econ exam 2 quiz 4 5 6

_____ are put in place to make it difficult for imports to enter a country.

Administrative trade policies

Which statement is a general implication of globalization?

As a result of globalization, a severe crisis in one region of the world can affect the entire globe.

Clean Chemical Corp. recently moved its operations from Houston, Texas, to Somalia. The decision to move was the result of new federal regulations regarding clean air standards that all chemical corporations are subjected to. A critic of globalization would say this example demonstrates what concern?

Facilities in advanced nations are moving to less developed countries that have lower environmental regulations.

What is the central message of individualism?

Individual economic and political freedoms are the rules on which a society should be based.

What happens to the value of money when hyperinflation exists?

Money loses value very rapidly.

Which trade agreement aims to remove all barriers to the free flow of goods between Canada, the United States and Mexico? TRIPS Mercosur NAFTA EU ASEAN

NAFTA

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

balance-of-trade.

Tariff rates under the column named "2" in harmonized tariff schedules are for which of the countries?

Which of the following trade policies are pro-producer and anti-consumer?

Which global institution has focused on making low-interest loans to governments in poor nations that want to make significant infrastructure investments such as building a road or a bridge?

World Bank

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

World Bank.

One of the principal risks associated with a strategic alliance is that

a firm can give away more than it receives.

Rather than acquire an existing textile manufacturer in Jakarta, FauxFabric Inc. chose to establish new operations in Indonesia. This form of FDI is called

a greenfield investment

When two or more independent firms establish a new firm together, it is an example of

a joint venture.

carry trade

a method of investing in which an investor borrows money at a low interest rate to buy an investment that is likely to produce a much higher amount of profit.

product differentiation

a positioning strategy that some firms use to distinguish their products from those of competitors

The radical view of FDI declined in popularity by the early 1990s because of

a strong economic performance in developing countries that embraced capitalism.

The theory of _____ was the first to explain why unrestricted free trade benefits a country.

absolute advantage

The risks associated with learning to do business in a new culture are less if the firm

acquires an established host-country enterprise.

Rather than build a new facility in Canada where it wants to make a presence, Denver-based Mountain Man Gear decides to purchase Canada Goose Gear based in Toronto. This purchase allows Mountain Man Gear to establish a bigger presence much faster than exporting their products to Canadian customers. What mode of entry did Mountain Man Gear use?

acquisition

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)

ad valorem tariff.

Assume that the yen/dollar exchange rate quoted in London at 3:00 p.m. is ¥115 = $1. Rinaldo finds out that the rate quoted in New York at 10:00 a.m. (3:00 p.m. London time) is ¥135 = $1. Rinaldo decides to buy yen in New York and sell it in London. Rinaldo is engaging in

arbitrage.

The difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory

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

One reason for the failure of the purchasing power parity (PPP) theory to predict exchange rates accurately is because it

assumes away transportation costs and trade barriers.

One disadvantage of large-scale entry into a foreign market is the

availability of fewer resources to support expansion in other desirable markets.

How does a company measure profit growth?

by finding the percentage increase in net profits over time

Assume that the interest rate on borrowings in Japan is 3 percent while the interest rate on bank deposits in a U.S. bank is 5 percent. Laura, an active currency trader, borrows in Japanese yen, converts the money into U.S. dollars and deposits it in a U.S. bank. Laura is engaging in

carry trade.

A _____ law system is based on a detailed set of laws organized into codes.

civil

In Lurnee, it takes 10 resources to produce 1 ton of cocoa and 13.5 resources to produce 1 ton of rice. In South Tyberg, it takes 40 resources to produce 1 ton of cocoa and 20 resources to produce 1 ton of rice. Lurnee has a comparative advantage over South Tyberg in what good?

cocoa

In Latuna, it takes 10 resources to produce 1 ton of coffee and 13.5 resources to produce 1 ton of wheat. In South Narnia, it takes 40 resources to produce 1 ton of coffee and 12 resources to produce 1 ton of wheat. Latuna has absolute advantage over South Narnia in

coffee

The needs of society as a whole are generally viewed as being more important than individual freedoms when the emphasis is on

collectivism.

Which legal system is based on tradition, precedent, and custom?

common law

An example of transaction exposure is when

companies have obligations for the purchase of goods at previously agreed prices.

Many believe that globalization has created a convergence in

consumer taste preferences.

A developing country might want to commit itself to converting its domestic currency on demand into another currency at a fixed exchange rate. To do this, it should implement a(n

currency board.

One argument for the idea that customer demands for local customization are on the decline worldwide is that

customer tastes have converged worldwide.

Three Latin American countries enter into an agreement to remove all tariffs and trade barriers between them. They decide on a common external trade policy and charge the same tariffs. Which level of economic integration best describes this arrangement?

customs union

One reason for the collapse of the gold standard in 1939 was the

cycle of competitive currency devaluations by various countries.

In theory, if inflation is at an all-time high in the United States, then its currency will

depreciate against that of other countries where inflation is lower.

The nominal interest rate is 9 percent in Brazil and 6 percent in Japan. Applying the international Fisher effect, the Brazilian real should

depreciate by 3 percent against the Japanese yen.

The purpose of Porter's study of national competitive advantage was to

determine why a country achieves international success in a particular industry.

According to Michael Porter, what are the two basic strategies for creating value and attaining a competitive advantage in an industry?

differentiation and low-cost

First-mover disadvantages refer to

disadvantages associated with entering a foreign market before other international businesses.

The group that benefits the most from receiving subsidies is

domestic producers.

A possible effect of FDI in the form of a greenfield investment in a host country is that it

drives down prices and increases the economic welfare of consumers.

If Indonesia exports vast quantities of cheap textiles to Italy, selling them at below their costs of production, it would be an example of

dumping.

Arguments for international trade typically focus on political and _____ reasons.

economic

The six member countries that have embraced a common market are disappointed with the outcome of their economic integration. They want something that entails a closer economic integration and cooperation than a common market and decide to pursue a common currency. They are forming a(n)

economic union.

Software development is an expensive process, but manufacturers are able to spread out the costs of the development over the hundreds of thousands of software packages sold to consumers. What is helping to drive down costs per unit in this situation?

economies of scale

Amazon Prime incurs a huge fixed cost to obtain streaming rights to movies and television programs. However, it is able to spread this cost over a large number of subscribers that results in a cost-savings phenomenon referred to as

economies of scale.

A(n) _____ account is a national account that tracks both payments to and receipts from other countries.

balance-of-payments

The most important concerns regarding the costs of FDI for the home country center on the

balance-of-payments and employment effects of outward FDI

By producing its products in larger volume than its competitors, Epli-Mart is able to achieve substantial reductions in unit cost. In other words, Epli-Mart achieves

economies of scale.

The International Monetary Fund has been criticized for

encouraging moral hazard among banks.

The probability of survival for an international business increases if it

enters a national market after several other foreign firms have already done so.

All International Monetary Fund (IMF) loan packages come with conditions attached which limits

excessive government spending and debt.

The gold standard was adopted in response to the

expansion in the volume of international trade due to the Industrial Revolution.

3M, an American firm, manufactures adhesive tape in St. Paul, Minnesota, and ships the tape to South Korea for sale. According to this information, 3M uses _____ to deliver this product

exporting

Silicon Valley in California is the world center for the computer and semiconductor industry and has many of the world's major computer and semiconductor companies located close to each other there. This provides the location-specific advantage of

externalities

The economic and strategic advantages that accrue to early entrants in an industry are called

first-mover advantages

Sun Energy is the first hydro-based energy plant in Australia, and it has captured a large portion of the market. It has created a strong brand name that everyone associates with energy efficiency and cost savings. In this market, Sun Energy is demonstrating

first-mover advantages.

Some countries let the foreign exchange market determine the relative value of its currency. This is called a ________ exchange rate.

floating

Renata asked her assistant to determine the amount of foreign direct investment the company had taken over the past year. Renata is interested in the

flow of FDI

CopperCore Inc., a U.S. business, took a 31 percent equity interest in Javier Holdings, a family business based in Spain. According to the U.S. Department of Commerce, this would be an example of

foreign direct investment

A computer manufacturing firm from the United States invests in a microprocessor manufacturing plant in Taiwan. This is an example of

foreign direct investment.

The WTO rules say that a country can impose antidumping duties on

foreign goods being sold cheaper than at home.

A(n) ________ occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.

forward echange

Stacey Yung wants to open a Pizza Hut restaurant in Beijing and has an agreement with the restaurant chain in which she can use the trademark and must also follow a strict set of guidelines detailing how the business should operate. The Pizza Hut Corporation will receive a percentage of Stacey's revenues from her restaurant. What type of entry mode does this represent?

franchising

A nation based on individualism would agree that

free market ideologies should be followed for achieving better standards of living.

What is the most popular form of regional economic integration, accounting for almost 90 percent of regional agreements? licensing agreements economic unions common markets free trade agreements political unions

free trade agreements

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) free trade area. customs union. common market. economic union. political union.

free trade area.

Garrett works in a country where the government does not set quotas or duties on what its citizens can buy from another country, or what they can produce and sell to another country. In other words, Garrett's country practices

free trade.

A country's currency is referred to as ________ when its government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

freely convertible

Firms that pursue a(n) ________ strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

global standardization

Compared to the growth in world trade and world output, FDI has

grown more rapidly

A country that _____ presents a favorable benefit-cost-risk trade-off scenario for foreign expansion.

has a free market system

In general, the more value customers place on a firm's products, the more it leads to

higher prices the firm can charge for those products.

An international firm considering foreign expansion should take into account that

if the firm's core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology.

A company's translation exposure is based on the

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

A tiny South Pacific island country produces large quantities of coconut-based products. To protect this industry, the island government mandates that only designated trading companies can import the crop, each of which is allocated the right to import a maximum number of pounds of coconuts each year. This is an example of a(n)

import quota.

Some countries limit the amount of sugar that can be imported. This restriction is called a(n)

import quota.

New trade theory argues that, through its impact on economies of scale, trade can

increase the variety of goods available to consumers.

The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally

increased cost pressures.

Greece and Portugal have different wage rates, tax regimes, and business cycles. The two countries have also reacted differently in the past to external economic shocks. The dissimilarities are an example of one of the drawbacks of the euro that economists refer to as the EU not being in a(n)

optimal currency area.

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.

pegged

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.

political union

The ______ is one reason a company might prefer FDI over exporting

presence or threat of trade barriers

Firms that compete in the global marketplace typically face which two types of competitive pressure?

pressures for cost reductions and pressures to be locally responsive

A country that relies on technical analysis for forecasting exchange rate movements would know that

previous market trends and waves can be used to predict future market trends and waves.

The value creation activities of a firm are categorized as

primary activities and support activities.

For years, many U.S. corporations made cameras. Today; however, most cameras sold in the United States are imported from Japan and few are manufactured in the United States. Which trade theory does this demonstrate?

product life cycle

The rate of return that a firm makes on its invested capital is referred to as

profitability.

The objective of establishing the World Bank was to

promote general economic development.

Paint products containing lead are banned from entering the United States. This ban is in place to

protect consumers from unsafe products.

Ultimately, antidumping policies are put in place to

protect domestic producers from unfair foreign competition

One function of the foreign exchange market is to

provide some insurance against foreign exchange risk.

The change in the United States' position as a dominant industrial power is characterized as a relative decline because it

reflects the faster economic growth of several other economies.

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?

resource-transfer effects

Why should a high-tech firm avoid selecting licensing as a mode of entry?

risk of losing control over technology

High transportation costs are a disadvantage for companies that

ship large, bulky products.

Regional trade blocs in Africa have been slow to establish mostly because of

significant political turmoil.

Which type of entry allows a company to learn about the foreign market while limiting the firm's exposure to that market?

small-scale entry

Those who attempt to achieve the same ideologies as that of the communists without violent revolution and totalitarian dictatorship are called

social democrats.

A nation that imposes a fixed charge of $3 per barrel of oil imported into the country is relying on which instrument of trade?

specific tariff

The United States has been an attractive target for FDI partly because of its

stable and dynamic economy

A cooperative agreement between potential or actual competitors is called a(n)

strategic alliance.

Mexico has raised the taxes on cheeses imported from the United States. These taxes are an example of a(n)

tariff.

The Central American Free Trade Agreement is an agreement to lower trade barriers between six nations and

the United States.

absolute advantage

the ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources

While the lowering of trade barriers made globalization of markets and production a theoretical possibility, what has made it a tangible reality?

the advances in communication, information processing, and transportation technologies

A country that has the pragmatic nationalism view would agree that foreign direct investment should be allowed as long as

the benefits outweigh the costs.

Rhonda tells Kevin that he will receive 0.86 euro for every U.S. dollar he wants to convert. Rhonda is referring to

the exchange rate.

How are spot exchange rates determined?

the interaction between demand and supply of a currency relative to other currencies

Kristin was shopping in New York last week and saw a Coach purse for $210. When she returned to London, she saw that same purse for £105. She knew that the exchange rate was one pound for every two dollars. Her shopping experience demonstrates

the law of one price.

market segmentation

the process of dividing a market into meaningful, relatively similar, and identifiable segments or groups

The stock of foreign direct investment refers to

the total cumulative value of foreign investments as a percentage of a country's GDP.

A firm is most likely to pursue a global standardization strategy when

there are strong pressures for cost reduction.

Which one of the following is a rationale for subsidies?

to help domestic producers to gain export markets

A current account deficit is also known as a(n) _____ deficit.

trade

After the formation of a free trade area for its member countries, the United States found that its high-cost furniture producers in North Carolina were replaced by low-cost producers from another country within the free trade area. This is an example of

trade creation.

Two foreign nations decided to impose tariffs on imports from all countries. They set up a free trade area, removing all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Country A now begins to import sugar from Country B. Prior to this, Country A was producing sugar at a higher cost so it now benefits from this transaction. This is an example of

trade creation.

As a result of the formation of a free trade area between six member countries in the Pacific Rim, one member country found that its lower-cost external suppliers were replaced by higher-cost suppliers within the free trade area. This is an example of

trade diversion.

A firm should use a(n) ________ strategy when it simultaneously faces both strong cost pressures and strong pressures for local responsiveness.

transnational

An oil-rich country in the Middle East wants to develop its own refining industry but lacks the technology to do so. To accomplish their goal, they decide to enter into an agreement with a U.S. firm that has this technology. The U.S. firm is pleased to make this agreement because without it, they could never gain value from their technology in this country due to its limits on FDI. What type of agreement did these companies use?

turnkey

How many trade blocs are in Europe? two zero six eleven one

two

Firms engage in dumping in order to

unload excess production in foreign markets.

Location-specific advantages for a firm are those that arise from

utilizing resource assets that are tied to a particular foreign location and valuable enough to be combined with the firm's own unique assets

The value of Omega's top selling fitness product to an average consumer is $150 and the average unit cost of producing that product is $65. In this scenario, $85 ($150−$65) represents

value creation.

If a country is experiencing a surge of electronic imports from a trading partner, it might ask that country to set a limit on how much can be exported. This limit is known as a

voluntary export restraint (VER).

Which entry mode into a foreign market best serves a high-tech firm because it reduces the risk of losing that competence?

wholly owned subsidiaries

The _____ is considered to be the ultimate controlling authority within the European Union.

European Council

The foreign exchange market is sometimes referred to as a dirty-float system because

of the frequency of government intervention.

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?

11 percent

The euro zone is comprised of the

19 member nations who use the euro as their currency.

How does the International Monetary Fund (IMF) provide loans to deficit-laden countries?

A pool of gold and currencies contributed by its members provides the resources for lending operations.

Which scenario best demonstrates foreign direct investment?

Chivalry, a U.S.-based phone manufacturing company, has set up its own assembly plant in Japan to cater to the needs of the Asian market.

What is true of the relationship between trade and economic growth?

Countries open to international trade display higher growth rates than those that close their economies to trade.

Which of these companies is taking advantage of the globalization of production? Daily Diamonds, an American jewelry manufacturer, buys diamonds from South Africa and exports them to India for the cutting process. Evan Swan, a U.S.-based fashion designer, is planning to open a flagship store in China to serve the Asian market. Uncle Crab, a U.K. fast food chain, serves customers worldwide through its local franchises. Silver Unicorn Inc. uses sales personnel from the respective host country to sell its products and services. Pizza Gallery, an Italian pizza chain, customizes its pizzas and pastas to suit the tastes of its American and Australian customers.

Daily Diamonds, an American jewelry manufacturer, buys diamonds from South Africa and exports them to India for the cutting process.

Germany uses 40 units of resources to produce a laptop and 200 units of resources to produce a car. Japan uses 50 units of resources to produce a laptop and 300 units of resources to produce a car. Based on the information, what will be the pattern of trade?

Germany will export cars to Japan.

The country of Dalima has long been a substantial exporter of seafood, reflecting its unusual abundance of coastal waters; in contrast, its continental neighbor, Bundeeza, has excelled in the export of goods produced in labor-intensive manufacturing industries. Based on this information, the export policies of the two countries is best explained by

Heckscher-Ohlin theory

Foreign Direct Investment

Investment made by a foreign company in the economy of another country.

What is an advantage of turnkey projects as a mode of entry into foreign markets?

It is a useful strategy to earn great returns from the know-how of a technologically complex process.

What is a disadvantage of franchising?

It is difficult to maintain quality control across foreign franchisees that are distant from the franchiser.

What is a result of a banking crisis?

It leads to individuals and companies withdrawing their deposits from banks.

If a company were to draw from the ideas proposed in the various theories of international trade, from a profit perspective, how would it go about selecting locations for its businesses?

It would disperse its productive activities to those countries where they can be performed most efficiently.

Germany uses 30 units of resources to produce a laptop and 160 units of resources to produce a car. Japan uses 40 units of resources to produce a laptop and 150 units of resources to produce a car. Based on the information, what will be the pattern of trade?

Japan will export cars to Germany.

The country of Zeran specializes in the production of beef and produces beef more efficiently than any other country. It buys soybeans, which it produces less efficiently than beef, from Canta, even though it produces soybeans more efficiently than Canta. Which theory of international trade supports Zeran's decision to buy wheat from Canta?

Ricardo's theory of comparative advantage

What most accurately describes the four attributes that make up Porter's diamond?

The effect of one attribute is contingent on the state of others.

Why do acquisitions fail sometimes?

There is a clash between the cultures of the acquiring and acquired firms.

Many of the world's developing nations peg their currencies, primarily to the

U.S. dollar.

The collapse of the fixed exchange rate system has been traced to the

U.S. macroeconomic policy package of 1965-1968.

What country has seen a relative decline in its share of world output between 1960 and 2018?

United States

Firms that pursue a(n) ________ strategy take products first produced for their domestic market and sell them across various markets with only minimal local customization.

international

The institutional arrangements that govern exchange rates are called the

international monetary system

When discussing exchange rate forecasting, the inefficient market school of thought would agree that

investing in forecasting services can improve the foreign exchange market's estimate of future exchange rates.

In a floating exchange rate, the relative value of a currency

is determined by market forces

Many gluten-free food options are found on the store shelves in the United States, but they are scarcely available in international markets. Given the increasing awareness of a healthy lifestyle, such products satisfy an unmet need. Therefore, a product such as gluten-free food in international markets

is likely to have greater value.

One argument for a fixed exchange rate system is that

it ensures that governments do not expand the monetary supply too rapidly, thus causing high price inflation.

If there is no trade barriers imposed by governments, then

it is called free trade.

A localization strategy should be considered when

it makes sense if the value added by customization supports higher pricing.

One implication of a currency crisis is that

it results in the government sharply increasing interest rates to defend the prevailing exchange rate.

Jumpin' Joey Tennis Shoes, an Australian company, wants to expand its operations to China, a country that is politically, culturally, and economically different. The firm needs to select a mode of entry that would give it access to local knowledge, allow sharing of development costs and risks, and also be politically acceptable. Which mode of entry into foreign markets is most suitable for Jumpin' Joey Tennis Shoes?

joint venture

SmartStuff Inc. grants a foreign entity the right to produce and sell the firm's microprocessors in return for a royalty fee on every product sold. SmartStuff Inc.'s approach is called

licensing

ComTek Limited has an order to sell 50,000 central processing units (CPUs) to Brazil, but the Brazilian government stipulated that 35 percent of the component parts of those CPUs must be produced in Brazil. This stipulation is an example of a(n)

local content requirement.

Kitchen-Rite believes that by producing its small appliances in Canada, they can take advantage of lower wage rates in that country. By pursuing such a strategy, Kitchen-Rite hopes to realize

location economies.

One drawback of adopting the euro for member-states is a(n)

loss of control over national monetary policy.

What is one main impediment to regional economic integration?

loss of national sovereignty

One attribute of a pegged exchange rate is that it leads to

low inflation.

JumpIn Products is a market leader in playground equipment, which is typically large, bulky, and very heavy. In order to compete, JumpIn Products sells its entire line at very low prices. Although its products can be produced anywhere, it is considering exporting as a way to grow in overseas markets. The viability of JumpIn Products' exporting strategy could be constrained by transportation costs, particularly of products that can be produced in almost any location and have a

low value-to-weight ratio

The price of a bouquet of tulips in France is 4 euros. Jenna Algren, a frequent international traveler, found that a similar bouquet of tulips cost only 3 euros in Belgium. This demonstrates that the benefit of adopting the euro as a common currency is that it

makes it easier to compare prices across Europe.

Raymond Vernon's product life cycle theory stemmed from the idea that for most of the twentieth century,

many of the world's new products were developed and first sold in the United States.

What are the three broad forms of economic systems?

market, command, and mixed

Of all the value creation activities in a firm, ________ creates value by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs.

marketing and sales

An argument against the North American Free Trade Agreement centered on the fear that ratification would result in

mass exodus of jobs from the United States into Mexico.

What are mini-multinationals?

medium- and small-size multinationals

The Salcian government decides on the products that can be imported and ensures that any product that can be produced at home is not imported. Instead, the government wants to maximize exports to achieve a surplus in the balance of trade. Which perspective likely influences Salcia's approach to international trade?

mercantilism

President Trump has voiced his opposition to many free trade deals. Because of this, some say that he maintains a(n) _____ view on trade.

mercantilist

In a _____ economy, certain sectors of the economy are left to private ownership and free market mechanisms, while other sectors have significant state ownership and government planning.

mixed

Once it undertakes FDI, a firm becomes a(n)

multinational enterprise

Which factor endowment would be classified as a basic factor by Michael Porter?

natural resources

Which of these items can be protected by a copyright? new manufacturing process invented in a company newly invented telecommunication device tangible property like land and building movies produced and directed by a person new type of car invented by an automobile company

new type of car invented by an automobile company