International Business Exam #2
The ___ was established to increase multinational cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region
Asia-Pacific Economic Cooperation
Which level of economic integration eliminates trade barriers between member countries and adopts a common external trade policy?
Customs union
What is the term for selling goods in a foreign market below their costs of production?
Dumping
What is the most enduring free trade area in the world?
EFTA
___ are normally underwritten by an international syndicate of banks
Eurobonds
The ____ represents the interests of member states and is clearly the ultimate controlling authority within the EU
European Council
Which of the following statements is true about the growth of foreign direct investment in the world economy over the last few decades?
FDI has accelerated faster than world trade growth
An ad valorem tariff is levied as a fixed charge for each unit of a good imported (T/F)
False
Both governments and consumers realize significant gains from tariffs, while domestic producers typically see a negative effect (T/F)
False
Exporting involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on each unit sold (T/F)
False
Only a few countries choose pragmatic nationalism preferring instead either the free market or radical view (T/F)
False
A Chinese firm borrows 1 million U.S. dollars from an American bank. The cost of this loan will be less if U.S. dollar appreciates against the Chinese currency (T/F)
False. Movements in foreign exchange rates can substantially increase the cost of foreign currency loans. In this case, the value of the loan increases as U.S. dollar appreciates.
Establishment of the Euro created the largest currency zone in the world, replacing the position the U.S. dollar had held for decades (T/F)
False. Second most widely traded currency after the U.S. dollar
The EU is an example of a perfect economic union (T/F)
False. The EU is an economic union, although an imperfect one.
The Council of the EU is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states (T/F)
False. The European Commission is.
The cost of capital is the difference between cost of inputs and outputs
False. The cost of capital is the price of borrowing money, which is the rate of return that borrowers must pay investors. This is the interest rate on debt loans and the dividend yield and expected capital gains on equity loans.
The most typical joint venture is a 25/75 venture (T/F)
False. The most typical joint venture is a 50/50 venture, in which there are two parties, each of which holds a 50% ownership stake and contributes a team of managers to share operating control.
Using floating exchange rates will help countries reduce the risk of investing in foreign assets
False. The risk-reducing effects of international portfolio diversification would be greater were it not for the volatile exchange rates associated with the current floating exchange rate regime. Floating exchange rates introduce an additional element of risk into investing in foreign assets.
Which of the following is true of acquisitions?
In many cases, firms make acquisitions to preempt their competitors
What is the primary advantage of licensing
It helps a firm avoid the development costs associated with opening a foreign market
Which of the following is true of wholly owned subsidiaries?
It is required if a firm is trying to realize location and experience curve economies
To ensure that a free trade agreement does not result in trade diversion, which of the following has to come within the scope of WTO?
Nontariff barriers
Which of the following is NOT one of the seven main instruments of trade policy?
Quota Rents
The ___ raised tariff barriers in the hope of protecting jobs and diverting consumer demand away from foreign products
Smoot-Hawley Act
What is a government payment to a domestic producer?
Subsidy
Which of the following is a concern of some economist regarding regional integration?
The benefits of regional integration may have been oversold, while the costs have been ignored
___ argues that FDI is a benefit to both the source country and to the host country
The free market view
___ traces its roots to Marxist political & economic theory
The radical view
A benefit to companies of economic integration is the opportunity to centralize their production and reduce costs (T/F)
True
A capital market brings together those who want to invest money and those who want to borrow money
True
A joint venture is often politically more acceptable than a wholly owned subsidiary and brings a degree of local knowledge to the subsidiary (T/F)
True
A major impediment to economic integration is the loss of sovereignty it entails (T/F)
True
A strategic trade policy that aims to establish domestic firms in a global industry might attract retaliation and a trade war (T/F)
True
Banks charge borrowers a lower interest rate on Eurocurrency borrowings than for borrowings in the home currency
True
Economists who have studied the issue have found little evidence that firms move production in response to changes in pollution regulations (T/F)
True
Foreign direct investment has grown more rapidly than world trade and world output for many reasons, including the fear of international business of protectionist pressures (T/F)
True
Internalization theory explains why firms often prefer FDI over licensing as a strategy for entering foreign markets (T/F)
True
Investors can reduce the level of risk by diversifying a portfolio internationally (T/F)
True
Licensing limits the firm's ability to realize experience curve and location economies by producing its product in a centralized location (T/F)
True
Since 20002, the number of regulations that have been unfavorable to FDI have increased, particularly in Latin America (T/F)
True
The agreement reached at Bretton Woods established the International Monetary Fund and the World Bank (T/F)
True
The attractiveness of a country as a potential market for an international business depends on balancing the benefits, costs, and risks associated with going business in that country (T/F)
True
The U.S. had large and growing trade deficit between 1980 and 1985. Despite this, the value of U.S. dollar rose during this period. Which of the following is a factor that caused this occurrence?
U.S. attracted heavy inflows of capital from foreign investors during this period
Which feature of a customs union differentiates it from a free trade area?
a common external trade policy toward nonmembers
Which feature of an economic union differentiates it from a common market?
a common monetary and fiscal policy
McDonald's is an example of a firm that uses ___
a franchising strategy
A currency crisis occurs due to
a speculative attack on the exchange value
Gold par value refers to the
amount of a currency needed to purchase one ounce of gold
A Eurocurrency is
any currency banked outside of its country of origin
Eurodollars
are dollars banked outside of the United States
Business firms are major players on the international trade scene, and as such:
be aware of the problems both protectionism and free trade can bring
A ___ has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members
common market
Three countries agree to remove barriers to trade between member countries and adopt a common external trade policy toward nonmembers. They also agree to allow people and other factors of production to move freely across their borders. Which level of economic integration is this an example of?
common market
Which of the following will help a company hedge against currency fluctuation?
dispersing production to different geographic locations
___ account for about two-thirds of all Eurocurrencies
euro-dollars
The Asian economic crisis and the global financial of 2008-2009 crisis were caused by
excessive debt
Knowledge spillovers such as those arising from the concentration of intellectual talent in Silicon Valley are referred to as ___
externalities
Market makers are
financial service companies that connect investors and borrowers
Market movers are
financial service companies that connect investors and borrowers
Early entrants to a market that are able to create switching costs that tie the customer to the product are capitalizing on
first-mover advantages
United States sells bonds that are denominated in dollars in Europe. This is an example of a(n) ___ bond
foreign
Market makers are the financial service companies that connect investors and borrowers. Those who want to borrow money typically include
governments
Establishing a new operation in a foreign country is called a(n) ___
greenfield investment
The main advantage of ___ is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants
greenfield investment
Companies receive a ___ when using the Eurocurrency market
higher interest rate on deposits and pay less for loans
In which of the following situations would FDI improve the current account of the host country's balance of payments?
if the FDI is a substitute for imports of goods or services
Protectionism
increased in the 1980s and 1990s after a period of relative decline
All of the following were part of the agenda of the Doha round of talks EXCEPT:
increasing the use of antidumping laws to bring discipline to the trading system
Intellectual property rights have become thorny areas of international trade, especially in relation to software, pharmaceuticals, music and entertainment, and:
innovation remains a principal driver for economic growth
Which of the following is a distinct advantage of exporting?
it avoids the often substantial costs of establishing manufacturing operations in the host country
The strategic trade policy argument has two main components. First, appropriate government actions can help raise national incomes if the governments can ensure domestic firms gain first mover advantages. Second, ___
it may help domestic firms overcome barriers to entry created by foreign firms who had a first mover advantage
A ___ is more likely to capture first-mover advantages associated with demand preemption, scale economies, and switching costs
large-scale entrant
The systematic risk is the
level of non-diversifiabe risk in an economy
A purely domestic capital market faces the problem of ___
limited liquidity
The costs and risks associated with doing business in a foreign country are typically
low in an economically advanced nation
If a company wants a quick entry into a foreign market, ___ are appropriate
mergers and acquisitions
___ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries
multipoint competition
Which of the following statements is true of pegged exchange rates?
pegged exchange rates are popular among many of the world's smaller nations
Preserving jobs, protecting industries important to national security, retaliating against unfair foreign competition, and advancing human rights of individuals in exporting countries are examples of ___
political arguments for government intervention
Governments do not always act in the national interest as they intervene in the economy, when, for example, ____
politically important interest groups influence them
The cost of capital is the
price of borrowing money
The World Bank was established at the Bretton Woods conference to
promote general economic development
A political benefit of economic integration is that it
reduces the potential for violent conflict
When a company brings capital and/or technology to a host country, the host country benefits from the
resource-transfer effect of FDI
By lowering production costs, ___ help domestic producers in two ways: competing against foreign firms and gaining export markets
subsidies
The WTO's role as a global policeman for trade has so far been
successful
FDI is more profitable than licensing when the firm has valuable know-how that cannot be protected by a licensing contract and when ___
the firm needs tight control over a foreign entity to maximize its market share and earnings in that country
A country is said to be in balance-of-trade equilibrium when
the income its residents earn from exports is equal to the money its residents pay to other countries for imports
Many economists criticize ___ for trade intervention arguing that it leads to prolonged inefficiency
the infant industry argument
Which of the following is a reason why Turkey is not yet a member of the EU?
there are concerns over human rights issues in the country
The stock of FDI is the
total accumulated value of foreign-owned assets at a given time
A firm will need to consider ___ as it develops and executes its strategy, disperse activities around the globe and recognizes its cost structures
trade barriers
___ occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area
trade creation
A capital market brings together those who want to invest money and those who want to borrow money (T/F)
true
Banks charge borrowers a lower interest rate on Eurocurrency borrowings than for borrowings in the home currency (T/F)
true
The International Monetary Fund's original function was to provide a pool of money from which members could borrow in the short term (T/F)
true
The current system of foreign exchange is a mixed system of government intervention and speculative activity
true
The fixed exchange rate system established at Bretton Woods failed due to speculative pressures on the U.S. dollar
true
The Japanese government was pressured by the U.S. government to place limits on the number of vehicles exported to the U.S. by Japanese automobile producers in 1981. This is an example of:
voluntary export restraint
