ch9 10

According to Ross Perot, ratification of NAFTA would result in the loss of about ______ million jobs from the United States, as firms from this country sought to capitalize on lower wages in Mexico. Multiple choice question. 2.3 5.9 21.3 15.2

5.9

Free trade agreements account for nearly ____ of regional economic agreements. Multiple choice question. 90 percent 45 percent 15 percent 2 percent

90 percent

Which level of economic integration is present in an agreement that has no barriers to trade among member countries and allows factors of production (such as labor) to move freely among the members? Multiple choice question. A common market A customs union A free trade area A political union

A common market

What is hyperinflation? Multiple choice question. An explosive and seemingly uncontrollable price inflation in which money loses value very rapidly A slow and controlled price inflation in which money gains value very slowly A slow and controlled price inflation in which money loses value very slowly An explosive price inflation in which money gains value very rapidly

An explosive and seemingly uncontrollable price inflation in which money loses value very rapidly

Mercosur is a free trade pact started in 1988 by which two South American economies? (Check all that apply.) Multiple select question. Argentina Colombia Peru Brazil

Argentina Brazil

The European Parliament must approve all members of the European ______ before this body can begin its work. Multiple choice question. Commission Magistrates Council Court of Justice

Commission

What are the four main institutions responsible for determining economic policy in the EU? Multiple select question. Council of the European Union United Nations European Commission Court of Justice G20 House of Lords European Parliament

Council of the European Union European Commission Court of Justice European Parliament

______ agreements are barter-like agreements used by companies in countries whose currency is nonconvertible. Multiple choice question. Efficient market Arbitrage Countertrade Inefficient market

Countertrade

_____ typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates. Multiple choice question. Spot exchange Fixed rate Currency speculation Forward exchange

Currency speculation

How do members of the European Parliament gain their seat? Multiple choice question. Directly elected by the citizens Appointed by the Chairman Nominated by other members of Parliament Inherited (like a title)

Directly elected by the citizens

How do members of the European Parliament gain their seat? Multiple choice question. Nominated by other members of Parliament Inherited (like a title) Directly elected by the citizens Appointed by the Chairman

Directly elected by the citizens

What is the key way a company can reduce economic exposure? Multiple choice question. Distribute production facilities and assets to various locations Maintain several production facilities in one country Limit FDI to licensing and franchising agreements Request government intervention in trade barriers

Distribute production facilities and assets to various locations

In 2001, the ______ Community, made up of Kenya, Uganda, and Tanzania, tried to reinvigorate their trade agreement after it collapsed 24 years before. Multiple choice question. Gulf of Aden East African Central African Horn of Africa

East African

What two political factors led to the development of the European Union? (Check all that apply.) Multiple select question. Europe's desire to assist its former colonies. Europe's desire to hold its own on the world's political and economic stage. Europe's need for a common language and culture. The devastation of western Europe during the two world wars.

Europe's desire to hold its own on the world's political and economic stage. The devastation of western Europe during the two world wars.

Which institution has a monopoly in proposing European Union legislation? Multiple choice question. European Commission European Parliament Council of the European Union Court of Justice

European Commission

Which organization is playing an emerging role in competition policy within the EU and serves as a potential threat to companies wishing to do business there? Multiple choice question. European Commission World Trade Organization United Nations Court of Justice

European Commission

The European Community (EC) became the ______ in 1993. Multiple choice question. European Free Trade Association European Union The Rome Treaty Community European Coal and Steel Community

European Union

One of the reasons the European Union was originally formed was because Multiple choice question. Europeans believe that common environmental standards were needed to prevent degradation of Europe's rivers. Europeans desired a lasting peace after enduring two devastating world wars. the dominant political ideology of the countries of Western European tended toward radical Marxism at that time. the countries of Western Europe were trying to prevent excessive immigration from the communist-controlled countries of Eastern Europe.

Europeans desired a lasting peace after enduring two devastating world wars.

True or False: The introduction of the euro created greater competitive pressure in the European automobile industry which has resulted in higher prices for the consumer. True false question.TrueFalse

False

True or False: The political structure responsible for economic policies in the EU consists of a single office known as the Court of Justice. True false question.TrueFalse

False

True or false: Government intervention in the foreign exchange markets does NOT affect the ability of PPP in predicting exchange rate movements. True false question.TrueFalse

False

True or false: Opponents of NAFTA felt that the program would result in a large exodus of jobs from Mexico. True false question.TrueFalse

False

True or false: The greater the number of countries involved in economic integration, the easier it is to reach an agreement among the countries. True false question.TrueFalse

False

What is the transaction called where two parties agree to exchange currency at some specific date in the future? Multiple choice question. Spot exchange Swap exchange Parity exchange Forward exchange

Forward exchange

The impending British exit from the EU is seen by other smaller member nations as a problem because Britain acts as a counterweight to the economic power of _____. Multiple choice question. Germany China Italy the United States

Germany

What are three advantages of regional market integration that can result in cost savings to a business? (Check all that apply.) Multiple select question. Harmonized product standards Free movement of goods across borders Implementation of varied currencies Simplified tax regimes Increased tariff barriers

Harmonized product standards Free movement of goods across borders Simplified tax regimes

What causes inflation to occur in a country? Multiple choice question. Inflation occurs when the money supply in a country outpaces the level of production of goods and services. Inflation occurs when incomes are reduced and people have less money to purchase goods and services. Inflation occurs when there is an excess supply of goods and services in a country. Inflation occurs when the government sets the prices of goods and services to stabilize the economy.

Inflation occurs when the money supply in a country outpaces the level of production of goods and services.

Which two political factors support the idea for economic integration of nations through trade? Multiple select question. It promotes independent political power. It can enhance the political weight of those countries in the world. It provides an incentive to use military action to achieve objectives. Interdependency among nations decreases the potential for violent conflict.

It can enhance the political weight of those countries in the world. Interdependency among nations decreases the potential for violent conflict.

In the campaign to leave the EU, certain groups voted to stay and others voted to leave. What were two characteristics of those who wanted to leave? Multiple select question. More educated Less educated Younger Older

Less educated Older

Under which treaty was the power of the European Parliament increased? Multiple choice question. Lisbon Paris Madrid Rome

Lisbon

What committed EU members to adopt a common currency by January 1, 1999? Multiple choice question. Court of Justice Sullivan principles Maastricht Treaty Treaty of Lisbon

Maastricht Treaty

The trade pact developed in 1988, initially between Argentina and Brazil, is called ______. Multiple choice question. ASEAN NAFTA Mercosur CAR-COM

Mercosur

What three countries made up NAFTA? Multiple select question. Mexico Panama China Canada United States

Mexico Canada United States

The Treaty of established the European Community in 1957.

Rome

Which three nations are a part of ASEAN? (Check all that apply.) Multiple select question. Mexico Brazil Singapore Indonesia Philippines Argentina

Singapore Indonesia Philippines

What are two potential costs Britain might face now that its exit from the EU is complete? Multiple select question. Some multinationals may move operations to other EU countries to access the single market. London could become the financial capital of Europe. There might be a decrease in the rate of economic growth. There will be more opportunities for inward investment for foreign multinationals.

Some multinationals may move operations to other EU countries to access the single market. There might be a decrease in the rate of economic growth.

Which group is the overall controlling authority within the European Union (EU) that must approve draft legislation from the European Commission before it becomes EU law? Multiple choice question. The European Council The Court of Appeals The Court of Justice The European Parliament

The European Council

What are two potential problems with an economic union? Multiple select question. There is a surrender of some national sovereignty. It is based on a closed economy. It requires integration of equity markets. It requires a coordinating bureaucracy.

There is a surrender of some national sovereignty. It requires a coordinating bureaucracy.

International businesses use foreign exchange markets for what three reasons? Multiple select question. To convert foreign currencies it receives from transactions into its own currency To invest in long-term financial instruments denominated in foreign currencies To pay a foreign company for its products or services in its country's currency To control prices in foreign markets To invest spare cash for the short term in money markets

To convert foreign currencies it receives from transactions into its own currency To pay a foreign company for its products or services in its country's currency To invest spare cash for the short term in money markets

What are two reasons for a customs union being put in place? Multiple select question. To establish a common external trade policy To instigate political rivalry between member countries To implement tariff barriers on exports To eliminate trade barriers between member countries

To establish a common external trade policy To eliminate trade barriers between member countries

What are two reasons for a customs union being put in place? Multiple select question. To instigate political rivalry between member countries To establish a common external trade policy To eliminate trade barriers between member countries To implement tariff barriers on exports

To establish a common external trade policy To eliminate trade barriers between member countries

______ is an economic term that refers to high-cost domestic producers being replaced by low-cost producers within the free trade area. Multiple choice question. Trade creation Trade surplus Trade deficit Trade deduction

Trade creation

______ is an economic term defined as replacing lower-cost external suppliers with high-cost suppliers within the free trade area. Multiple choice question. Trade deficit Trade creation Trade diversion Trade surplus

Trade diversion

________ exposure is the risk, faced by companies involved in international trade, that currency exchange rates will change after the companies have already entered into financial obligations. Such exposure to fluctuating exchange rates can lead to major losses for firms. Multiple choice question. Transaction Economic Financial Translation

Transaction

_____ exposure refers to the present measurement of past events using currency exchange rate changes on a company's financial statements. Multiple choice question. Translation Production Economic Transaction

Translation

True or false: One political reason for economic integration is the potential to minimize violent conflict between nations. True false question.TrueFalse

True

Borrowing in a currency from a country with low interest rates and then investing in another currency where interest rates are high is called ______. Multiple choice question. a forward exchange arbitrage a carry trade a spot exchange

a carry trade

According to PPP theory, a country with a high inflation rate will see ______ in its currency exchange rate. Multiple choice question. an appreciation no change a depreciation

a depreciation

It is easiest to establish regional economic integration among Multiple choice question. a wide variety of countries. ten countries that are not adjacent to one another. all countries. a limited number of adjacent countries.

a limited number of adjacent countries.

The European Commission, to maintain the level of competition in the EU, is increasingly willing to impose conditions on businesses before allowing Multiple choice question. employment chances. new product development. a merger or acquisition. changes to R&D.

a merger or acquisition.

The Maastricht Treaty committed EU members to Multiple choice question. harmonize economic policies on overseas investment. enforce quotas on hormone-treated beef imports. assess similar tariffs on agricultural products to non-members. adopt a common currency by January 1, 1999.

adopt a common currency by January 1, 1999.

Expectations becoming a self-fulfilling prophecy when currency traders move in the same direction at the same time is called the ______ effect. Multiple choice question. bandwagon inflation parity Fisher

bandwagon

Residents of the hypothetical nation of Jarna feared that the country's economy was failing. They rushed to convert their domestic currency into U.S. dollars and investors in businesses in Jarna also converted their financial holdings. This mass conversion of currency is known as _____. Multiple choice question. capital flight translation exposure countertrade arbitration

capital flight

Tyson is a trader and borrows money in Japanese yen (where the interest rate is 1 percent). He then invests the money in a Canadian bank, where the rate is 5 percent. This is an example of a(n) ______. Multiple choice question. greenfield venture licensing agreement carry trade spot exchange

carry trade

Economic exposure is concerned with the affect of ______ on a firm's international earning power. Multiple choice question. supply and demand government intervention changes in exchange rates purchasing power parity

changes in exchange rates

The euro was established because a _____ currency would make it easier for Europeans to compare prices. Multiple choice question. common forward spot dual

common

A(n) ______ allows the free movement of factors of productions among member countries, eliminates trade barriers among member countries, and has a common external trade policy. Multiple choice question. customs union regional market factor market common market

common market

The European Parliament is considered a _____ body. Multiple choice question. judicial presidential consultative legislative

consultative

An argument against regional free trade agreements contends that the benefits have been oversold, but ______ have often been ignored. Multiple choice question. costs behaviors values monetary policy

costs

When a country's currency is nonconvertible, a company may engage in ______, where goods and services will be traded for other goods and services. Multiple choice question. countertrade licensing a managed float arbitrage

countertrade

When high-cost domestic producers have been replaced by low-cost producers within a free trade zone, this is called trade __. Multiple choice question. parity creation production diversion

creation

An investment made to profit from future currency movements is called Multiple choice question. currency conversion. currency weighting. currency speculation. exchange risk.

currency speculation.

The bandwagon effect occurs in investing when Multiple choice question. the supply of a product is in excess of product demand. banks agree to set the same interest rate for long-term investors. individual foreign governments work together to set exchange rates. currency traders move as a group in the same direction at the same time.

currency traders move as a group in the same direction at the same time.

In moving toward economic and political integration, a(n) ______ union removes trade barriers among member nations and establishes a common trade policy for nonmembers. Multiple choice question. political customs economic common

customs

In a forward exchange transaction, $1 buys more lira with a spot exchange than with a 30-day forward exchange. When this occurred, it is said that the dollar is selling at a _____ on the 30-day forward market. Multiple choice question. discount spot premium hedge

discount

In a forward exchange transaction, $1 buys more lira with a spot exchange than with a 30-day forward exchange. When this occurred, it is said that the dollar is selling at a _____ on the 30-day forward market. Multiple choice question. spot discount hedge premium

discount

Since the WTO has a limited scope, the risk remains that regional economic integration will result in trade __. Multiple choice question. allowances creation diversion deficits

diversion

When lower-cost external suppliers are replaced by higher-cost suppliers within a free trade zone, this is called trade __. Multiple choice question. diversion creation deficit parity

diversion

There are presently 19 trade blocs in Africa, and many of these blocs have been _____ for years. Multiple choice question. dormant contentious enforced active

dormant

A(n) ______ union adds more economic integration to a common market by requiring a common currency, a common monetary and fiscal policy, and harmonization of tax rates. Multiple choice question. common political economic customs

economic

Company A is based in Europe and does a large amount of business in the United States. The company fears that the euro will gain in strength against the dollar, so it sets up a local production facility in the United States. This is a way to reduce ______ exposure. Multiple choice question. economic translation political transaction

economic

The extent to which a firm's future international earning power will be affected by exchange rate changes is called ______ exposure. Multiple choice question. economic political translation transaction

economic

The goal of NAFTA was to Multiple choice question. eliminate monopolies in the service industry. foster greater trade between North America and China. establish a universal taxing body between the nations. eliminate tariffs on trade between the nations.

eliminate tariffs on trade between the nations.

A tactic that reduces translation and economic exposure is Multiple choice question. investing in government bonds. entering into forward exchange rate contracts. creating enough supply to meet demand. using nonconvertible currencies.

entering into forward exchange rate contracts.

In 2001, Kenya, Uganda, and Tanzania, members of the East African Community, tried to Multiple choice question. form a joint parliament. prevent development of a free trade movement. secure national independence. establish a customs union.

establish a customs union.

The extent to which income from individual transactions is affected by fluctuations in foreign exchange values is known as transaction ______. Multiple choice question. insurance forecasting exposure exchange

exposure

A policy of ______ convertibility is in place in some countries and places restrictions on residents' ability to convert domestic currency into a foreign currency. Multiple choice question. external internal

external

A policy of ______ convertibility is in place in some countries and places restrictions on residents' ability to convert domestic currency into a foreign currency. Multiple choice question. internal external

external

Tonya was surprised to learn that her country limited the amount of currency she could convert to U.S. dollars when she went to America to visit her cousin. This limit is an example of a policy of Multiple choice question. forecast rating. external convertibility. a nonconvertible currency. efficient markets.

external convertibility.

A(n) ______ convertible currency allows only nonresidents to convert it into a foreign currency without any limitations. Multiple choice question. capital externally forward freely

externally

When only nonresidents can convert a currency into a foreign currency with no limitations, the currency is considered Multiple choice question. nonconvertible. externally convertible. partially convertible. freely convertible.

externally convertible.

When only nonresidents can convert a currency into a foreign currency with no limitations, the currency is considered Multiple choice question. nonconvertible. freely convertible. externally convertible. partially convertible.

externally convertible.

Economic theories advocate for ______ trade and investment that will allow participating countries to gain economically. (Choose free or restricted.)

free

The Association of Southeast Asian Nations was formed with the intent to foster _____. Multiple choice question. free trade local production equalized tariffs government involvement

free trade

A lack of barriers to the trade of goods and services among member countries is found in a Multiple choice question. free trade area. trade union area. macroeconomic trade union. traditional trade union.

free trade area.

Some countries' governments do not put any limits on the purchase of foreign currency for residents and nonresidents. These country's have a _____ currency. Multiple choice question. inconvertible freely convertible nonconvertible externally convertible

freely convertible

When a country allows both residents and nonresidents to purchase unlimited amounts of a foreign currency, the country's currency is Multiple choice question. inconvertible. nonconvertible. freely convertible. externally convertible.

freely convertible.

Forward exchange rates are exchange rates that govern _____ transactions. Multiple choice question. supply future current spot

future

The establishment of the euro is seen as a surprising political accomplishment because it required participating governments to Multiple choice question. increase their national sovereignty. give up control over monetary policy. support the political agenda of non-member nations. link their monetary policy with those of the EFTA countries

give up control over monetary policy.

The chief financial officer of Linwell Corp. is concerned that since he can't predict changes in future exchange rates, there could be adverse consequences for the firm. One way the company can insure itself against this possibility is by engaging in _____. Multiple choice question. arbitrage hedging hyperinflation licensing

hedging

When a country's money supply grows faster than the output of goods and services, this causes Multiple choice question. arbitration. inflation. recession. depression.

inflation

A business is using hedging when it Multiple choice question. is identified as a monopoly. bases FDI on location economies. customizes products per customer request. insures itself against foreign exchange risk.

insures itself against foreign exchange risk.

When the euro-zone economies are NOT growing at the same rate, a common monetary policy linked to common currency may mean that ______ rates may not reflect any one individual country's needs. Multiple choice question. interest subsidy tax tariff

interest

Two strategies that can be used to reduce translation and transaction exposure are: (Check all that apply.) Multiple select question. labor strategy. legal strategy. lead strategy. lag strategy.

lead strategy. lag strategy.

When a country experiences hyperinflation, money ______ value very rapidly. (Choose gains or loses.)

loses

The creation of a single market creates _____ costs of doing business. Multiple choice question. lower higher

lower

A(n) ______ currency is one that neither residents nor nonresidents are allowed to convert into a foreign currency. Multiple choice question. spot forward nonconvertible technical freely convertible

nonconvertible

When neither residents nor nonresidents are allowed to convert a currency to a foreign currency, the currency is considered Multiple choice question. internally convertible. nonconvertible. freely convertible. externally convertible.

nonconvertible

Regional trade blocs can possibly occur in markets that are protected from outside competition because ______ barriers are in place, and the WTO does not cover some of these types of barriers. Multiple choice question. logistics production nontariff environmental

nontariff

African countries have attempted to form a continental trade agreement, but have been stymied by significant ______ turmoil. Multiple choice question. social technology political economic

political

Based on economic theories, free trade is viewed as a ______ as all participating nations stand to gain. Multiple choice question. positive-sum game zero-sum game negative-sum game

positive-sum game

When $1 buys more lira with a forward exchange than with a spot exchange, it is said that the dollar is selling at a _____ on the 30-day forward market. Multiple choice question. premium spot hedge discount

premium

The Treaty of Lisbon created the position of ______ of the European Council. Multiple choice question. manager president secretary treasurer

president

When the growth in a country's money supply is faster than the growth in its output of goods, ______ tends to increase. Multiple choice question. direct investment the exchange rate trade exports price inflation

price inflation

One way to deal with euro economies that are NOT growing in unison is to engage in fiscal transfers, which involves taking money from ______ and giving it to areas that are not as successful. Multiple choice question. tariffs and taxes foreign investors prosperous regions the government

prosperous regions

The euro is the ______-most traded currency in the world. Multiple choice question. third fourth second fifth

second

The number of votes a country gets in the European Council is related to the Multiple choice question. size of the country. number of tax dollars paid. existing tariffs. type of government in place.

size of the country.

Currency ______ involves buying, selling, and holding currencies in order to make a profit from favorable fluctuations in exchange rates. Multiple choice question. spotting arbitrage speculation rating

speculation

Capital flight is most likely to occur when Multiple choice question. a country trades goods and services for other goods and services. outside investors replace local workers with expatriates. the value of domestic currency is rapidly depreciating. residents are unable to freely convert their currency.

the value of domestic currency is rapidly depreciating.

Capital flight is most likely to occur when Multiple choice question. a country trades goods and services for other goods and services. the value of domestic currency is rapidly depreciating. outside investors replace local workers with expatriates. residents are unable to freely convert their currency.

the value of domestic currency is rapidly depreciating.

Some economists argue that regional free trade agreements will provide global benefits only if Multiple choice question. there is a homogenization of consumer tastes. it becomes easier to customize products. trade creation exceeds trade diversion. tariff barriers are removed.

trade creation exceeds trade diversion.

The effect of currency exchange rate changes on the reported financial statements of companies is referred to as ______ exposure. Multiple choice question. translation transaction

translation

After the British government formally notified of its intent to exit the European Union, the country had _____ to negotiate the terms of the exit. Multiple choice question. six months ten years two years 30 days

two years

When a government intervenes in cross-border trade by implementing a trade barrier, it ______ the link between relative price changes and changes in exchange rates predicted by PPP theory. Multiple choice question. weakens maintains strengthens

weakens