International Business - Exam 2: Given Questions

Which of the following occurs when two parties agree to exchange currency and execute the deal at some specific date in the future? A. Forward exchange B. Spot exchange C. Carry trade D. Currency swap E. Arbitrage

A. Forward Exchange

The WTO was encouraged to extend its reach to encompass regulations governing foreign direct investment, something the GATT had never done. Two of the first industries targeted for this reform were: A. Global telecommunication and financial services industries. B. Scientific research and defense sector. C. Pharmaceuticals and heavy metal industry. D. Pharmaceuticals and biotechnology. E. Scientific research and global telecommunication.

A. Global telecommunication and financial services industries

Which of the following is a drawback of adopting the euro? A. Loss of control over national monetary policy B. Increase in the cost of capital C. Reduction in the liquidity of capital markets D. Reduction of price differentials within the euro zone E. Loss of investment options open to both individuals and institutions

A. Loss of control over national monetary policy

To encourage inward FDI, it is increasingly common for governments to: A. offer tax concessions to foreign firms that invest in their countries. B. exclude foreign companies from specific industries. C. require that local investors own a significant proportion of the equity in a joint venture. D. impose high custom duties on foreign firms. E. prohibit MNEs from joining a cartel.

A. Offer tax concessions to foreign firms that invest in their countries.

Porter argues that a nation's firms gain competitive advantage if their domestic consumers are: A. Sophisticated and demanding. B.P rice insensitive and trusting. C. Accommodating and flexible. D. Nationalistic and protective of their domestic industries. E. Biased toward foreign products.

A. Sophisticated and demanding

According to the free market view, how does FDI increase the efficiency of the world economy through MNEs (multinational enterprises)? A. The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe. B. MNEs extract profits from the host country and take them to their home country and help all countries realize economies of scale. C. When an MNE produces products, profits from the investment go abroad, and hence the MNE helps foreign exchange to rotate. D. A foreign-owned manufacturing plant may import many components from its home country, thus improving the balance of payments of the host country. E. MNEs increase the efficiency of the world economy by increasing the flow of capital in the world market.

A. The MNE is an instrument for dispersing the production of goods and services to the most efficient locations around the globe

From 1965-1968, the U.S. government increased spending to pay for the Vietnam War. This spending was financed only by an increase in the money supply, resulting in: A. increased exports. B. a rise in price inflation. C. increased taxes. D. a positive trade balance. E. an increase in the worth of currency.

B. A rise in price inflation

If one firm in an oligopoly cuts prices, then most likely, its competitors will: A. make profits. B. also respond with similar price cuts. C. correspondingly raise prices. D. capture additional market share. E. not be impacted by the price cuts.

B. Also respond with similar price cuts.

Which of the following explains the rise of the dollar against most major currencies in the late 1990s, even though the United States was still running a significant balance-of-payments deficit? A. Reduced government intervention in the foreign exchange market B. Increased foreign investments in U.S. financial assets C. Low real interest rates in the United States compared to the rest of the world D. Increased exports as opposed to imports E. Increased communism in the United States

B. Increased foreign investments in U.S. financial assets

In a floating exchange rate, the relative value of a currency: A. is more predictable and less volatile. B. is determined by market forces. C. changes infrequently only under a specific set of circumstances. D. is set against other currencies at some mutually agreed on exchange rate. E. does not depend on the free play of market forces.

B. Is determined by market forces

According to internalization theory, one of the drawbacks of licensing is that: A. it may result in a firm's technological know-how being restricted to a limited knowledge base and stifles any future development. B. it does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability. C. when a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks. D. its use is restricted by the government through the imposition of tariffs and quotas. E. it is less cost-effective than FDI

B. It does not give a firm the tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability.

Which of the following is an argument against embracing strategic trade policy? A. It hampers the chances of a country's firms to effectively exploit the first-mover advantages. B. It is certain to be captured by special-interest groups within the economy, which will distort it to their own ends. C. It increases the prices of the products for the domestic consumers. D. It hampers the abilities of the domestic firms to achieve a dominant position in the global industry. E. It leads to a compromise in national sovereignty.

B. It is certain to be captured by special-interest groups within the economy, which will distort it to their own ends.

Which of the following identifies an attribute of tariffs? A. Tariffs reduce the price of foreign goods for domestic consumers. B. Tariffs reduce the overall efficiency of the world economy. C. Tariffs increase exports from a sector. D. Tariffs increase foreign competition for domestic producers. E. Tariffs increase efficient utilization of resources.

B. Tariffs reduce the overall efficiency of the world economy.

What is meant by translation exposure? A. The long-run effect of changes in exchange rates on future prices, sales, and costs B. The impact of currency exchange rate changes on the reported financial statements of a company C. The extent to which a firm's future international earning power is affected by changes in exchange rates D. The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values E. The obligations for the purchase or sale of goods and services at previously agreed prices

B. The impact of currency exchange rate changes on the reported financial statements of a company

According to the new trade theory: A. The ability to capture first-mover advantages is restricted in a world that disallows trade. B. Differences in labor productivity between nations underlie the notion of comparative advantage. C. A country may predominate in the export of a good because it has firms that were among the first to produce that good. D. To ensure economic progress, countries should implement several trade barriers. E. Different goods use resources in different proportions and this leads to constant returns to specialization.

C. A country may predominate in the export of a good because it has firms that were among the first to produce that good

Which of the following was a reason that led to the collapse of the gold standard in 1939? A. Difficulty and complexity in using the gold standard to determine the exchange rate B. Agreement by governments to convert paper currency into gold on demand at a fixed rate C. A cycle of competitive currency devaluations by various countries D. Expansion in the volume of international trade in the wake of the Industrial Revolution E. The inability of the gold standard to act as a mechanism for achieving balance-of-trade equilibrium by all countries

C. A cycle of competitive currency devaluations by various countries

Which of the following supports the economic case for regional economic integration? A. International institutions such as the World Trade Organization have been moving the world away from a free trade regime. B. The greater the number of countries involved in a free trade agreement, the fewer the perspectives that must be reconciled. C. Coordination and policy harmonization problems are largely a function of the number of countries that seek agreement. D. It is difficult to establish a free trade and investment regime among a limited number of adjacent countries as compared to the world community. E. Since most governments do not intervene, unrestricted free trade and FDI have become a reality.

C. Coordination and policy harmonization problems are largely a function of the number of countries that seek agreement

Vornoda Inc., a multinational clothing and accessory brand, has been facing huge economic losses due to unpredictable exchange rate movements. In order to gain considerable immunity against such currency fluctuations, Vornoda Inc. should: A. pursue strategies that increase its economic exposure. B. avoid using instruments like forward market and swaps. C. disperse production to different locations around the globe. D. not contract out manufacturing. E. restrict its low-value-added manufacturing to one location.

C. Disperse production to different locations around the globe

An inconsistency in the mercantilist doctrine, as pointed out by David Hume, is that: A. The volume of a country's imports increases as an indirect consequence of mercantilism. B. The exclusion of government influence in matters pertaining to trade is not ideal. C. In the long run, no country could sustain a surplus on the balance of trade. D. It was not backed by either sound political principles or social ideologies. E. Trade is a zero-sum game rather than a positive-sum game as postulated by the theory.

C. In the long run, no country could sustain a surplus on the balance of trade

Which of the following is a significant impact of the North American Free Trade Agreement (NAFTA)? A. It led to decreased economic stability in Canada. B. It led to a major trade deficit for Canada. C. It helped create the background for increased political stability in Mexico. D. It led to a trade surplus for all the three member nations. E. It led to a reduction in purchasing power of consumers in America.

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

Which of the following is a reason for London's dominance in the foreign exchange market? A. Great Britain's decision to retain the British pound instead of using the euro B. The preeminence of Financial Times Stock Exchange (FTSE) index as an economic health indicator C. London's location making it the link between the East Asian and New York markets D. London being the preferred headquarters destination for major multinational corporations E. London's trading centers opening soon after Tokyo's and New York's trading centers closing for the night

C. London's location making it the link between the East Asian and New York markets

According to which of the following, FDI has both benefits and costs and should be allowed only if the benefits outweigh the costs? A. Eclectic paradigm theory B. Free market view C. Pragmatic nationalist view D. Radical view E. Internalization theory

C. Pragmatic nationalist view

Palladia specializes in the production of beef and produces beef more efficiently than any other country. It buys wheat, which it produces less efficiently than beef, from Rhodia, even though it also produces wheat more efficiently than Rhodia. Which of the following theories of international trade supports Palladia's decision to buy wheat from Rhodia? A. The Samuelson critique B. Mercantilism C. Ricardo's theory of comparative advantage D. Adam Smith's theory of absolute advantage E. The Leontief paradox

C. Ricardo's theory of comparative advantage

Which of the following refers to the bandwagon effect? A. Securities are purchased in one market for immediate resale in another. B. Dominant enterprises exercise a degree of pricing power, setting different prices in different markets to reflect varying demand conditions. C. Traders move like a herd, all in the same direction and at the same time, in response to each other's perceived actions. D. Governments routinely intervene in international trade, creating tariff and nontariff barriers to cross-border trade. E. The output of goods and services grows at a lesser rate than that of the money supply.

C. Traders move like a herd, all in the same direction and at the same time, in response to each other's perceived actions

The difference between Ricardo's theory and the Heckscher-Ohlin theory is that the Heckscher-Ohlin theory: A. Makes more simplifying assumptions. B. Cannot be subjected to empirical tests. C. Actually predicts trade patterns with greater accuracy. D. Argues that the pattern of international trade is determined by differences in national factor endowments. E. Suggests that trade is a positive-sum game in which all countries that participate realize economic gains

D. Argues that the pattern of international trade is determined by differences in national factor endowments

One of the main reasons why many economists remain critical of the infant industry argument is its reliance on the assumption that: A. Protection of manufacturing from foreign competition is harmful. B. Absolute advantage cannot sustain productivity of an industry. C. Foreign firms too come under the definition of infant industry when they newly enter a foreign market. D. Firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets. E. Foreign competition will eventually cause domestic firms to improve the quality of their products.

D. Firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital markets

Which of the following is an example of concerns over national sovereignty impeding regional economic integration? A. The Organization of the Petroleum Exporting Countries regulating the supply of petroleum as a cartel B. The Asia-Pacific Economic Cooperation failing to establish itself as a regional arrangement C. Admission of Eastern European nations into the European Union D. Great Britain refusing to adopt the common currency of the European Union, the euro E. The rise of the World Trade Organization

D. Great Britain refusing to adopt the common currency of the European Union, the euro

Which of the following is true of inflation? A. It occurs when the demand for a particular currency is more than the supply. B. It occurs when securities are purchased in one market for immediate resale in another. C. It occurs when two parties agree to exchange currency and execute a deal at a specific date in the future. D. It occurs when the quantity of money in circulation rises faster than the stock of goods and services. E. It occurs when output increases faster than the money supply.

D. It occurs when the quantity of money in circulation rises faster than the stock of goods and services

The threat of antidumping action: A. Helps the firm raise capital in the primary market. B. Limits the ability of a firm to raise prices in response to high demand. C. Enhances the firm's ability to disperse its productive activities in an efficient manner. D. Limits the ability of a firm to use aggressive pricing to gain market share in a country. E. Enhances a firm's competitive advantage to indigenous competitors in that country.

D. Limits the ability of a firm to use aggressive pricing to gain market share in a country

Suppose the countries of Bear and Cat imposed tariffs on imports from all countries, and then they set up a free trade area, scrapping all trade barriers between themselves but maintaining tariffs on imports from the rest of the world. Now, Bear begins to import sugar from Cat. However, Bear had previously been importing sugar from another country, which produced sugar more cheaply than Bear or Cat. This is known as: A. trade creation B. strategic pricing C. synergy D. trade diversion E. protectionism

D. Trade diversion