of the world.

B) higher monetary discipline

In comparison to a floating exchange rage regime, a fixed exchange rate system is characterized by:

True

The stock of foreign direct investment refers to the total accumulated value of foreign-owned assets at a given time.

B) pragmatic nationalism

The tendency to aggressively court FDI believed to be in the National interest of s country is an aspect of:

False

What happens in the foreign exchange market does not directly impact the sales, profits, and strategy of a multinational enterprise.

False

When a firm exports its products to a foreign country, foreign direct investment occurs.

C) psychological pricing

When dominant enterprises in an industry exercise a degree of pricing power, setting different prices in different markets to reflect varying demand conditions, it is referred to as:

E) a country with a free market system

Which of the following countries presents favorable benefit-cost-risk trade-off scenario for foreign expansion?

D) exporting

Which of the following involves producing goods at home and then shipping them to the receiving country for sale?

A) rapid economic growth

Which of the following is a reason why a relatively poor country may be an attractive target for inward investment?

D) the ability to create switching costs that tie customers into one's products or services

Which of the following is an example of a first-mover advantage?

B) they are lower in economically advanced nations

Which of the following is true of the costs and risks associated witch doing business in a foreign country?

E) borrowers have to pay the bank's cost of funds plus a margin of expenses.

Which of the following is true of the international bank for reconstruction and development (IBRD) scheme of the world bank?

E) transaction exposure

Which of the following refers to the extent to which the reported consolidated results and balance sheets of a corporation are affected by fluctuations in foreign exchange values?

A) international monetary system

Which of the following refers to the institutional arrangements that govern exchange rates?

A) the marshal plan

Which of the following was responsible for the world bank shifting its focus from Europe to third-world nations?

C) it could not work if the US dollar was under speculative attack

Which of the following was the weakness of the Bretton woods system?

C)technical analysis

which of the following approaches to forecasting exchange rate movements uses price and volume data to determine past trends?