Exam 2 MNGT 375

The investment is not risk-free because foreign currency movements in the intervening period can affect the profitability of the firm.

A French company wants to invest 20 million euros for three months. The company found that investing in a Thai money market account would give it a higher interest rate than domestic investments. Which of the following is true about this investment?

freely convertible

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.

the firm wishes to maintain control over its operations and business strategy.

A firm is most likely to favor foreign direct investment over exporting when

lowers foreign exchange and hedging costs in Europe.

A key advantage of adopting the euro is that it

currency swap

A(n) _____ is used to move out of one currency and into another for a limited period without incurring foreign exchange risk.

licensing.

As a company policy, Alberton Consumer Products periodically grants foreign entities the right to produce and sell its products in return for a royalty fee on every unit sold. Alberton Consumer Products' approach is

trade creation.

As a result of the formation of BERPHO, a free trade area consisting of six member countries, higher cost external fabric producers were replaced by lower-cost external fabric producers within the free trade area. This is known as

trade diversion.

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

arbitrage

Assume that the yen/dollar exchange rate quoted in London at 3:00 p.m. is 125 yen = 1 dollar. Sylvia finds out that the rate quoted in New York at 10:00 a.m. New York time (3:00 p.m. in London) is 130 yen = 1 dollar. Sylvia decides to buy yen in New York and sell it in London. Sylvia is engaging in

give up control over monetary policy.

Establishment of the euro required participating national governments to

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

How are spot exchange rates determined?

is determined by market forces.

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

hedging

Omega, Inc., a U.S.-based firm entered into an agreement with another party to exchange currency and execute the deal at a specific date in the future. What is Omega, Inc. engaging in when it insures itself against foreign exchange risk?

the different ways many countries found to get around GATT regulations.

One of the reasons why protectionist pressures arose around the world during the 1980s was

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

It is necessary for a country whose currency is chosen for the peg to pursue a sound monetary policy.

The Republic of Manoonistan recently moved to a pegged exchange rate system. Which of the following holds true for the Republic of Manoonistan's pegged exchange rate system?

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

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

free trade area.

The countries of Mimbo, Juwan, and Ninot agreed to remove all barriers to the trade of goods and services among each other. However, the three countries agreed that each would be allowed to determine its own trade policies with regard to nonmembers. The economic integration among these three countries is a(n)

19 member nations who use the euro as their currency.

The euro zone is comprised of the

in competitive markets free of transportation costs and trade barriers, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.

The law of one price states that

the resource-transfer effect, the employment effect, and the balance-of-payments effect.

The main benefits of inward FDI for a host country arise from

FDI has both benefits and costs.

The pragmatic nationalist view is that

engaged in multipoint competition.

Coca-Cola and PepsiCo compete against each other not only in the U.S., but also all across Europe, Asia, and Africa. Coca-Cola and PepsiCo are

optimal currency area

Finland 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)

Foreign investors put their money in low-risk U.S. assets such as low-yielding U.S. government bonds.

From mid-2008 through early 2009, the value of the dollar moderately increased against major currencies, despite the fact that the American economy was suffering from a serious financial crisis. Which of the following was a reason for this phenomenon?

Its currency could depreciate in the future.

What can happen if a country's government does not control the rate of growth in money supply?

sharing valuable technological know-how with a potential competitor.

When it comes to foreign markets, Matthews Toys identifies licensees in various countries who produce and sell the company's products in their countries in return for a royalty fee on every unit sold. Matthews Toys' approach is risky because of the problems associated with

moral hazard.

When people behave recklessly because they know they will be saved if things go wrong, it is known as a(n)

balance-of-payments

Which of the following are national accounts that track both payments to and receipts from other countries?

persistent trade deficit in the world's largest economy, the United States

Which of the following best explains the reason for the rise in protectionist pressures around the world during the 1980s?

The current spot exchange rate is $1 = ¥120 and the 30-day forward rate is $1 = ¥110 after 30 days.

Which of the following indicates that the dollar is selling at a discount on the 30-day forward market?

vague definition of what constitutes "dumping"

Which of the following is a loophole in antidumping laws that is being exploited by many countries to pursue protectionism?

It helped create the background for increased political stability in Mexico.

Which of the following is a significant impact of the North American Free Trade Agreement (NAFTA)?

inflation rate

Which of the following is a variable used in exchange rate forecasting models based on fundamental analysis?

greenfield investment

Which of the following is most likely to involve establishment of a new operation in a foreign country?

presence or threat of trade barriers

Which of the following is one of the limitations of exporting that leads companies to prefer FDI over exporting?

European Commission

Which of the following is responsible for proposing European Union legislation, implementing it, and monitoring compliance with European Union laws by member-states?

implied loss of national sovereignty to the European Central Bank

Which of the following is the reason that Great Britain, Denmark, and Sweden have stayed out of the euro zone?

The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment unlike GATT.

Which of the following is true regarding the difference between GATT and WTO?

General Agreement on Tariffs and Trade (GATT) -

Which of the following multilateral agreements was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like?

cycle of competitive currency devaluations by various countries

Which of the following was a reason that led to the collapse of the gold standard in 1939?

It could not work if the U.S. dollar was under speculative attack.

Which of the following was the weakness of the Bretton Woods system?