International Business Exam #2
True or False: Assume that the euro/dollar exchange rate is €1 = $1.20. If it costs $36 to buy a European product, the stated price of the product would be €36.
False
True or False: Pegged exchange rates are most popular in larger, developed nations.
False
True or False: An efficient market exists when countries enact tariff barriers to minimize imports.
False
True or False: As the only currency that could be converted into gold, the British pound ultimately weakened the system of fixed exchange rates established at Bretton Woods and caused it to collapse.
False
True or False: The eclectic paradigm is based on the idea that intellectual property is of considerable importance in explaining the direction of FDI.
False
True or False: When a firm enters into a spot exchange contract, it is taking out insurance against adverse future exchange rate movements.
False
According to the __________, there is a strong relationship between inflation rates and interest rates.
Fisher effect
The exchange rate for converting the U.S. dollar into other currencies is continuously adjusted depending on the laws of supply and demand. This illustrates a __________ exchange rate.
Floating
Advocates of the floating rate system argue that
Floating rates help adjust trade imbalances.
If the firm is facing the threat of trade barriers such as high import tariffs or quotas and the firm has proprietary technology, the firm should consider
Foreign direct investment.
Dipper Donuts licenses its brand name to foreign firms as long as they agree to run their restaurants on exactly the same lines as Dipper Donuts restaurants elsewhere in the world. In return, the foreign firms have to pay Dipper Donuts a percentage of their profits. This is an example of
Franchising
The __________ view argues that international production should be distributed among countries according to the theory of comparative advantage and countries should specialize in the production of goods they can produce most efficiently.
Free market
1930s: European nations transferred their gold to the United States.
Gold Loss
1880: Powerful mechanism for achieving balance-of-trade equilibrium.
Gold Standard
As an investor studying the gold standard, Kareem knows that he would need more than 1,500 euros to purchase one ounce of gold. These euros represent the
Gold par value
Shreya is the chief financial officer for Home Safe Security Inc. Her company is interested in investing in a facility in Indonesia, but she is worried about unpredictable fluctuations in future exchange rates, which could cost her company millions of dollars. One way to ensure against this exchange risk is for Shreya to use
Hedging.
JCB operates several factories in India employing more than 5,000 workers. Which best characterizes JCB's impact on India?
India benefits from employment effects.
For JCB, foreign direct investment in India was initially preferable to exporting because
India had high tariff barriers.
The __________ was created to maintain order in the international monetary system.
International Monetary Fund (IMF)
JCB's joint venture in India with local conglomerate Escorts
Is an example of foreign direct investment.
1976: Floating exchange rate declared acceptable and revised International Monetary Fund's Articles of Agreement.
Jamaica Agreement
Assume that the exchange rate between the U.S. dollar and the Japanese yen is $1 = ¥150. A pair of shoes that retail for $100 in New York should sell for ¥15,000 in Tokyo, if there are no trade barriers and transportation costs, according to the
Law of one price.
If a firm's know-how, skills, and capabilities can be protected by contract, and if tight control over foreign operations is not vital to remain competitive, and there are reasons to believe that additional costs through transportation or tariffs would be high, the most effective approach would be
Licensing
Internalization theory is used to explain why a company prefers FDI over __________ as a way to enter a foreign market.
Licensing
A(n) __________ system refers to one in which a country's currency is nominally allowed to float freely against other currencies but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value.
Managed-float
__________ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.
Multipoint competition
Hudson Oil and Gas Inc., based in Houston, has a plant in Norway that builds cargo ships used to transport the company's products around the world. Each year this plant has been profitable, but Hudson 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
Prior to intervention by the International Monetary Fund (IMF) in 2016, Egypt followed a __________ exchange rate policy.
Pegged
What type of exchange rate regime is present in Vietnam?
Pegged
1973: Ongoing U.S. trade deficits led to fixed rate collapse and renegotiation.
Smithsonian Agreement
The rate at which a foreign exchange dealer converts one currency into another currency on a particular day is the
Spot exchange rate
Under the fixed exchange rate regime established at Bretton Woods, __________ served as the reference point for all other currencies.
The U.S dollar
A weakness of the Bretton Woods system was that it could not work if
The U.S dollar was under speculative attack.
A dirty-float system differs from a clean-float system because in a dirty-float
The central bank will intervene to maintain the value of the currency.
Brazilian coffee farmers have benefitted from
The drop in the value of the Brazilian real.
A country that imports more goods than it exports experiences a
Trade Deficit
True or False: A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate.
True
True or False: A resource-transfer effect of FDI is that it can result in a positive contribution to a host economy by supplying capital and technology which boost the country's economy.
True
True or False: During the Bretton Woods negotiations, there was a consensus among the countries represented that fixed exchange rates were preferred.
True
True or False: Spot exchange rates change continually.
True
True or False: Supply and demand of one currency relative to another helps determine exchange rates.
True
True or False: The Bretton Woods system could work only as long as the U.S. inflation rate remained low and the United States did not run a balance-of-payments deficit.
True
True or False: The U.S. dollar, EU euro, Japanese yen, and British pound are all free to float against each other, which means their exchange rates constantly fluctuate.
True
True or False: The attractiveness of exporting is reduced when a product can easily be produced in almost any location.
True
True or False: The flow of foreign direct investment refers to the amount of FDI undertaken over a given period of time—normally a year.
True
True or False: The foreign exchange market is the vehicle used to convert the currency of one country into that of another country.
True
True or False: The process of dollarization occurs when a country abandons its own currency and adopts another currency—typically the U.S. dollar.
True
True or False: When companies wish to convert currencies, they typically do so through a bank.
True
Which of the following has contributed to the problems Vietnam is facing with its coffee revenues?
Vietnam's currency is pegged to the dollar.
Which of the following statements is true of how the strong U.S. dollar has affected the global coffee market?
Vietnamese coffee farmers are reducing coffee production and investing in alternative crops.
Assume that the exchange rate between the euro and the dollar is €1.00 = $1.50. Jenna is an American tourist in Italy buying a leather wallet whose price is €60. How much in U.S. dollars will Jenna have to pay to buy the product?
$90
JCB's joint venture in India with Escorts can best be described as
A Greenfield Investment
Which of the following would be most beneficial for Vietnam's coffee growers?
A depreciation in the Value of the U.S dollar
As part of its 2016 agreement to borrow $12 billion from the International Monetary Fund (IMF), Egypt agreed to
Allow its currency to float against other currencies.
Freeman Fabricators International 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 equipment for the company. This company engaged in
Arbitrage
A country is said to be in __________ when the income its residents earn from exports is equal to the money its residents pay to other countries for imports.
Balance-of-trade equilibrium
1944: Established the International Monetary Fund with fixed exchange rates and relied on a strong U.S. dollar.
Bretton Woods
The crisis in Egypt that required the country to take a $12 billion loan from the International Monetary Fund (IMF) in 2016 can best be described as a(n)
Currency crisis
A(n) __________ refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.
Currency swap
When a nation puts government-backed insurance programs in place to cover major types of foreign investment risk, it has the effect of
Encouraging outward FDI by a home country.
If your household goods can be efficiently produced through economies of scale, it would be a good idea to use a(n) _______ strategy.
Exporting
The effect of bulky or heavy products on transportation costs can make _______ an inappropriate strategy.
Exporting
If your proprietary know-how of "green" processes is difficult to transfer to other firms, the most effective approach would be
Exporting or foreign direct investment.
A country that relies on the pragmatic nationalist view would say that
FDI should be allowed so long as the benefits outweigh the costs.
