IB

Paul Krugman characterizes strategic trade policy as being

a boost to national income at the expense of other countries.

A customs union differs from a free trade area because it allows for

adoption of a common external trade policy.

Assume the euro/dollar exchange rate quoted in Tokyo at 6 a.m. is €1 = $1.00. If the New York euro/dollar exchange rate at the same time (5 p.m. New York time) is €1 = $1.35, a dealer could make a profit through

arbitrage

Kendall Wood Products Corp. purchased securities on the London Stock Exchange and then immediately resold them on the New York Stock Exchange at a higher price. The profits from this transaction were used to buy new machinery for the mill. This company engaged in

arbitrage

Assume that the interest rate on borrowings in Argentina is 3 percent, but the interest rate on deposits in British banks is 9 percent. A trader borrows 1 million Argentine pesos, then converts the money into British pounds and deposits it in a British bank. What is the trader involved in?

carry trade

An American company sold heavy building materials to the government of Taiwan. Instead of receiving U.S. dollars, the company agreed to take payment in the form of Taiwanese goods. This is an example of

countertrade

One example of a(n) ________ effect of foreign direct investment is when a foreign MNE employs a number of host-country citizens.

direct

The extent to which a firm's future international earning power is affected by changes in exchange rates is known as

economic exposure.

In countries that adopt a _____ exchange rate system, the values of currencies are set against each other at some mutually agreed-on exchange rate.

fixed

________ is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value.

dumping

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

A forward exchange

How did President Trump react to the two multilateral trade agreements, the Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership, that were being pursued by the Obama administration?

He pulled the United States out of these negotiations.

How did the Smoot-Hawley Act affect employment?

It had a damaging effect on employment abroad.

How did the Marshall Plan overshadow efforts by the World Bank?

It let the United States loan money directly to European nations for rebuilding efforts.

Agri-Cor sells farm equipment throughout the euro zone. The company has noticed that some customers travel to countries where equipment sells for less to obtain a better deal. What implication of adopting the euro as a common currency does this situation demonstrate?

It makes it easier to compare prices across Europe.

What is a political argument for regional economic integration?

It reduces the potential for violent conflict.

Concrete Forms International needs immediate access to steel in order to produce a new product line. It cannot afford to wait and establish a new operation in a foreign country where steel is prevalent, so it decides to purchase an existing company instead. Why did Concrete Forms decide to make this purchase?

Mergers and acquisitions are quicker to execute than greenfield investments.

The executive managers of Drum-de-Drum-drum, a U.S.-based percussion equipment manufacturer, want to reduce the vulnerability of the company to unpredictable exchange rate movements. What would provide the company with a hedge against currency fluctuations?

dispersing production to different locations around the globe

The harmonization of member nations' tax rates is required to form a(n)

economic union.

TickTock Inc., an American watchmaker, makes custom watches in California, which it then ships to Brazil for sale there. Based on this information, TickTock Inc. is involved in

exporting.

Internalization theory is used to explain why a company prefers FDI over ________ as a way to enter a foreign market.

licensing

According to the Bretton Woods agreement, the task of the IMF would be to

maintain order in the international monetary system.

One reason the British electorate voted to exit the European Union is because of an increase in ________ within Europe.

immigration

Italy has a direct restriction on the amount of metal products that may be imported into the country. Which instrument of trade policy does this reflect?

import quota

A(n) _____ market is one in which prices do not reflect all available information.

inefficient

Carlos is the manager of an American company. He expects the value of the British pound to appreciate in the near future and so delays the collection of payments from British customers until the next month. Which tactic is Carlos using to minimize the foreign exchange exposure?

lag strategy

Royal Chocolatier, a British manufacturer of chocolates, granted U.S. company American Candy Inc. the right to produce and sell Royal Chocolatier's products in the United States In return, American Candy Inc. has to pay a royalty fee on every unit sold. According to this information, what is being done by Royal Chocolatier?

licensing

When companies behave recklessly because they know they will be saved if things go wrong, it is called a

moral hazard.

TransWare Inc., based in Atlanta, has a plant in Russia that builds road equipment. Each year this plant has been profitable, but TransWare Inc. is not able to convert the profits into U.S. dollars and take them out of the country. What type of convertibility does this represent?

nonconvertible

SmileBright, a dental products manufacturing company, has a market share of 30 percent in India. Three of its competitors together control 55 percent of the market. Whenever SmileBright raises or lowers the prices of its products, the other three companies quickly imitate its action. What is the market structure of this industry in India?

oligopoly

A country in a state of fundamental disequilibrium suffers from

permanent adverse shifts in the demand for their products.

A country that wants to create the highest level of economic integration would enter into a(n)

political union.

A(n) ________ refers to the extra profit that producers make when supply is artificially limited by an import quota.

quota rent

Ownership restraint is a method of

restricting inward FDI by a host country.

A firm might justify a preference for licensing over FDI because licensing

results in the licensee bearing the costs and risks.

A tax of 32 cents is levied for each pair of eyeglasses imported into a nation. This is an example of a(n)

specific tarriff

In order to encourage the agricultural industry, the French government provided low-interest loans for the purchase of seeds and fertilizers. The government also gave cash grants and made tax reductions. Which instrument of trade policy is being used by the French government?

subsidies

A weakness of the Bretton Woods system was that it could not work if

the U.S. dollar was under speculative attack.

A currency is considered freely convertible when

the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.

When a country adopts a strict currency board system, it means that

the government lacks the ability to set interest rates.

The creation of a single market increases price competition for business. In other words, it creates a(n)

threat

Licensing is a good option to enter a foreign market when

tight control of the foreign operation is not required.

Gear Electronics used to buy all of its component parts from a local plant in Cleveland, Ohio, but this year it has decided to buy the parts from a lower-cost facility located in Tijuana, Mexico. This is an example of

trade creation.

A country that imports more goods than it exports experiences a

trade deficit.

Identify the correct sequence of economic integration starting from the least integrated to the most integrated.

free trade area, customs union, common market, economic union, and political union

Most economists would agree that the best interests of international business are found in a nation with a

free trade policy

The Bretton Woods agreement created which two multinational institutions?

International Monetary Fund and the World Bank

The ________ argument was proposed by Alexander Hamilton in 1792 and is by far the oldest economic argument for government intervention.

Infant Industry

Which organization was created to implement the GATT agreement?

WTO

The investment manager at AllRight Time Inc. reminds the board that the foreign exchange market is a mixed system. The investment manager wants the board to realize that rates are driven by

a combination of government intervention and speculative activity.