Global Final

Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive

$1,500

This Nobel Prize-winning economist, has argued that development is not just an economic process, but it is a political one as well

Amartya Sen

According to Adam Smith, A country should specialize in the production of a good when it has

An absolute advantage in the production of the good

Assume that the law of one price holds. A shirt that retails for $120 in New York sells for £60 in London. The exchange rate between the British pound and the dollar is £1 = $1.50. Assuming away transportation costs and trade barriers, this creates a profit-making opportunity called

Arbitrage

Which of the following involves borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high?

Carry trade

This group believed that socialism could be achieved only through violent revolution and totalitarian dictatorship

Communists

Which of the following is a critical step in the shift toward a market-based economic system?

Creation of a legal system to safeguard property rights

The state can expropriate the profits from innovation through legal means, such as

Excessive taxation

Which of the following is a drawback of the Eurocurrency market?

Exposure to foreign exchange risks

A dirty float occurs when a country uses pegged exchange rates to value its currency.

False

Because most property is poor countries is informally "owned," the absence of legal proof of ownership means that property holders can fairly easily convert their assets into capital, which could then be used to finance business ventures.

False

Commercial banks perform a direct connection function in capital markets

False

Contracts under a civil law system tend to be very detailed with all contingencies spelled out

False

Countries with free market economies in which property rights are protected tend to achieve lower economic growth rates than command economies where property rights are poorly protected

False

Currencies of countries with currency boards will become uncompetitive and overvalued if local inflation rates are lower than the inflation rate in the country to which the currency is pegged.

False

Firms should not utilize the forward exchange market when they are faced with uncertainty about the future value of currencies.

False

Floating exchange rates will help countries reduce the risk of investing in a portfolio of foreign assets.

False

Foreign bonds are sold within the borrower's country and are denominated in the currency of the country in which they are issued.

False

Heckscher-Ohlin theory stresses that comparative advantage arises from differences in productivity

False

Porter's theory of national competitive advantage recommends unrestricted free trade between countries

False

Supporters of floating exchange rates claim that trade deficits are determined by the balance between savings and investment in a country.

False

The International Fisher Effect has proven to have substantial power at predicting short-run changes in spot exchange rates.

False

The product life-cycle theory argues that the developing nations will not produce a product if the product is highly standardized

False

The production possibility frontier will be parabolic if constant return to specialization is observed

False

The rate at which one currency is converted into another is known as the fluctuation rate

False

When value of U.S. dollars goes down,

Foreign borrowers will garner benefits

Which of the following is a feature of a democracy?

Governance by people or elected representatives

Increasingly this body has been acting as macroeconomic police of the world economy, insisting that countries seeking significant borrowings adopt certain macroeconomic policies.

IMF

Which of the following changes were made to IMF's Articles of Agreement in the Jamaica agreement?

IMF members were permitted to sell their gold reserves at the market price.

David Ricardo's theory of comparative advantage explains global trade in terms of the

International differences in opportunity costs

Which of the following is the most important foreign exchange trading center?

London

Which of the following is the exchange rate policy where the government intervenes in the exchange rate system only in a limited way?

Managed float

An economy in which the interaction of supply and demand determines the quantity in which goods and services are produced is called a

Market economy

Identify the theory that supports the view that in some cases countries export for the reason that the world market can support only a limited number of firms

New trade theory

Antitrust laws in the United States are designed to:

Outlaw monopolies

This is the collective term for the legal rights relating to the use to which a resource is put and over the use made of any income that may be derived from that resource

Property rights

Which of the following factors, according to Porter's national Diamond, is most likely to give a country competitive advantage over another country?

Skilled labor

Assume that an American company today invests some of its spare cash in a Hungarian money market account that will earn 8 percent for a period of two months. Which of the following, if it happens during the next two months, would imply that the company will earn less than 8 percent on its investment?

The dollar appreciates against the Hungarian forint

Since the late 1980s, there has been a spread of democracy. This is because ____.

The socialist model failed to deliver economic progress to the vast bulk of their populations

Depositors are not protected against bank failures in the Eurocurrency market.

True

Differences in the spot exchange rate and the 30-day forward rate are normal and reflect the expectations of the foreign exchange market about future currency movements.

True

GNI per capita can be adjusted by purchasing power to account for differences in the cost of living

True

If the spot exchange rate is £1 = $1.50 when the market opens, and £1 = $1.48 at the end of the day, the pound has depreciated, and the dollar has appreciated.

True

In a command economy, enterprises have little incentive to control costs and be efficient, because they cannot go out of business

True

In mixed economies, in certain sectors the state set prices, owned businesses, limited private enterprise, restricted investment by foreigners, and restricted international trade.

True

It is possible to have a democratic political system that emphasizes a mix of collectivism and individualism

True

Mercantilism supports the idea that countries should export more than what they import

True

New information and communication technologies have enabled the spread of democratic ideals

True

Product liability involves holding a firm and its officers responsible when a product causes injury, death, or damage

True

Restrictions on external convertibility will limit domestic companies from investing abroad

True

The amount of a currency needed to purchase one ounce of gold was referred to as the gold par value under the gold standard.

True

Transaction exposure includes obligations for the purchase or sale of goods and services at previously agreed prices and the borrowing or lending of funds in foreign currencies.

True

When courts of law interpret common law, they do so with regard to tradition, precedent, and custom

True

Which of the following is an example of deregulation?

a country that encourages foreign direct investment

A currency crisis occurs because of

a speculative attack on the exchange value

Hedge funds

are short bets on assets that investors think will decline in value

Which of the following observations is consistent with Michael Porter's theory of national competitive advantage?

factors such as domestic demand and domestic rivalry determine nations' dominance on production

Market makers include

financial service companies that connect investors and borrowers

The World Bank was established at the at Bretton Woods conference to establish an international monetary system

promote general economic development

When an investor purchases a corporate bond, he purchases the right to receive a

specified fixed stream of income from the corporation