BUS2000 final

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

The government lacks the abillity to set interest rates A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. Under a strict currency board system, interest rates adjust automatically. Under this arrangement, the currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it. This limits the ability of the government to print money and, thereby, create inflationary pressures.

bandwagon effect

The movement of traders like a herd, all in the same direction and at the same time, in response to each other's perceived actions, is called

Advocates of the floating rate system argue that

Those in favor of floating exchange rates argue that floating rates help adjust trade imbalances. Critics question the closeness of the link between the exchange rate and the trade balance. They claim trade deficits are determined by the balance between savings and investment in a country, not by the external value of its currency. In other words, a depreciating exchange rate will not boost exports and reduce imports, as advocates of floating rates claim; it will simply boost price inflation.

Under the fixed exchange rate regime established at Bretton Woods, _____ served as the reference point for all other currencies.

US dollar, To understand why the system collapsed, one must appreciate the special role of the U.S. dollar in the system. As the only currency that could be converted into gold and as the currency that

What organization was created to implement he GATT agreement

WTO

Paul Krugman characterizes the strategic trade policy as being

a boost to national income aimed at establishing domestic firms in a dominant position in a global industry is a beggar-thy-neighbor policy that boosts national income at the expense of other countries.

Rae feels it is best for her company to pay their foreign supplier in Panama this month even though they will receive product for another six months. She recently learned that the currency in Panama is expected to appreciate and, by paying the supplier now, her company will save money. This is an example of

a lead strategy

Cost of FDI to Home Country

adverse balance-of-trade payments, sometimes FDI exports jobs aborad

floating exchange rate

an exchange rate policy under which a government permits its currency to be traded on the open market without direct government control or intervention SUPPLY + DEMAND

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

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

Countries that adopt a pragmatic stance beleive that FDI should be allowed as long as

benifits outweigh the costs

pegged exchange rate

currency value is fixed relative to a reference currency

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

direct

import quota

direct restriction on the quantity of some good that may be imported into a country

What would provide a comany with a hedge against currency fluctuations like vulnerability to unpredictable exchange rates.

dispersing production to different location locations around the globe

quota rent

extra profit producters make when suppy is artifally limited by an import quota

It is one of Garrett's job responsibilities to report the amount of foreign direct investment undertaken by the government over a one-year time period. Garrett reports the ________ of FDI.

flow

According to Dunning, it makes sense for a firm to locate production facilities in those countries where the cost and skills of local labor is most suited to its particular production processes because

....

Mercosur pact countries

Argentina, Brazil, Paraguay, and Uruguay to establish a free trade area.

Uruguay Round

a trade agreement to dramatically lower trade barriers worldwide; created the World Trade Organization in 1995

Three reasons a firm will prefer FDI to licensing

-firm has valuble know-how that cannot be adequatley protected by a licensing contract -needs tight control over a foreign entity in order to maximize its market share and earnings in that country -firm's skills and capabilities are not amendable to licensing

Assume that the exchange rate between the euro and the dollar is €1.00 = $1.50. An American tourist in Germany is buying a product whose price is €80. How much in U.S. dollars would the tourist have to pay to buy the product?

120

A country that relies on the pragmatic nationalist view would say that

A country that relies on the pragmatic nationalist view would say that

Free market view on FDI

A political view that suggests that FDI unrestricted by government intervention is the best.

Oligopoly

An oligopoly is an industry composed of a limited number of large firms (e.g., an industry in which four firms control 80 percent of a domestic market would be defined as an oligopoly). A critical competitive feature of such industries is interdependence of the major players: What one firm does can have an immediate impact on the major competitors, forcing a response in kind. By cutting prices, one firm in an oligopoly can take market share away from its competitors, forcing them to respond with similar price cuts to retain their market share.

Earnings from a foreign subsidiary to the parent company are recorded as ______ on the balance-of-payments accounts.

Capital OUTFLOW

The Brenton woods agreement created which two multilateral institutions

IMF and World Bank

Subsidies and quotas are examples of ________ barriers a county might impose

nontariff

Radical Veiw

t

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

free trade policy most economists would probably argue that the best interests of international business are served by a free trade stance but not a laissez-faire stance. It is probably in the best long-run interests of the business community to encourage the government to aggressively promote greater free trade by, for example, strengthening the WTO. Business probably has much more to gain from government efforts to open protected markets to imports and foreign direct investment than from government efforts to support certain domestic industries in a manner consistent with the recommendations of strategic trade policy.

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 hte US out of the negotiatons

The world banks inital mission was to

help finance the building of Europe's economy by providing low-interest loans The official name for the World Bank is the International Bank for Reconstruction and Development (IBRD). When the Bretton Woods participants established the World Bank, the need to reconstruct the war-torn economies of Europe was foremost in their minds. The bank's initial mission was to help finance the building of Europe's economy by providing low-interest loans.

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

immigration

A tariff rate quota provides a lower tariff rate to

imports on the quota

Benefits of FDI to host country

improvement in the balace of payments as a result of inward flow of forein earnings, postive emplyment effects and benifits from a revrese resoruce-transfer effect.

law of one price

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

The lowering of barriers to trade and investments among countres within a trade group will probably be followed by

increase in price competition

Inefficent Market

is one in which prices do not reflect all available information

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

When FDI occurs through greenfield investment, it will ...

it will decrease competition in a market and iincrease economic welfare.

The task of the IMF

maintain order in the international monetary system and that of the World Bank would be to promote general economic development

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?

nonconvertable

Hedging

protecting against cost increases with contracts that allow a company to buy supplies in the future at designated prices

Volintary export restraint

quota on trade imposed by the exporting country FOrein producers agree to this because they fear more damaging punitive tariffs or import quotas might follow if they do not

The single European act was put in place in attempt to

remove all impediments of the formation of a single market

Ownership restraint is a method of

restricting inward FDI by host country

currency swap

simultaneous purchase and sale of a given amount of foreign exchange for two different value dates

An economist would say that the benefits of regional integration are determined by

the amount of trade creation

infant indutries

the infant industry argument is by far the oldest economic argument for government intervention and was proposed by Alexander Hamilton in 1792. According to this argument, to allow manufacturing to get a toehold, governments should temporarily support new industries (with tariffs, import quotas, and subsidies) until they have grown strong enough to meet international competition.

Radical Veiw

the radical view traces its roots to Marxist political and economic theory. Radical writers argue that the multinational enterprise (MNE) is an instrument of imperialist domination. They see the MNE as a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries.

The stock of FDI refers to

the total accumulated value of foreign-owned assets at a given time

the creation of a single market increases price competition for businesses, in other words its creates a

threat

Licensing is a good option to enter a foreign market when

tight control of the foreign operation is not required.

A country that imports more goods than it exports experiences a

trade deficit/ current account deficit