Exam 2 Quiz Questions

According to Michael Porter, what are the two basic strategies for creating value and attaining a competitive advantage in an industry? A. Differentiation and low-cost B. Value creation and generalization C. One-size-fits-all and zero-sum D. Comparison and standardization E. Profitability and strategic fit

A. Differentiation and low-cost

According to the free market view, how does FDI increase the efficiency of the world economy through multinational enterprises (MNEs)? A. The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe. B. MNEs extract profits from the host country and take them to their home country and help all countries realize economies of scale. C. When an MNE produces products, profits from the investment go abroad, and hence the MNE helps foreign exchange to rotate." D. A foreign-owned manufacturing plant may import many components from its home country, thus improving the balance of payments of the host country." E. MNEs increase the efficiency of the world economy by increasing the flow of capital in the world market.

A. The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe.

Which of the following occurs when two parties agree to exchange currency and execute the deal at some specific date in the future? A. Forward exchange B. Spot exchange C. Carry trade D. Currency swap E. Arbitrage

A. forward exchange

The two phenomena that help explain the experience curve are: A. learning effects and economies of scale. B. technology inputs and wealth transfer. C. leveraging subsidiary and local responsiveness. D. standardized manufacturing and global web. E. efficiency frontier and location economies.

A. learning effects and economies of scale.

To encourage inward FDI, it is increasingly common for governments to: A. offer tax concessions to foreign firms that invest in their countries. B. exclude foreign companies from specific industries. C. require that local investors own a significant proportion of the equity in a joint venture. D. impose high custom duties on foreign firms. E. prohibit MNEs from joining a cartel.

A. offer tax concessions to foreign firms that invest in their countries

Porter argues that a nation's firms gain competitive advantage if their domestic consumers are: A. sophisticated and demanding. B. price insensitive and trusting. C. accommodating and flexible. D. nationalistic and protective of their domestic industries. E. biased toward foreign products.

A. sophisticated and demanding

Which of the following explains the rise of the dollar against most major currencies in the late 1990s, even though the United States was still running a significant balance-of-payments deficit? " A. Reduced government intervention in the foreign exchange market B. Increased foreign investments in U.S. financial assets C. Low real interest rates in the United States compared to the rest of the world D. Increased exports as opposed to imports E. Increased communism in the United States

B. Increased foreign investments in U.S. financial assets

What is meant by translation exposure? A. The long-run effect of changes in exchange rates on future prices, sales, and costs" B. The impact of currency exchange rate changes on the reported financial statements of a company C. The extent to which a firm's future international earning power is affected by changes in exchange rates D. The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values E. The obligations for the purchase or sale of goods and services at previously agreed prices

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

Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by an increase in the money supply, resulting in: " A. increased exports. B. a rise in price inflation. C. increased taxes. D. a positive trade balance. E. an increase in the worth of currency.

B. a rise in price inflation.

If one firm in an oligopoly cuts prices, then most likely, its competitors will: A. make profits. B. also respond with similar price cuts. C. correspondingly raise prices. D. capture additional market share. E. not be impacted by the price cuts.

B. also respond with similar price cuts

"In a floating exchange rate, the relative value of a currency:" A. is more predictable and less volatile. B. is determined by market forces. C. changes infrequently only under a specific set of circumstances. D. is set against other currencies at some mutually agreed on exchange rate. E. does not depend on the free play of market forces.

B. is determined by market forces.

According to internalization theory, one of the drawbacks of licensing is that: A. it may result in a firm's technological know-how being restricted to a limited knowledge base and stifles any future development. B. it does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability." C. when a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks." D. its use is restricted by the government through the imposition of tariffs and quotas. E. it is less cost-effective than FDI.

B. it does not give a firm the tight control over manufacturing, mktg & strategy in a foreign country that may be required to maximize its profitability

Which of the following was a reason that led to the collapse of the gold standard in 1939? A. Difficulty and complexity in using the gold standard to determine the exchange rate B. Agreement by governments to convert paper currency into gold on demand at a fixed rate C. A cycle of competitive currency devaluations by various countries D. Expansion in the volume of international trade in the wake of the Industrial Revolution E. The inability of the gold standard to act as a mechanism for achieving balance-of-trade equilibrium by all countries

C. A cycle of competitive currency devaluations by various countries

Which of the following is an argument against embracing strategic trade policy? A. It is certain to be captured by special-interest groups within the economy, which will distort it to their own ends." B. It hampers the chances of a country's firms to effectively exploit the first-mover advantages. C. It increases the prices of the products for the domestic consumers. D. It hampers the abilities of the domestic firms to achieve a dominant position in the global industry. E. It leads to a compromise in national sovereignty.

C. It increases the prices of products for the domestic consumers

Which of the following is a reason for London's dominance in the foreign exchange market? A. Great Britain's decision to retain the British pound instead of using the euro B. The preeminence of Financial Times Stock Exchange (FTSE) index as an economic health indicator C. London's location making it the link between the East Asian and New York markets D. London being the preferred headquarters destination for major multinational corporations E. London's trading centers opening soon after Tokyo's and New York's trading centers closing for the night

C. London's location making it the link between the East Asian and New York markets

Which of the following refers to the bandwagon effect? A. Securities are purchased in one market for immediate resale in another. B. Dominant enterprises exercise a degree of pricing power, setting different prices in different markets to reflect varying demand conditions." C. Traders move like a herd, all in the same direction and at the same time, in response to each other's perceived actions." D. Governments routinely intervene in international trade, creating tariff and nontariff barriers to cross-border trade." E. The output of goods and services grows at a lesser rate than that of the money supply.

C. Traders move like a herd, all in the same direction and at the same time, in response to each other's perceived actions

According to the new trade theory: A. the ability to capture first-mover advantages is restricted in a world that disallows trade. B. a country may predominate in the export of a good because it has firms that were among the first to produce that good. C. differences in labor productivity between nations underlie the notion of comparative advantage. D. to ensure economic progress, countries should implement several trade barriers. E. different goods use resources in different proportions and this leads to constant returns to specialization.

C. a country may predominate in the export of a good because it has firms that were among the first to produce that good

One of the principal risks associated with a strategic alliance is that: A. it brings together the complementary skills of alliance partners. B. it makes it difficult for the partner firms to enter into a foreign market. C. a firm can give away more than it receives. D. it does not allow firms to share fixed costs. E. it almost always fails.

C. a firm can give away more than it receives.

Vornoda Inc., a multinational clothing and accessory brand, has been facing huge economic losses due to unpredictable exchange rate movements. In order to gain considerable immunity against such currency fluctuations, Vornoda Inc. should: " A. pursue strategies that increase its economic exposure. B. avoid using instruments like forward market and swaps. C. disperse production to different locations around the globe. D. not contract out manufacturing. E. restrict its low-value-added manufacturing to one location.

C. disperse production to different locations around the globe.

One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that: A. protection of manufacturing from foreign competition is harmful. B. absolute advantage cannot sustain productivity of an industry. C. firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets. D. foreign firms too come under the definition of infant industry when they newly enter a foreign market. E. foreign competition will eventually cause domestic firms to improve the quality of their products.

C. firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets

The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment, something the GATT had never done. Two of the first industries targeted for this reform were: A. pharmaceuticals and heavy metal industry. B. scientific research and defense sector. C. global telecommunication and financial services industries. D. pharmaceuticals and biotechnology. E. scientific research and global telecommunication.

C. global telecommunications and financial services industries

An inconsistency in the mercantilist doctrine, as pointed out by David Hume, is that: A. the volume of a country's imports increases as an indirect consequence of mercantilism. B. the exclusion of government influence in matters pertaining to trade is not ideal. C. in the long run, no country could sustain a surplus on the balance of trade. D. it was not backed by either sound political principles or social ideologies. E. trade is a zero-sum game rather than a positive-sum game as postulated by the theory.

C. in the long run, no country could sustain a surplus on the balance of trade

According to which of the following, FDI has both benefits and costs and should be allowed only if the benefits outweigh the costs? A. Eclectic paradigm theory B. Free market view C. Pragmatic nationalist view D.Radical view E. Internalization theory

C. pragmatic nationalist view

Firms that compete in the global marketplace typically face two types of competitive pressure: A. pressures for increasing investment and pressures to minimize consumer surplus. B. pressures for labor skill enhancement and pressures to minimize economies of scale. C. pressures for cost reductions and pressures to be locally responsive. D. pressures for global promotions and pressures to move down the efficiency frontier. E. pressures for product standardization and pressures to move up the experience curve.

C. pressures for cost reductions and pressures to be locally responsive.

The amount of value a firm creates is measured by: A. the difference between the previous year's profitability and the current year's profitability. B. dividing the market price of its products by the price that customers are actually willing to pay. C. the difference between its costs of production and the value that consumers perceive in its products. D. dividing the net profits of the firm by total invested capital. the sum of the profitability of the last two fiscal years.

C. the difference between its costs of production and the value that consumers perceive in its products.

Which of the following is true of inflation? A. It occurs when the demand for a particular currency is more than the supply. B. It occurs when securities are purchased in one market for immediate resale in another. C. It occurs when two parties agree to exchange currency and execute a deal at a specific date in the future. D. It occurs when the quantity of money in circulation rises faster than the stock of goods and services. E. It occurs when output increases faster than the money supply.

D. It occurs when the quantity of money in circulation rises faster than the stock of goods and services.

"Palladia specializes in the production of beef and produces beef more efficiently than any other country. It buys wheat, which it produces less efficiently than beef, from Rhodia, even though it produces wheat more efficiently than Rhodia. Which of the following theories of international trade supports Palladia's decision to buy wheat from Rhodia? " A. The Samuelson critique B. Mercantilism C. The Leontief paradox D. Adam Smith's theory of absolute advantage E. Ricardo's theory of comparative advantage

E. Ricardo's theory of comparative advantage

The threat of antidumping action: A. helps the firm raise capital in the primary market. B. limits the ability of a firm to raise prices in response to high demand. C. enhances the firm's ability to disperse its productive activities in an efficient manner. D. enhances a firm's competitive advantage to indigenous competitors in that country. E. limits the ability of a firm to use aggressive pricing to gain market share in a country.

E. limits the ability of a firm to use aggressive pricing to gain market share in a country

Which of the following identifies an attribute of tariffs? A. Tariffs reduce the price of foreign goods for domestic consumers. B. Tariffs increase exports from a sector. C. Tariffs increase foreign competition for domestic producers. D. Tariffs increase efficient utilization of resources. E. Tariffs reduce the overall efficiency of the world economy.

E. tariffs reduce the overall efficiency of the world economy

The difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory: A. makes more simplifying assumptions. B. cannot be subjected to empirical tests. C. actually predicts trade patterns with greater accuracy. D. argues that the pattern of international trade is determined by differences in national factor endowments. E. suggests that trade is a positive-sum game in which all countries that participate realize economic gains.

argues that the pattern of international trade is determined by differences in national factor endowments