question

The theory of absolute advantage suggests what?

answer

A country should export those goods and services for which it is more productive than other countries are, and import those goods and services for which other countries are more productive than it is.

question

The theory of comparative advantage suggests what?

answer

A country should produce and export those goods and services for which it is relatively more productive than other countries are, and import those goods and services for which other countries are relatively more productive than it is.

question

The value of a good equals the value of what is given up to have that good. The previous statement describes what?

answer

Opportunity cost

question

Use the following table to answer the question below: US | EU Cars 5 | 5 Tractors 10 | 5 Who has the comparative advantage in producing tractors?

answer

The US. To produce 1 tractor, the US gives up 1/2 a car, while the EU gives up 1 car to produce 1 tractor. Because the EU gives up more (i.e. has a higher opportunity cost) to produce tractors, it cannot have a comparative advantage in producing tractors.

question

What was the economic philosophy that maintained that a country's wealth was measured by its holdings of gold and silver?

answer

theory of mercantilism (Mercantilism was a 16th century economic philosophy that maintained that a country's wealth is measured by its holdings of gold and silver. According to mercantilists, a country's goal was to enlarge these holdings by promoting exports and discouraging imports.)

question

Which of the following is an example of an economy of scale?

answer

The cost of computers decreases as the quantity that is produced increases. (economies of scale occur if a firm's average costs of producing a good decrease as its production of the good increases)

question

Which of the following is particularly useful in explaining trade in differentiated goods such as automobiles, expensive electronics equipment, and personal care products, for which brand names and product reputations play an important role in consumer decision making?

answer

country similarity theory

question

Which of the following terms describes when a firm's average cost decreases as the number of different products it sells increases?

answer

economies of scope (firms that are able to achieve economies of scope enjoy low average costs, which give the firms a competitive advantage over their global rivals)

question

Which theory traces the roles of innovation, market expansion, comparative advantage, and strategic responses of global rivals in international production, trade, and investment decisions?

answer

product life cycle theory

question

Which theory states that success in international trade comes from the interaction of four country- and firm-specific elements?

answer

theory of national competitive advantage

question

Which of the following is NOT a reason for the development of modern firm-based theories?

answer

The recognition that countries, not firms, are the agents for international trade.

question

Reasons for the development of modern firm-based trade theories:

answer

-the failure of Leontief and other researchers to empirically validate the country-based Heckscher-Ohlin theory -the inability of the country based theories to explain and predict the existence and growth of intraindustry trade -recognition of the growing importance of MNCs in the postwar international economy -firm-based theories incorporate factors such as quality, technology, brand names, and customer loyalty into explanations of trade flows

question

Which of the following is FALSE regarding the product life cycle theory?

answer

the personal computer industry has entered the maturing product stage

question

Which of the following would be an example of the experience curve?

answer

an advantage that a company gets with factory workers who have experience with a certain product

question

Which of the following factors is considered by Porter to be an "advanced factor"?

answer

education of workforce (land, labor and capital are classic / basic factors)

question

Which of the following would occur in stage 3 in the international product life cycle in an innovating firm's country?

answer

production facilities are moved to low labor cost markets

question

Most FDI is either made by or goes to the world's richest nations.

answer

true

question

Which of the following is NOT a demand factor that affects the foreign direct investment (FDI) decision?

answer

logistics

question

All of the following EXCEPT ______ can be used to explain international investment between the US and the UK.

answer

differing rates of return (Internationalization theory, dunning's eclectic theory, ownership advantage theory, and supply factors can be used to explain)

question

Why do US firms use places like the Bahamas as offshore financial centers?

answer

It is less heavily taxed, providing a greater profit.

question

Which of the following best accounts for the reason why Swiss pharmaceutical companies are choosing to invest in smaller US biogenetical companies?

answer

to gain access to research in this area

question

Competitive advantage

answer

is a firm's ability, relative to its competitors, to transform inputs into goods and services at a maximum profit on a sustained basis.

question

Outsourcing to places like India and China takes advantage of comparative advantage in terms of low-cost labor. Competing as the lowest cost labor provider in a global marketplace is most likely which type of strategy?

answer

short-term strategy

question

Infosys's ability to leverage domestic relationships and deliver services in a quality, cost-efficient manner, using the best resources from all over the world and beating out the local and global competition is an example of

answer

competitive advantage

question

What is one of the greatest comparative advantages of operating a company in India?

answer

a large, educated workforce

question

One of the greatest advantages of having 63 offices located around the globe is that InfoSys has been able to

answer

maintain its competitive edge

question

If two country each devalue their currency by 20 percent, which of the following would happen?

answer

Neither would gain an advantage because each currency's value relative to the other would remain the same.

question

Assuming we are operating under the gold standard. If the fixed exchange rate between the US dollar and the British pound is 0.50, and the dollar's par value is 5, what is the pound's par value?

answer

2.5

question

Why did the sterling-based gold standard originally unravel?

answer

The outbreak of war ceased normal commercial transactions.

question

How did the Marshall Plan assist the World Bank?

answer

It established the IBRD.

question

Which of the following organizations' objectives include promoting international monetary cooperating, facilitating the expansion and balanced growth of international trade, promoting exchange stability, and shortening the duration and lessen the degree of disequilibrium in the international balance of payment of members?

answer

International Monetary Fund

question

The World Bank System is controlled by ______.

answer

a weighted voting system

question

Which of the following is NOT one of the objectives included in the IMF's Articles of Agreement?

answer

To lengthen the duration and increase the degree of disequilibrium in the international balance of payments to its members

question

Suppose we are operating under the Bretton Woods System. If a currency's value rises above the range required by the system, that country's central bank will ___________ in the international foreign exchange market.

answer

Buy gold/foreign currency

question

Why did the US sell one-third of its gold reserves in 1971?

answer

to maintain the dollar's value

question

Which of the following signified the growing fear that the US could not live up to its Bretton Woods obligations?

answer

Triffin paradox (this paradox arose because foreigners needed to increase their holdings of dollars to finance expansion of international trade, but the more dollars they owned, the less faith they had in the ability of the US to redeem those dollars for gold.

question

Which of the following was created in 1979 by the EU in order to manage their currency relationships?

answer

European Monetary System

question

Which of the following records international business transactions and supplies vital information about the health of a national economy?

answer

Balance of Payments (BOP) an accounting system that records international transactions and supplies vital information about the health of a national economy and likely changes in its fiscal and monetary policies.

question

Which of the following countries was forced to unpeg its currency after investors began to distrust the abilities of its borrowers to repay foreign loans?

answer

Thailand. (((Asian currency crisis erupted in July 1997, when Thailand, which had pegged its currency to a dollar-dominated basket of currencies, was forced to unpeg its currency, the baht, after investors began to distrust the abilities of thai borrowers to repay their foreign loans and of the thai government to maintain the baht's value)))

question

The current account records all of the following types of transactions EXCEPT ________.

answer

short-term foreign portfolio investments

question

Which of the following is NOT an asset that is included in the official reserves account?

answer

non-convertible currencies

question

Which of the following accounts is used to make the Balance of Trade (BOP) account balance?

answer

errors and omissions

question

International business people need to pay close attention to Countries' Balance of Payments (BOP) statistics for all of the following reasons EXCEPT BOP statistics ___________.

answer

usually do not impact businesses that sell inventory

question

Which of the following is the best example of a capital outflow from the United States?

answer

The Tommy Hilfiger Company buys a controlling stake in the UK fashion label Temperley London

question

All of the following are examples of capital inflows into the US EXCEPT

answer

Sears, Roebuck, and Co. buys 15% of British retailer Selfridges

question

The balance on services reflects which of the following?

answer

the service sector's global competitiveness

question

Why did markets rally on the prediction that Congress was going to vote to raise the debt ceiling?

answer

Raising the debt limit affects international capital markets, allowing the government to honor domestic and foreign debt obligations

question

What was a potentially negative outcome if the debt ceiling wasn't raised?

answer

foreign direct investments from countries like China and Japan may stop

question

The US dollar is currently the world's largest reserve currency. What is a "reserve currency"?

answer

foreign currency that is widely accepted to pay for debts

question

At the time of the video, the unemployment rate in Spain was 21% and 4% in Austria. What may be a reason for this disparity?

answer

Spain's core jobs were focused in areas such as construction.

question

Ellen Braitman mentions that the dollar was gaining strength in trading. What is the significance of this?

answer

an increase in the value of the dollar makes foreign goods and services more affordable for US companies and consumers

question

Assume we are comparing the pound and the dollar. Suppose the annualized forward discount on the pound is 40%. The forward price of the pound is $1, and the spot price of the pound is $1.25. Then we know this AFD was calculated based on the

answer

6 month forward price .4=(1-1.25/1.25)n .4=(.25/1.25) .4=.2n n=2, but that's not months, thats periods in a year, so two 6 month periods.

question

What makes up the foreign exchange market?

answer

buyers and sellers of currency (currencies issued by the world's countries)

question

Foreigners' demand for yen chart including price of yen, quantity of yen and a downward slope like

answer

there is a higher quantity demanded when the price is lower

question

The direct exchange rate is $.020 / ¥1. Then the indirect exchange rate is

answer

¥50/$1 (¥1/$.020=50)

question

Which of the following has been a result of the higher loonie value?

answer

More Canadian consumers are shopping in the United States. (the Retail Council of Canada believes that the rise in the # of Canadians heading south to take advantage of now-cheaper American goods has trimmed retail sales in Canada by 5%)

question

You work at a bank that performs services for a British bank in the US. What is this called?

answer

correspondent relationship

question

Which of the following is known as the primary transaction currency for the foreign-exchange market?

answer

US dollar

question

Shondra works for an entity of a US bank that is legally distinct from the bank's domestic operations and offers international banking services only. They do not need to observe the numerous US domestic banking regulations. What is this type of entity?

answer

international banking facility

question

Which of the following is a characteristic of the international Fisher effect?

answer

The national differences in expected inflation rates yield differences in the nominal interest rates among countries.

question

Which market is used to make foreign-exchange transactions that are to occur sometime in the future?

answer

forward market

question

Which of the following involves the buying and selling of 3 different currencies to make a riskless profit?

answer

three-point arbitrage

question

Suppose: £1 buys $3 in NY, Tokyo, and London $1 buys ¥150 in NY, Tokyo, and London £1 buys ¥175 in NY, Tokyo, and London then

answer

An opportunity for three-point arbitrage exists, but not for two-point arbitrage. There are no opportunities for two-point arbitrage because the £1 buys the same amount in all three markets and $1 buys the same amount in all three markets. There is an opportunity for three-point arbitrage. We know this because the direct quote and the cross rate differ. In this case, the direct quote between £/¥=£1/¥175. The cross rate is calculated using the third currency ($). Multiply the other two $-based direct quotes together to calculate the cross rate: (£1/$3)($1/¥150)=£1/¥450. £1/¥175 differs from £1/¥450; therefore, the direct quote and cross rate differ, and there is an opportunity for the three-point arbitrage.

question

Daniel is involved in a transaction that involves buying and selling US dollars simultaneously, but delivery is made at two different points in time. What is this called?

answer

swap transaction (a transaction in which the same currency is bought and sold simultaneously, but delivery is made at two different points in time)

question

Which of the following allows, but does not require, a firm to buy or sell a specified amount of a foreign currency at a specified price at any time up to a specified date?

answer

currency option

question

Suppose your company has significant assets in £. You notice that the £ is selling at a forward premium. You advise your CFO to increase your firm's holdings of assets in £. Is this sound advice?

answer

Yes. A premium means that assets will increase in value.

question

In the US, a Big Mac costs on average $5. In Mexico, the Big Mac costs $1. The indirect exchange rate between the $ and the peso is 50 pesos. Then we know that the peso is ______ by approximately _______ percent compared with the dollar.

answer

undervalued; 80 1st we need to calculate the cost of the Big Mac in pesos, which we do using the indirect exchange rate: $1(50) = 50 pesos. Next we calculate the PPP (big mac) exchange rate: 50 pesos/$5 (cost of Big Mac in US) = 10. Now, we can calculate the % difference between the PPP exchange rate and the actual indirect exchange rate to determine how much the currency is over or undervalued: (10-50/50)100 = (-40/50)100=-.8(100)=-.80 this means that the peso is undervalued by approx 80%

question

Which of the following is the name for US dollars deposited in any bank account outside of the US?

answer

Eurodollar

question

Which of the following cities is NOT considered to be a major financial center?

answer

Banglore (Singapore, London, Tokyo, NYC, and Hong Kong are)

question

Currencies that are freely tradable are called ______.

answer

convertible currencies

question

Which market represents a major source of debt financing for the world's governments, international organizations, and larger firms?

answer

international bond market

question

Which of the following statements is FALSE with regard to the current trends in the business world?

answer

More companies are focusing solely on the domestic market.

question

Which of the following identifies a key factor that helps explain China's recent explosive economic growth?

answer

The government policies have focused on international exports.

question

Which of the following possible conclusions of the World Trade Organization's Doha Round would likely have a negative effect on China's economy?

answer

Developing countries will have to end industrial subsidies.

question

Which currency change would be likely to reduce China's exports?

answer

An increase in the value of China's currency.

question

Which of the following factors does NOT help account for the fact that China is beginning to lose its competitive edge in the global labor market?

answer

Vietnam's standard of living is increasing.

question

Firms sometimes believe that foreign competitors gain an unfair advantage due to which of the following?

answer

government policies

question

Which of the following terms describes a policy for national governments that exert minimal influence over trade?

answer

free trade

question

A major international corporation has steadily bought up all of a certain resource so they control it. Because they have done this, they are the only corporation manufacturing and marketing the finished product. Which of the following is occurring?

answer

monopoly profit

question

What is the term used to describe when a national government identifies key domestic industries critical to the country's economic future and then formulates programs that promote their competitiveness?

answer

industrial policy

question

Use the following payoff matrix to answer this question. Numbers are in billions of dollars. -boeing enters market/boeing does not enter market Airbus enters market | airbus: -5, boeing: -5 // airbus: 15, boeing: 0 Airbus does not enter the market | airbus: 0, boeing: 15 // airbus: 0, boeing: 0 Which company/companies has/have a dominant strategy?

answer

neither

question

Use the following payoff matrix to answer this question. Numbers are in billions of dollars. -boeing enters market/boeing does not enter market Airbus enters market | airbus: -5, boeing: -5 // airbus: 15, boeing: 0 Airbus does not enter the market | airbus: 0, boeing: 15 // airbus: 0, boeing: 0 If the EU wants to ensure that Airbus will enter the market, what is the best policy for it to adopt?

answer

A subsidy for Airbus of $6 billion

question

You would like to market rare earth technologies, yet you are not able to obtain them for a reasonable price. Why is this?

answer

China has created a situation where it controls the export of this product. China currently accounts for over 90% of the world's rare earth production, although it possesses only 1/3 of global reserves.

question

Which of the following terms describes a policy for national governments that actively intervene to ensure that domestic firms' exports receive an equitable share of foreign markets?

answer

fair trade

question

Canada has imposed a specific tariff on imports of motorcycle parts from the US. Why did it do this?

answer

to create a larger demand for Canadian motorcycle parts

question

The US and Canada are friendly trade nations that do not want to damage their relations. They both import and export each other's products in large volume and recognize that the potential for problems exists. What could they put in place to help with this?

answer

voluntary export restraint

question

Suppose you import products into the United States that weigh very little but that are extremely valuable (i.e. high-tech microchips). If you must pay a tariff, you would prefer the tariff to be

answer

specific

question

Suppose the US government eliminates all tariffs on foreign cars. As a result, the demand for American-made cars will

answer

decrease

question

China requires that imported sugar and petroleum be distributed only by state-owned trading enterprises, while Indonesia granted exclusive rights to import rice to a state agency. This is an example of what type of non-quantitative NTB?

answer

restricted access to distribution networks

question

Singapore uses a tiered tax system based on engine displacement, which hurts the sales of large motorcycles. Taiwan's transportation ministry has been slow to issue regulations that would allow motorcycles with engines larger than 500cc to travel on its highways throughout the day, while Thailand has an outright ban on motorcycles on its highways. This is an example of what type or non-quantitative NTB?

answer

regulatory controls

question

Egypt gives state-owned enterprises a 15% bidding preference on public contracts, while Argentina grants domestically owned firms a 5-7% preference; turkey, a 15% preference; Thailand, 7%; and Paraguay, 20%. Russia grants local firms a 15% preference in pharmaceutical contracts, while Kenya's Public Procurement and Disposal Act requires that certain govt contracts be given only to Kenyan citizens. These are examples of what type of non-quantitative NTB?

answer

Public-sector procurement policies

question

The Philippines restricts foreign ownership in advertising to 30% and in telecommunications to 40%, while foreigners can own no more than 49% of local accounting firms in Thailand and 50% of Korean power generators. These are examples of what type of non-quantitative NTB?

answer

Investment controls

question

The national bank of Ethiopia often makes it difficult for importers to obtain scarce foreign exchange, although state-owned enterprises or firms controlled by the ruling party normally have no such problems. This is an example of what type of non-quantitative NTB?

answer

Currency controls

question

Which of the following statements is FALSE regarding subsidies?

answer

Subsidies can never be so large as to affect the normal pattern of international trade.

question

Which of the following countries uses the ITA to investigate complaints of unfair trade practices?

answer

United States

question

One country is selling computers for $650 US dollars locally, but $300 in foreign markets. What is this an example of?

answer

Dumping

question

Which of the following is a method a government can use to restrict trade?

answer

Quota

question

Governments intervene in trade for all of the following reasons except

answer

Egological

question

Airbus has benefited from subsidies from the European Union. Subsidies would be considered a method of ____

answer

Promoting trade

question

Both Airbus and Boeing have operations outside of their home countries. The video mentions that much of their expansion was done via ____

answer

Foreign direct investment

question

What is a situation in which China requires Airbus or Boeing to use a certain percentage of parts produced in China an example of?

answer

Local content requirement

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