Global 9,10,11 – Flashcards

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A regional free trade agreement will benefit the world only if:
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The amount of trade it creates exceeds the amount it diverts
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A(n) ____ has no barriers to trade between member countries, includes a common external trade policy, and allows factors of production to move freely between members.
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Common market
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An agreement between countries in a geographic region to reduce tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other is referred to as:
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Regional economic integration
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All of the following were objectives of the Single European Act EXCEPT:
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Increasing the powers of the European Commission in matters of competitive policy
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Bolivia, Chile, Ecuador, Colombia, and Peru signed an agreement in 1969 to create the:
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Andean Pact
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In 1990, the MERCOSUR pact was expanded to include:
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Paraguay and Uruguay
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The most enduring free trade area in the world is the:
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European Free Trade Association
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The principle argument of those who opposed NAFTA centered on the fear that ratification would result in:
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Mass exodus of jobs from the United States into Mexico
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The two main reasons that have made regional economic integration difficult to achieve are:
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Concerns about costs and national sovereignty
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There are now two trade blocs in Europe. These are the:
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European Union and European Free Trade Association
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What was the objective of the Single European Act?
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It committed member countries to work toward establishment of a single market by December 31 1992.
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Which of the following countries are currently members of the European Free Trade Association (EFTA)?
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Norway, Iceland, Liechtenstein, and Switzerland
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Which of the following is transacted when it is desirable to move out of one currency into another for a limited period without incurring foreign exchange risk?
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Swap
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Which of the following is a major reason why governments limit convertibility of their currency?
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To preserve their foreign exchange reserves
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How are spot exchange rates in the foreign exchange markets determined?
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By the relative demand and supply for different currencies
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Which of the following is a key feature of the foreign exchange market
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The market never sleeps
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Which of the following refers to the purchase of securities in one market for immediate resale in another to profit from a price discrepancy?
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Arbitrage
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Assume that the yen/dollar exchange rate quoted in London at 3 p.m. is $1 = $100Yen and that the yen/dollar exchange rate quoted in New York at the same time is $1 = 120. Which profit making situation exists here?
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Arbitrage
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Currency carry trade takes advantage of:
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Differences in interest rates between countries
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Which of the following occurs when the quantity of money in circulation rises faster than the stock of goods and services?
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Inflation
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The rapid rise in the value of the dollar on the foreign exchange market in the 1990s hurt the price competitiveness of many U.S. producers in world markets. U.S. manufacturers that relied heavily on exports saw their export volume and world market share decline. This is an example of:
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Economic Exposure
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In 2002-2007, the euro rose in value against the dollar. This boosted the dollar profits of American multinationals with significant operations in Europe. Which of the following is this an example of?
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Translation exposure
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A currency is said to be _____ when only nonresidents may convert it into a foreign currency without any limitations.
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Externally convertible
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A U.S. company that imports laptop computers from Japan knows that in 30 days it must pay yen to a Japanese supplier when a shipment arrives. The company will pay the Japanese supplier ×150,000 for each computer, and the current dollar/yen spot exchange rate is $1 = ×110. The importer knows she can sell the computers the day they arrive for $1,600 each. However, the importer will not have the funds to pay the Japanese supplier until the computers have been sold. The importer enters into a 30-day forward exchange transaction with a foreign exchange dealer at $1 = ×105. Which of the following will happen if the exchange rate after 30 days is $1 = ×90?
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The importer will earn a profit of $171 per computer
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Assume that the exchange rate between the euro and the dollar is € 1 = $1.20. A camera that retails for $300 in New York sells for € 200 in Berlin. Ignoring any transaction costs or barriers, this represents an initial arbitrage profit potential of:
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$60
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You exchanged $1,000 to 105,000 yen for a trip to Japan. During your stay, you spent 50,000 yen. Also, during this period the dollar weakened against the yen to 100 to a dollar. On your return, you went to the bank to exchange the remaining yen. How many dollars did you spend on the trip?
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$450
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A French company has 20 million euros it wants to invest for three months. Investing in a Thai money market account gives the company a higher return than domestic investments. Is this investment risk-free? Why or why not?
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No, because foreign currency movements in the intervening period can affect the profitability.
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A _____ is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.
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Currency swap
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Assume that the dollar is selling at a premium on the 30-day dollar/euro forward market. Which of the following reflects the foreign exchange dealers' expectations about the dollar over the next 30 days?
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The dollar will appreciate against the euro
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The theory of purchasing power parity (PPP) links changes in the exchange rate between two countries' currencies to:
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Changes in the countries' price levels
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Which is the most important foreign exchange trading center in terms of percentage of activity?
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London
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_____ refers to a range of barter-like agreements by which goods and services can be traded for other goods and services.
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Countertrade
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A floating exchange rate is a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the law of supply and demand.
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True
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Since the Bretton Woods system of floating exchange rates collapsed in 1973, the world
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False
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A dirty float is called so because the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency.
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True
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The Central bank is similar to a Currency board and both act as banks of last resort
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False
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The Bretton Woods agreement legalized the use of devaluation as a tool of competitive trade policy.
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False
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A fixed exchange rate regime imposes monetary discipline on countries, thereby curtailing price inflation.
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True
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If the IMF agrees that the country's balance of payments is in "fundamental disequilibrium," the system of adjustable parities allows for the devaluation of a country's currency by more than 10 percent.
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True
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One criticism of the IMF is that its traditional policy prescriptions represent "one-size-fits-all" approach to macroeconomic policy that is inappropriate for many countries.
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True
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Which of the following refers to the institutional arrangements countries adopt to govern exchange rates? - International Monetary Fund - Global agreement on exchange rates - International monetary system - Bretton Woods Arrangement
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International Monetary System
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When the foreign exchange market determines the relative value of a currency, the country is said to adhere to a _____ exchange rate regime.
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Floating
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The voting rights within the IMF are roughly proportionate to the___________ _________made by member nations. The US has 17% of the vote followed by Japan and Germany. US, Japan and Europe together account for more than 80% of the vote in the IMF. The breakdown of the democratic process becomes clear as the Jamaican people are removed from participation in the decisions that truly affect their lives.
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Economic contributions
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A free trade zone is a:
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Geographical area in which commerce can be conducted without tariffs being applied
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The IMF assumes that the combination of increased interest rates and ________ ______ ________ ________ will shift resources from domestic consumption to private investment. It is further assumed that keeping the price of local labor down will be an incentive for increasing employment and production.
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Cutbacks in government spending
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The central bank is government owned and not separate from the country's finance ministry
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False
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One of the factors that contributed to the Mexican crisis was that the central bank began converting short term debt, denominated in pesos, into dollar- denominated bonds. This conversion resulted in an increase in foreign reserves and a decrease in debt.
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False
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All of the following contributed to the Asian crisis of 1997 except:
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Production driven by domestic demand
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Identify the countries worst affected by the Southeast Asian crisis of 1997?
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Indonesia, Thailand, and South Korea
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The Asian meltdown began in mid-1997 in _____ when it became clear that several key financial institutions were on the verge of default.
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Thailand
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Which of the following actions by the Mexican government in December 1994, exacerbated the sale of the peso and contributed to the rapid 40 percent drop in its value?
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Currency devaluation
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Which of the following economies in Southeast Asia was considered relatively more stable during the crisis on 1997?
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Singapore
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Which of the following was the objective of establishing the International Monetary Fund (IMF)?
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Maintain order in the international monetary system
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In 2001, the WTO launched a new round of talks aimed at further liberalizing the global trade and investment framework. It was held at:
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Doha
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One concern of globalization critics is that a global economy shifts economic power away from _____ and toward _____.
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National governments; supranational organizations
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Many economists and business leaders believe that globalization offers several benefits including:
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Rising incomes of consumers
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One of the consequences of globalization that is appreciated by people from developing countries is that:
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The changes that progress has brought to their standard of living
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Opponents of outsourcing in advanced economies like the U.S. and Western Europe contend that:
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Falling trade barriers allow firms to move manufacturing activities to countries where wage rates are much lower.
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Supporters of globalization insist that dislocation in the form of lost jobs is a trade-off that will ultimately lead to the economy being better off. What are they justifying in this case?
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Free trade
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The principle argument of those who opposed NAFTA centered on the fear that ratification would result in:
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Mass exodus of jobs from the United States into Mexico
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Which three countries implemented the NAFTA?
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Canada, Mexico, and the United States
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When is capital flight most likely to occur?
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When domestic currency depreciates rapidly because of hyperinflation
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The absence of a legal system that protects property rights and the machinery to enforce that system usually results in:
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A reduction in the incentive to engage in productive economic activity
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Five of the fastest-growing economies of the past 30 years—China, South Korea, Taiwan, Singapore, and Hong Kong—had one thing in common at the start of their economic growth:
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Undemocratic governments
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Peruvian development economist Hernando de Soto has argued that much of the developing world will fail to reap the benefits of capitalism until:
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Property rights are better defined and protected
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What happens when governments control or dominate a national economy?
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Businesses are greatly restricted with the government doing most of the controlling and siphoning.
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Is there a relationship between open markets and political freedom?
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It is true that some totalitarian governments can have open markets
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