INB-300 Test 2
In the context of foreign direct investment, which of the following statements is true of ownership advantages?
Firms can beat rivals abroad by acquiring the advantage of proprietary technology of manufacturing products.
_____ refers to holding securities, such as stocks and bonds, of companies in countries outside one's own but does not entail the active management of foreign assets.
Foreign portfolio investment (FPI)
Chang Lee deals with foreign exchange. He exchanged 800 Chinese yuan for US dollars. He sold the US dollars 180 days after his initial transaction. In this scenario, which of the following types of foreign exchange transaction has Chang Lee used?
Forward transaction
Which of the following is true of the gold standard used from 1870 to 1914?
Gold was used as the common denominator for all currencies.
Which of the following is true of a floating exchange rate policy?
Governments believe in the free market and allow it to determine exchange rates.
Which of the following statements is true of the radical view on foreign direct investment (FDI)?
Governments embracing this view often nationalize multinational enterprise (MNE) assets or simply ban inbound MNEs.
Grenasia is a developed country. The exchange rate of Grenasia’s currency is higher than other currencies in the world. In this case, which of the following is the effect of such a high exchange rate?
Grenasia will attract foreign funds.
Which of the following was agreed upon and launched at the end of the Uruguay Round in 1994?
The World Trade Organization (WTO)
Which of the following was the General Agreement on Tariffs and Trade's (GATT's) successor?
The World Trade Organization (WTO)
_____ was established in 1995 as the global multilateral trading system and the organization that supports it.
The World Trade Organization (WTO)
In comparison with the General Agreement on Tariffs and Trade (GATT), which of the following statements is true of the World Trade Organization (WTO)?
The World Trade Organization (WTO) includes effective trade dispute settlement mechanism.
Which of the following political views on foreign direct investment (FDI) does not exist in practice?
The free market view on FDI
The South East Trading Zone (SETZ) is a monetary union comprising eleven member countries. In this case, which of the following statements is true?
The member countries will integrate political and economic affairs of a region.
Praziland is one of the five countries in a free trade area (FTA). In this case, which of the following is likely to be true of the FTA?
The members of the FTA will remove trade barriers among themselves.
Which of the following political views is hostile to foreign direct investment (FDI)?
The radical view on FDI
_____ refers to a type of foreign direct investment (FDI) in which firms move upstream or downstream in different value chain stages in a host country.
Vertical FDI
When market failure is minimized through internalization, _____.
a single organization between two firms is established
The _____ is a political view that approves foreign direct investment (FDI) only when its benefits outweigh its costs.
pragmatic nationalism view on FDI
The Big Mac index that compares the cost of a McDonald's Big Mac hamburger in about 120 countries was based on the _____.
purchasing power parity
In the context of foreign exchange, _____ are the classic single–shot exchange of one currency for another.
spot transactions
In the context of interest rates and money supply, quantitative easing:
tends to stimulate inflation with more currency.
The Bretton Woods system was centered on _____ as the common denominator.
the US dollar
The demand for dollars is much stronger than any other currency because:
the dollar is the common transaction currency involving both US. imports and US. exports.
Foreign direct investment (FDI) results in the loss of some economic sovereignty in a host country.
true
Given the slowdown of multilateralism and the acceleration of regionalism, managers should focus their attention more at global levels than regional levels.
true
Global economic integration refers to efforts to reduce trade and investment barriers around the globe.
true
In 2008, Andean Community and Mercusur countries agreed to form the Union of South American Nations (USAN).
true
In managed float exchange rate policy, a main objective for government intervention in deciding the exchange rate is to prevent erratic fluctuations that may trigger macroeconomic turbulence.
true
Internalization is a way to combat market failure.
true
North American Free Trade Agreement (NAFTA) is a free trade agreement (FTA) among Canada, Mexico, and the United States.
true
The gold standard was essentially a global peg system with little volatility and a great deal of predictability and stability.
true
The quest for location advantages has to fit with a firm's strategic goals.
true
Picnia Corp., a leading automobile manufacturing company, assembles its cars in Deltaland, but the components are manufactured in Ristasia. In this scenario, Picnia Corp. has engaged in:
upstream vertical FDI.
In the context of balance of payments (BOP), a country experiencing a current account surplus:
will see its currency appreciate.
Which of the following agreements was signed among Canada, Mexico, and the United States?
The North American Free Trade Agreement (NAFTA)
Which of the following scenarios exemplifies the purchasing power parity (PPP) theory?
A cell phone manufactured in Russia costs the same in UK and Egypt.
The benefits of Association of Southeast Asian Nations (ASEAN) free trade area (AFTA) are limited because:
ASEAN's main trading partners are outside the region.
Which of the following statements is true of agglomeration?
Agglomeration advantages stem from knowledge spillover from one firm to another.
Which of the following customs unions in South America is more pro-free trade?
Andean Community
The free trade area formed by Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua—plus the Dominican Republic is called the _____.
Central America Free Trade Agreement (CAFTA)
Which of the following is a disadvantage of global economic integration?
Critics may not be happy with the environmental impact.
_____ refers to a transaction that protects traders and investors from exposure to the fluctuations of the spot rate.
Currency hedging
_____ is defined as the possibility of unauthorized diffusion of firm-specific know-how.
Dissemination risk
_____ is the amount of foreign direct investment (FDI) moving in a given period (usually a year) in a certain direction.
FDI flow
Which of the following is an economic benefit of global economic integration?
It allows for disputes to be handled constructively.
Which of the following statements is true of internalization?
It involves locating and operating in host countries.
Which of the following is a disadvantage of regional economic integration?
It may result in some loss of sovereignty in an economic dimension.
Which of the following statements is true of direct ownership?
It provides a firm with equity ownership rights and management control rights.
Which of the following statements is true of global economic integration?
It stimulates the economic growth of countries.
Which of the following will result from global economic integration?
Its fundamental goal is to promote peace among countries.
The _____, signed in 2007 and enacted in 2009, amended the Maastricht Treaty that served as a constitutional basis for the European Union (EU).
Lisbon Treaty
The Forman Free Trade Agreement (FFTA) is an economic union established to promote regional economic integration among its five member countries. In this case, which of the following is likely to be true?
Members of the FFTA coordinate and harmonize monetary, fiscal, and taxation policies.
The most (in)famous loophole in merchandise trade created through the General Agreement on Tariffs and Trade (GATT) was the _____.
Multifiber Arrangement (MFA)
According to the Bretton Woods system, which of the following statements is true?
Only the US dollar was convertible to gold.
Which of the following statements is true of the relationship between a commodity's supply and demand?
Oversupply of a commodity will result in price drops.
Which of the following is also known as the "law of one price"?
Purchasing power parity
_____ means spreading out activities in a number of countries in different currency zones in order to offset any currency losses in one region through gains in other regions.
Strategic hedging
According to the economic theory, which of the following factors determines a commodity's price?
Supply and demand
Which of the following was a result of the Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA or CER)?
Tariffs and nontariff barriers between the countries were removed.
Bricklanes Inc. is a company that designs and manufactures materials for interior decorations. The company expands its business in Cronje Republic to gain the advantages of foreign direct investment. As a result, several companies in Cronje Republic have adopted new advancements that are introduced by Bricklanes Inc. in their processes. In this case, which of the following benefits has the host country acquired?
Technology spillover
_____ refers to the domestic diffusion of foreign technical knowledge and processes.
Technology spillover
Which of the following is a difference between the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO)?
The GATT does not cover Intellectual Property (IP) protection, whereas the WTO includes IP protection.
Which of the following improvements resulted after the establishment of the General Agreement on Tariffs and Trade (GATT)?
Trade growth consistently outpaced the gross domestic product (GDP) growth.
Which of the following is a disadvantage of the General Agreement on Tariffs and Trade's (GATT's) policies?
Trade in services and intellectual property (IP) protection was not covered.
_____ has been developing because Asia-Pacific Economic Cooperation (APEC) is too big and too difficult to get anything meaningful done.
Trans-Pacific Partnership (TPP)
Forward discount is a condition under which the forward rate of one currency relative to another currency is higher than the spot rate.
True
OLI advantages refer to the advantages of ownership (O), location (L), and internalization (I) that come from engaging in foreign direct investment.
True
When one firm enters a foreign country through foreign direct investment (FDI), its rivals are likely to follow by undertaking additional FDI in a host country to:
acquire location advantages.
Folexa is the largest producer of spices in the world, and its location is an added advantage to its business. It is surrounded by six trading countries. Besides, located close to the southern region of the continent, it attracts business from the neighboring continents as well. Such clustering of economic activities is referred to as _____.
agglomeration
In the context of foreign exchange rate, a(n) _____ is an increase in the value of a currency.
appreciation
Lumberne, a country, reviews its international transaction statement to assess its performance in international trade. This transaction statement contains accurate details on merchandise trade, service trade, and capital movement. Such a transaction statement is called the _____.
balance of payments (BOP)
Investors—currency traders, foreign portfolio investors, and average citizens—may move in the same direction at the same time, like a herd, resulting in the _____.
bandwagon effect
Investors,currency traders, foreign portfolio investors, and average citizens may move in the same direction at the same time, like a herd, resulting in the _____.
bandwagon effect
In the context of the World Trade Organization's (WTO's) trade dispute settlement mechanisms, the losing country:
can defy the WTO ruling by doing nothing and suffer trade retaliation by the winning country.
The North West Trading Zone (NWTZ) is a free trade area comprising eleven countries in the Moresian continent. The member countries of this free trade area use different currencies. In addition to imposing common external policies, the NWTZ permits the free movement of goods and people. In this case, the NWTZ is a _____.
common market
The Greyon Bank in Australia has an excess balance of euros but is in need of dollars. Similarly, Huran Bank in the US has an excess of dollars and is currently in need of euros. The two banks agree to exchange euros for dollars now and dollars for euros at a later date. This type of foreign exchange transaction is an example of _____.
currency swap
The _____ consists of exports minus imports of merchandise and services, plus income on a country's assets abroad minus payments on foreign assets in the focal country, plus unilateral government transfers and private remittances.
current account balance
The North Symorian Trade Confederate (NSTC) was established to promote regional economic integration within six countries belonging to the same subcontinent. This free trade area has imposed common external policies on nonparticipants. In this case, NSTC is a _____.
customs union
Hisson Technologies, a computer manufacturing company headquartered in Lumberne, had recently undertaken foreign direct investment (FDI) by setting up its office in the Remfur Republic. The company did not engage in computer distribution in Lumberne, but it invested in computer dealership in the Remfur Republic. In this case, Hisson Technologies was engaged in _____.
downstream vertical FDI
The region consisting of eighteen European countries using a common currency is called the _____.
euro zone
A capital flight will lead to increase in exchange rate.
false
In the context of currency management, a country with high currency risk must be totally avoided to prevent currency risk.
false
In the context of foreign exchange rate, an appreciation is a loss in the value of a currency.
false
International transaction costs tend to be lesser than domestic transaction costs.
false
Protectionist policies promote free trade and economic gains.
false
Regional economic integration refers to efforts to reduce trade and investment barriers around the globe.
false
The International Monetary Fund (IMF) offers grants to member countries.
false
Turkey is a part of the European Union (EU).
false
Given the slowdown of multilateralism and the acceleration of regionalism, managers should focus their attention more at global levels than regional levels.
false (correct)
Citronix Inc. is a semiconductor manufacturing company with its headquarters in Bigania. In its venture to expand business, the company sets up manufacturing units in five other countries where semiconductors are produced and manufactured. In this scenario, Citronix Inc. is engaged in _____.
foreign direct investment (FDI)
In the context of exchange rate policies, _____ is a pure market solution to determine exchange rates.
free float
Rayato Inc. is a cell phone manufacturing company headquartered in Swinland. The company designs, manufactures, and markets cell phones in Swinland. It has recently engaged in foreign direct investment (FDI), setting up its manufacturing units in three other countries. Rayato Inc. has decided to follow the same value-chain stage in the host countries as in Swinland. In this scenario, Rayato Inc. has engaged in:
horizontal FDI.
The free market view on foreign direct investment (FDI):
leads to a win-win situation for both home and host countries.
Bandoy Corp., a renowned cell phone manufacturing company, decided to engage in international business. So, Bandoy Corp. sold its technology to several multinational enterprises in other countries. This market entry mode is an example of _____.
licensing
From an institution–based view, internalization is a response to:
market imperfections.
The International Monetary Fund receives its funds from _____.
member countries quota
The Bretton Woods system came to an end because:
of a combination of rising productivity elsewhere and US inflationary policies.
In the context of international business, market failure is most likely to result due to:
opportunistic behavior of firms.
HiSpark Inc., a leading sports accessories brand, believes that it has to possess rare, hard-to-imitate technology, valuable brand name, and organizationally embedded culture to achieve consistent success as a multinational enterprise. In this case, HiSpark Inc. is focusing on:
ownership advantage.
Lumberne is a continent comprising 18 countries. Currently, Lumberne is a free trade area and an economic union including all 18 countries as members of free trade. Although each country is politically independent, governments of at least 12 countries are negotiating to form a common government. If Lumberne comes to be led by a single government, it would be a _____.
political union