multiple choice questions
Which of the following specifically reduces the viability of an exporting strategy specifically for products with low value-to-weight ratios?
Transportation costs
Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive ____.
$1,500
Which of the following is an example of a greenfield investment?
A Chinese sugar maker setting up a sugar crushing facility in Cuba.
Which of the following observations is true of the Bretton Woods agreement?
All countries agreed to fix the value of their currency in terms of gold under the agreement.
Which of the following is a way in which governments increase the attractiveness of FDI and licensing relative to exporting?
By implementing import quotas
Assume that the interest rate on borrowings in Japan is 1 percent, while the interest rate on deposits in Australian banks is 5 percent. A trader borrows in yen and then converts the money into Australian dollars and deposits it in an Australian bank to make a 4 percent margin. Which type of trade is this an example of?
Carry trade
Which of the following involves borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interest rates are high?
Carry trade
Country A can produce product X, but it can also buy it at a cheap rate from Country B. Which of the following courses of action is suitable in this situation according to Adam Smith's theory of absolute advantage?
Country A should import product X from country B and it should not attempt to produce it at home.
Which of the following statements is true of the Gold standard?
Currencies were pegged to gold under the gold standard.
What are the two main functions of the foreign exchange market?
Currency conversion and providing some insurance against foreign exchange risk
Which of the following refers to the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates?
Currency swap
_____ imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs.
Diminishing returns
Identify the currency that was convertible to gold under the Bretton Woods system.
Dollar
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.
Which of the following observations is consistent with Michael Porter's theory of national competitive advantage?
Factors such as domestic demand and domestic rivalry determine nations' dominance on production.
Which of the following primarily explains why developing nations are characterized by lower percentage of cross-border mergers and acquisitions compared to developed nations?
Fewer target firms to acquire in developing nations
_____are exchange rates governing some specific future date foreign exchange transactions
Forward exchange rates
Which of the following observations about subsidies is true?
Government subsidies must be paid for, typically by taxing individuals and corporations.
Which of the following summarizes the total amount of resources invested in factories, stores, office buildings, and the like?
Gross fixed capital formation
which of the following theories emphasizes the interplay between proportions in which the factors of production are available in different countries and the proportion in which they are needed for producing particular goods?
Heckscher-Ohlin theory
Which of the following is an example of a support activity in a firm's value chain?
Human resources
Identify the theory that seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets.
Internalization theory
The agreement reached at Bretton Woods established ____.
International Monetary Fund
Which of the following is an advantage of using the gold standard?
It contains a powerful mechanism for achieving balance-of-trade equilibrium by all countries.
which of the following is a major benefit of engaging in free trade?
It gives countries access to products that they cannot produce
Which of the following is the most important foreign exchange trading center?
London
Which of the following is the main principle of mercantilism?
It is in a country's best interests to maintain a trade surplus.
Which of the following factors has made the United States an attractive target for foreign direct investment?
Its wealthy domestic markets
A French wind power company gives an Indonesian company the right to produce and sell wind turbines in return for a royalty fee on every unit sold. Which business practice is this an example of?
Licensing
Which of the following is a major flaw associated with mercantilism?
Mercantilists view trade as a zero-sum game.
When contemplating FDI, why do firms apparently prefer to acquire existing assets rather than undertake greenfield investments?
Mergers and acquisitions are quicker to execute than greenfield investments.
Country A exports electronic goods from Country B although there are no underlying differences in factor endowments between the two countries. Which of the following theories explains this anomaly?
New trade theory
identify the theory that supports the view that in some cases countries exports for the reason that the world market can support only a limited number of firms
New trade theory
_____ activities are basically concerned with creating the product, marketing and delivering the product to buyers, and providing support and after-sales service.
Primary
Which of the following is the prime reason why Africa has attracted FDI in recent years?
Raw material availability
Which of the following is an example of a primary activity in a firm's value chain?
Research and development
Which of the following is a consequence of subsidies?
Subsidies protect inefficient domestic producers.
_____ activities of the value chain provide inputs that allow the primary activities to occur.
Support
A pair of shoes costs £40 in Britain. An identical pair costs $50 in the United States when the exchange rate is £1 = $1.50. Which of the following is correct?
The U.S. offers a better deal.
Assume that an American company today invests some of its spare cash in a Hungarian money market account that will earn 8 percent for a period of two months. Which of the following, if it happens during the next two months, would imply that the company will earn less than 8 percent on its investment?
The dollar appreciates against the Hungarian forint.
Which of the following statements is NOT true?`
The price a firm charges for a good or service is typically more than the value the customer places on that good or service.
_____ is a quota on trade imposed by the exporting country, typically at the request of the importing country's government.
Voluntary export restraint
In which of the following situations does the internalization theory recommend FDI as opposed to licensing?
When the firm needs tight control over a foreign entity
Which of the following factors has had a positive effect on the volume of foreign trade investments?
World economy globalization
A dirty float refers to a situation in which ____.
a country tries to hold its currency against an important reference currency without a formal pegged rate
Gold par value refers to the ____.
amount of a currency needed to purchase one ounce of gold
According to Adam Smith, A country should specialize in the production of a good when it has
an absolute advantage in the production of the good
The basic strategy paradigm suggests that to maximize its profitability, a firm should do all of the following, EXCEPT:
choose, according to strategy, any position on the efficiency frontier as all positions are viable.
The value of a product to an average consumer is V; and the average price that the firm can charge a consumer for that product is P. Here, V - P can be termed as:
consumer surplus per unit
tariffs do not benefit:
consumers
The short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates is known as:
currency speculation.
A strategy that focuses on increasing the attractiveness of a product is referred to as a(n):
differentiation strategy.
The efficiency frontier has a convex shape because of:
diminishing returns.
The _____ helps us to compare the relative prices of goods and services in different countries.
exchange rate
The international monetary system refers to the institutional arrangements that govern_____
exchange rates
After World War II, world's major industrial nations arranged their currencies against each other at a mutually agreed on exchange rate. This is an example of a _____ system
fixed exchange rate
A pegged exchange rate means that the value of a currency is
fixed relative to a reference currency
When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a _____ regime.
floating exchange rate
The _____ of FDI refers to the amount of FDI undertaken over a year.
flow
which of the following refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country?
free trade
_____ is a direct restriction on the quantity of some good that may be imported into a country.
import quota
David Ricardos theory of comparative explains global trade in terms of the
international differences in labor productivity
FDI occurs when a firm:
invests directly in facilities to produce a product in a foreign country.
A country has an absolute advantage in the production of a product when it
is more efficient than any other country in producing it
A country's trade balance is in surplus when_____
its exports are more than its imports
specific tariffs are
levied as a fixed charge for each unit of a good imported.
Tariff rate quotas are common in agriculture, where their goal is to:
limit imports over quota.
A firm benefits by basing each value creation activity it performs at that location where economic, political, and cultural conditions, including relative factor costs, are most conducive to the performance of that activity. Firms that pursue such a strategy can realize:
location economies.
Which of the following is a theory that can be used to justify limited government intervention to support the development of certain export-oriented industries?
new trade theory
An exchange rate of €1 = $1.30 indicates that:
one euro buys 1.30 dollars.
Assuming the 30-day forward exchange rate were $1 = ¥130 and the spot exchange rate were $1 = ¥120, the dollar is selling at a _____ on the 30-day forward market.
premium
The World Bank was established at the at Bretton Woods conference to ____.
promote general economic development
import tariffs:
reduce the overall efficiency of the world economy.
The _____ is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day.
spot exchange rate
When two parties agree to exchange currency and execute the deal immediately, the transaction is a:
spot exchange.
According to the _____ policy, subsidies can help a firm achieve a first-mover advantage in an emerging industry.
strategic trade
By lowering production costs, _____ help domestic producers compete against foreign imports
subsidies
A common hybrid of a quota and a tariff is known as a(n):
tariff rate quota.
The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because:
the customer captures some of that value in the form of a consumer surplus.
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 for imports
The stock of FDI is:
the total accumulated value of foreign-owned assets at a given time.
International businesses use foreign exchange markets for all of the following reasons except:
to cover themselves from all risks involved in currency speculation.
A consumer surplus can be best described as:
value for the money.
The Japanese government was pressurized by the U.S. government to place limits on the number of vehicles exported to the United States by Japanese automobile producers in 1981. This is an example of:
voluntary export restraint.
