BUS 445 Chapter 7-11

AllMetal Corp., based in Houston, believes the ideal way for the United States to respond when foreign competitors are already being supported by government subsidies is not to retaliate but to establish rules that help minimize trade-distorting subsidies. Which theorist does AllMetal's management agree with? A. Krugman B. Heckscher Ohlin C. Ricardo

a

Shantal saw a Hermes scarf at the Amsterdam airport when she was catching a flight back home to New York. She noticed that the scarf sold for 100 euros. Assume that the euro/dollar exchange rate is 1 euro = $1.20. According to the law of one price, at what price would it make sense to buy the scarf in New York? A. $120 B. $140 C. $105

a

Some governments "threaten" trade sanctions or other measures as a way to get another government to enforce safety standards or enforce intellectual property laws. This method of intervention is known as A. retaliation B. diversification C. deregulation

a

The European Community became the European Union in 1993 following the ratification of the A. Maastricht Treaty B. Warsaw Pact C. Treaty of Rome

a

The European Free Trade Association initially consisted of member nations that A. decided not to be part of European Community B. did not produce industrial goods C. wanted to form an agreement with the United States

a

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 A. political union B. customs union C. free trade agreement

a

The International Monetary Fund been criticized for A. encouraging moral hazard among banks B. its lack of power and authority C. keeping its operations open to outside scrutiny

a

A. Dumping takes place when foreign producers A. attempt hostile takeovers of domestic firms and usurp the available resources for production. B. eliminate competition by subsidizing prices in a foreign market with home market profits and eventually raising prices to earn substantial profits. C. indiscriminately exploit the natural resources of a foreign country to create a laterdemand that can be met only by imports. C.

b

All International Monetary Fund (IMF) loan packages come with conditions attached which limits A. trade liberalization B. excessive government spending and debt C. privatization of state-owned assets

b

Although it normally involves much longer-term commitments, franchising is essentially the service industry version of A. exporting B. licensing C. greenfield investment

b

Assume that a Big Mac costs $4.93 in the U.S. and that the Brazilian real is undervalued by 23 percent. According to the Big Mac Index published by The Economist, a Big Mac would A. cost a nit more in Brazil than in the United States B. cost less in Brazil than in the United States C. cost the same in both countries

b

Business executives view foreign direct investment as a way to A. erase the fear of protectionist pressure B. circumvent future trade barriers C. diminish privatization

b

Domestic producers experience limited import competition when a VER is in place. As a result, these producers make extra profit because supply is artificially limited by the import quota. This extra profit is called A. net profit B. quota rent C. trade surplus

b

Firms for which licensing is not a good option include those A. based on low-technology industries B. that have valuable know-how C. characterized by low cost pressures

b

For many years, there have been limits set on the amount of sugar that foreign producers can sell in the U.S. market. This is mandated by a A. trade surplus B. tariff rate quota system C. quota share

b

For years, the world used a small nation in Central America as a place to assemble goods and benefit from cheap labor. To shift its manufacturing base from simple assembly to full-fledged manufacture of components and finished goods, the nation introduced a policy that stated 35 percent of the value of a product must be produced locally. This is an example of a(n) A. international allocation requirement B. local content requirement C. specific quota requirement

b

If the U.S. Department of Education put out a contract for 150,000 laptop computers and the contract stated that preference would be given to bids that declared at least 51 percent of the materials by value in the computers were produced in the United States, which legislative act is this stipulation based on? A. Helms-Burton Act B. Buy America Act C. Volcker Rule

b

In 1975, OPEC did not allow the export of U.S. crude oil in order to drive up the price of oil. This action is an example of a(n) A. trade surplus B. export ban C. export tariff

b

In Alexander Yeats's criticism of Mercosur, he says that A. the trade creation effects of Mercosur outweighed its trade diversion effects B. Mercosur countries were insulated from outside competition by tariffs that run as high as 70 percent of value C. capital was being drawn toward more efficient enterprises

b

In some years, the U.S. government has paid wheat farmers an additional 50 cents on every bushel of wheat they sell. This money is an example of a(n) A. ad valorem tariff B. subsidy C. import quota

b

London is able to dominate in the foreign exchange market because of its: A. government B. location C. class system

b

Mercosur was temporarily suspended in 2001 because of a(n) A. dotcom bust in Paraguay B. economic crisis in Argentina C. exit of Uruguay from the group

b

A current account deficit is also known as a(n) ________ deficit A. stock B. trade C. external

b

Regional trade blocs in Africa have been slow to establish mostly because of A. significant political turmoil B. inefficiencies in the economy C. a lack of willing participants.

a

A potential downfall of the Bretton Woods system was that it would not work if A. gold was valued higher than the dollar B. at least ten nations failed to agree to the system C. services were not included in the agreement

a

A regional free trade agreement will benefit the world only if A. the amount of trade it creates exceeds the amount it diverts B. the currencies of the nations involved appreciate C. the balance-of-trade situation remains stable in the region

a

A lag strategy involves: A. delaying the collection of foreign currency receivables when a foreign currency is expected to appreciate. B. attempting to collect foreign currency receivables early when a foreign currency is expected to appreciate. C. paying foreign currency payables (to suppliers) before they are due when a currency is expected to appreciate.

a

A nation that imposes a fixed charge of $3 per barrel of oil imported into the country is relying on which instrument of trade? A. specific tariff B. GATT tariff C. subsidies

a

Assume that the interest rate on borrowings in India is 1 percent while the interest rate on bank deposits in a U.S. bank is 4 percent. Carlos, an active currency trader, borrows in Indian rupees, converts the money into U.S. dollars and deposits it in a U.S. bank. What is the speculative element of this carry trade? A. there will be no adverse movement in exchange rates or interest rates B. liquidity is the key factor in determining interest rate C. increasing money supply will not drive inflation

a

At the end of 2017, companies from one country collectively owned $22 billion in assets in its neighboring country. The $2 billion represents the ________ of FDI. A. stock B. outflow C. exchange

a

Camille told the management team that investing capital in the Swaziland-based manufacturing plant would not only benefit their company in terms of labor costs but would also promote significant economic development in Swaziland. What type of host-country benefit is Camille referring to? A. resource-transfer effect Foreign B. balance-of-payment effect C. effects on foreign exchange rate

a

Canada and the United States agree to remove all barriers to the trade of goods between them. However, the countries agree that each would be allowed to determine its own trade policies with regard to nonmembers. The economic integration between these countries is called a(n) A. free trade area B. common market C. economic union

a

Countries such as the United States, the United Kingdom, France, Germany, the Netherlands, and Japan dominate in the share of total global stock of FDI and FDI outflows and in rankings of the world's largest multinationals because they A. were the most developed countries postwar and home to the largest and best capitalized enterprises B. provided subsidies for their domestic firms to protect them from foreign competition C. were the governing body of the International Monetary Fund

a

How many trade blocks are in Europe? A. two B. zero C. six

a

If France decides it wants to make it difficult for other countries to export wine to French businesses and creates bottling standards that don't exist anywhere else in the world, it would be implementing ________ policies as a way to restrict these imports. A. administrative trade B. antidumping C. tariff rent

a

If Indonesia exports vast quantities of cheap textiles to Italy, selling them at below their costs of production, it would be an example of A. dumping B. offshoring C. nearshoring

a

Kendrik needs to track which goods have been exported by the United States and which goods have been imported. To learn this, he should use the ________ account. A. current B. internal C. tariff

a

Knickerbocker's concept of multipoint competition enhances the strategic behavior theory by making sure that A. a rival does not dominate one market and use the profits from there to drive competitive attacks elsewhere B. no other competitors can enter the market unless they resort to licensing or franchising with the initial pioneers C. the competitors cooperate with each other to establish a cartel

a

Most developing countries do not have access to the technology available in developed nations, but these developing nations need technology to create new jobs and stimulate the economy. Which aspect of inward FDI do these developing nations rely on to have access to needed technology? A. resource-transfer effects B. balance-of-payment effects C. employment effects

a

Most of the International Monetary Fund's loan activities since the mid-1970s have been targeted toward developing nations typically because A. developing nations are more than twice as likely to experience financial crises as developed nations B. only developing nations are allowed to be beneficiaries C. of relatively slow economic growth in the developed countries of Europe

a

One attribute of a pegged exchange rate is that it leads to A. low inflation B. a planned economy C. greater supply and demand

a

One way to describe the free market view is to say that A. a country should specialize in the production of a good that it can produce most efficiently B. an MNE is an instrument of imperialist domination C. less-developed nations are kept relatively backward and dependent on advanced capitalist nations for employment

a

President Trump has voiced his opposition to many free trade deals. Because of this, some say that he maintains a(n) ________ view on trade. A. mercantilist B. expansionist C. absolute advantage

a

The ___ is a 1969 agreement among Bolivia, Chile, Ecuador, Colombia, and Peru to establish a customs union A. Andean Pact B. ASEAN C. Mercosur

a

The architects of the Bretton Woods agreement built limited flexibility into the fixed exchange rate system in order to A. avoid high unemployment B. facilitate competitive currency devaluations C. increase money supply and thereby price inflation

a

The country of Ambos Republic defined its currency, ambos, as being equivalent to 16 grains of "fine" (pure) gold. Assuming that there are 480 grains in an ounce, the gold par value of the ambos is A. 30 B. 28 C. 20

a

The fisher effect is used to demonstrate a strong correlation between inflation rates and A. interest rates B. competition C. forward rates

a

The most important concerns regarding the costs of FDI for the home country center on the A. balance-of-payments and employment effects of outward FDI B. import of substantial input from abroad and being held to "economic ransom" C. exposure to foreign markets and the decreased costs of production

a

Under the gold standard, gold flows reduce the money supply in one nation when another nation experiences a trade surplus. The nation with a trade surplus has a swell in the money supply, which leads to price increases. At the same time, the nation with a reduction in the money supply will cause prices to fall. The lower prices create more demand for product from the nation with a reduction in the money supply, which leads to a A. balance-of-trade B. tragedy of the commons C. floating exchange rate

a

What resulted from the Andean Pact of 1969? A. The pact failed to achieve any of its stated objectives due to political and economic problems. B. The Andean Pact achieved most of its stated objectives, particularly the harmonization of economic policies. C. The dominant political ideology in many of the Andean countries moved toward the democratic end of the political spectrum.

a

Which country has been granted three bailout efforts by the EU in an attempt to prevent a sovereign debt crisis? A. Greece B. France C. Great Britain

a

Which multilateral trade agreement was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like? A. General Agreement on Tariffs and Trade (GATT) B. North American Free Trade Agreement (NAFTA)

a

Which of the following is true of a banking crisis? A. It leads to individuals and companies withdrawing their deposits from banks. B. It results in a sharp appreciation in the value of the currency. C. It happens due to a decline in domestic borrowing.

a

________ is concerned with the effect of exchange rate changes on individual transactions, most of which are short-term affairs that will be executed within a few weeks or months. A. transaction exposure B. economic exposure C. translation exposure

a

A charge of 12-18 percent is levied by the government of a foreign nation on the value of automobile accessories imported from a neighboring country. This increased the price of those imported car accessories for the consumers. This foreign nation is using a(n) A. local content tariff B. ad valorem tariff C. import quota

b

A company's translation exposure is based on the A. long-run effect of changes in exchange rates on future prices, sales, and costs B. impact of currency exchange rate changes on the reported financial statements of a company C. obligations for the purchase or sale of goods and services at previously agreed prices

b

Suppose that the government of Venezuela decided to give everyone in the country the equivalent of $20,000. Upon receipt of the money, people raced to the stores to buy furniture, electronics, and new clothes. There was such a high demand for goods that producers raised prices. What is this an example of? A. isolationism B. inflation C. recession

b

The European Economic Community was established with the signing in 1957 of the treaty of A. Paris B. Rome C. Lisbon

b

The European Parliament is described as a(n) ______ body A. legislative B. consultative C. economic

b

The WTO rules say that a country can impose antidumping duties on A. violators of intellectual property laws B. foreign goods being sold cheaper than at home C. nations that don't cooperate with trade agreements

b

The currency of the United Arab Emirates is fixed relative to the U.S. dollar: this means that the exchange rate between the United Arab Emirates dirham and other currencies is determined by the dollar exchange rate. This is an example of a ________ exchange rate A. flexible B. pegged C. dirty-float

b

The euro zone is comprised of the A. 27 member nations of the European Union B. 19 member nations who use the euro as their currency C. 21 member nations that have their members in the European Parliament

b

The goal of a new Central American group formed as an economic union is to have a Council of Ministers that would coordinate the economic, social, and foreign policy of the member-states. This group wants to be a A. free trade area B. political union C. common market

b

The initial focus for the World Bank was to help A. boost the money supply in North America B. reconstruct the war-torn economies of Europe C. revive the gold standard system

b

The interdependence between firms in an oligopoly leads to A. trade work B. imitative behavior C. higher demand

b

The objective of establishing the World Bank was to A. revive the gold standard B. promote general economic development C. promote a floating exchange rate system

b

What was a change proposed by the Single European Act? A. establish frontier controls among European Community countries B. apply the principle of "mutual recognition" to product standards C. place barriers to competition in the real banking and insurance businesses

b

Which term was not defined in the International Monetary Fund's Articles of Agreement but was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products? A. competitive disadvantage B. fundamental disequilibrium C. capital flight

b

Why do governments limit convertibility of their currency? A. to encourage foreign investments B. to preserve their foreign exchange reserves C. to promote neo-mercantilism

b

WoodCore Inc. produces an entire line of office furniture at its manufacturing facility in the United States and then ships its products for sale to various companies in Europe. WoodCore Inc. is involved in A. outsourcing B. exporting C. licensing

b

A bound tariff rate is A. the lowest rate that can be charged B. based on the forward exchange rate C. the highest rate that can be charged

c

A country that has the pragmatic nationalism view would agree that foreign direct investment should be allowed as long as A. both home and host country benefit B. it takes place within a planned economy C. the benefits outweigh the costs

c

A country that relies on technical analysis for forecasting exchange rate movements would know that A. price and volume data cannot be used to determine past trends B. econometric models draw from economic theory are best suited to predict exchange rate movement C. previous market trends and waves can be used to predict future market trends and waves

c

A critical competitive feature of an oligopoly is the: A. lack of interaction among the major players. B. presence of a domestic market which is open for foreign firms. C. .interdependence of the major players.

c

A loophole in antidumping laws that is being exploited by many countries to pursue protectionism is the A. slackness of enforcement agencies B. lack of consensus among member nations C. vague definition of what constitutes "dumping."

c

ASEAN has two objectives: foster free trade among member countries and achieve cooperation in _______ policies A. political B. religious C. industrial

c

According to the Fisher effect, if the "real" rate of interest in a country is 3 percent and the expected annual inflation is 8 percent, what would the "nominal" interest rate be? A. 24 percent B. 9 percent C. 11 percent

c

Assume that the dollar is selling at a premium on the 30-day dollar/euro forward market. Which of the following is true of the foreign exchange dealers' market's expectations about the dollar over the next 30 days? A. The dollar will depreciate against the euro. B. The market is undecided about the direction of currency movement. C. The dollar will appreciate against the euro.

c

During the 1990s, some Western banks were far too willing to lend large amounts to companies that were already overleveraged. The banks knew the government would save them if these loans were foreclosed. What type of activity does this represent? A. cognitive dissonance B. conflict of interest C. moral hazard

c

Economic theories for integration imply that free trade and investment create _____ for participants A. increased trade barriers B. more monopolies C. a positive-sum game

c

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? A. foreign investors were excited at the possibly of high returns following the government ball-out of financial institutions B. foreign investors saw opportunities in the United States as the level of indebtedness had begun declining C. foreign investors put their money in low-risk U.S. assets such as low-yielding U.S. government bonds

c

Host governments use a range of controls to restrict inward FDI. The two most common are A. voluntary export restrictions and employment restraints B. employment restraints and tax deductions C. ownership restraints and performance requirements

c

It is most appropriate for a firm to contract out manufacturing when A. the value of the host country currency is expected to appreciate B. supplier switching costs are correspondingly high C. individual manufacturers have few firm-specific skills that contribute to the value of their product.

c

Jin-Lo is investing money for his company. He notices that the interest rate on borrowing in Jakarta is 2 percent and the interest rate on bank deposits in Warsaw is 7.5 percent. In this situation, a carry trade would occur when Jin-Lo A. borrows money in Warsaw currency, converts it into Jakarta currency, and deposits it in a Jakarta bank. B. borrows money in Jakarta currency and invests in stocks with good growth potential in Jakarta. C. borrows money in Jakarta currency, converts it into Warsaw currency, and deposits it in a Warsaw bank.

c

Pfingsten & Sons, a leading manufacturer of concrete blocks in the United States, is considering exporting as its FDI strategy. Exporting may not be a good option for Pfingsten & Sons because of the concrete blocks' A. high value-to-weight ratio B. low weight-to-value ratio C. low value-to-weight ratio

c

The 1944 Bretton Woods conference created two major international institutions that play a role in the international monetary system-the international Monetary Fund (IMF) and the A. European Union B. World Trade Organization C. World Bank

c

The adoption of the Marshall Plan redirected the efforts of the World Bank and it then turned its focus on A. eliminating inflation rates B. creating the gold standard C. lending money to third-world nations

c

The euro/dollar exchange rate is €1 = $1.20. According to the law of one price, how much would a camera that retails for $300 in New York sell for in Germany? A. €320 B. €300 C. €250

c

The purchasing power parity (PPP) theory tells us that a country with a high inflation rate will see A. a decrease in interest rates B. the collapse of the gold standard C. depreciation in its currency exchange rate

c

The strategic behavior theory is used to A. explain the constraints of exporting and licensing B. review the theories that have been used to explain foreign direct investment C. explain the patterns of FDI flows based on the idea that FDI flows reflect strategic rivalry between firms in the global marketplace

c

The ultimate purpose of GATT was to A. diminish U.S. exports B. subsidize agricultural workers C. establish free trade

c

The yen/dollar exchange rate is ×120 = $1 in London and ×123 = $1 in New York at the same time. What is the net profit if a dealer takes $1,000,000 to purchase ×123,000,000 in New York and engages in arbitrage by selling it in London? A. $34,000 B. $20, 390 C. $25,000

c

Ultimately, antidumping policies are put in place to A. protect consumers from high prices B. protect consumers from substandard and hazardous products C. protect domestic producers from unfair foreign competition

c

Under the Plaza Accord of 1985, the Group of Five major industrial countries concluded that it would be desirable if A. the countries returned to a system of fixed exchange rates B. governments did not regulate the buying and selling of currency C. most major currencies appreciated via the U.S. dollar

c

What was abandoned per the Jamaica agreement of 1976? A. floating exchange rate system B. U.S. dollar as the reference currency C. gold as a reserve asset

c

When discussing exchange rate forecasting, the inefficient market school of thought would agree that A. forward exchange rates are the best possible predictors of future spot exchange rates B. forward exchange rates represent market participants' collective predictions of likely spot exchange rates C. investing in forecasting services can improve the foreign exchange market's estimate of future exchange rates.

c

Which political view argues that international production should be distributed among countries according to the theory of comparative advantage? A. conservative B. pragmatic nationalism C. free market

c

Within the EU, it is the ___ to debate legislation and forward it to the council A. Court of Justice B. prime ministers C. European Parliament

c

________ 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. economic exposure B. transaction exposure C. translation exposure

c

_________ draw(s) on economic theory to construct sophisticated econometric models for predicting exchange rate movements. A. technical analysis B. purchasing power parity C. fundamental analysis

c