International Business Quiz 2 - Flashcards

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FDI undertaken to serve the home market is known as:

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offshore production

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Which of the following is the reason why most economists prefer Heckscher-Ohlin theory to Ricardo's theory?

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Heckscher-Phlin theory makes fewer simplifying assumptions

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The TRIPS regulations established at the 1995 Uruguay Round:

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established regulations on patents and copyrights

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Which of the following best describes an industry composed of a limited number of large firms?

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an oligopoly

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Which of the following is one of the four attributes present in Porter's diamond?

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factor endowments

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The infant industry argument is criticized because it relies on an assumption that:

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firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market

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A quota rent is:

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the extra profit producers make when supply is artificially limited by an import quota

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Which of the following would a follower of the inefficient market school of thought agree with?

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Companies would be better off investing in foreign exchange forecasting services.

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_____ are the highest rate that can be charged, which is often, but not always, the rate that is charged.

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Bound tariff rates

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A country's _____ keeps track of its payments to and its receipts from other countries.

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balance-of-payments accounts

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Why is it said that not all the new jobs created by FDI represent net additions in employment?

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Because jobs created by an investment may be offset by the jobs lost in domestic companies

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A country has an absolute advantage in the production of a product when it ____.

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is more efficient than any other country in producing it

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Which of the following is a reason for the pressure for greater protectionism that occurred during the 1980s and early 1990s?

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Many countries found ways to get around GATT regulations.

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Which of the following theories stress the role of luck, entrepreneurship, and innovation in the production and export of a good or service by the firms in a country?

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new trade theory

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Administrative trade policies are:

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bureaucratic rules designed to make it difficult for imports to enter a country.

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What are the two main functions of the foreign exchange market?

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Currency conversion and providing some insurance against foreign exchange risk

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According to Adam Smith, A country should specialize in the production of a good when it has ____.

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an absolute advantage in the production of the good

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Which of the following is seen as a benefit of the euro?

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Lower foreign exchange and hedging costs

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The _____ of FDI refers to the amount of FDI undertaken over a year.

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flow

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Textile industry in a nation is characterized by vigorous domestic rivalry. Which of the following observations of this nation's international competency is most likely to be true?

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The nation's textile firms will have a competitive advantage in international trade.

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Tariff rate quotas are common in agriculture, where their goal is to:

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limit imports over quota

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The _____ states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries.

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International Fisher Effect

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A(n) _____ involves attempting to collect foreign currency receivables early when a foreign currency is expected to depreciate and paying foreign currency payables before they are due when a currency is expected to appreciate.

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lead strategy

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A common hybrid of a quota and a tariff is known as a(n):

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tariff rate quota

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It follows from the Fisher Effect that if the real interest rate is the same worldwide; any difference in interest rates between countries reflects differing expectations about _____.

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inflation rates

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Which of the following factors has made the United States an attractive target for foreign direct investment?

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its wealthy domestic markets

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The theory of comparative advantage provides strong rationale for supporting the idea of ____.

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free trade

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Mercosur originated as a(n) _____ between Brazil and Argentina in 1988.

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free trade pact

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The _____ is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states.

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European Commission

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A country's balance-of-payments accounts keep track of the ____.

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payments to and receipts from other countries for a particular time period

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What is the term that describes when two or more enterprises encounter each other in different regional markets, national markets, or industries?

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Multipoint competition

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Which of the following statements is true about the growth of foreign direct investment in the world economy over the last few decades?

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FDI has accelerated faster than world trade growth.

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Identify the theory that supports the view that in some cases countries export for the reason that the world market can support only a limited number of firms.

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New trade theory

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_____ occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area.

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Trade creation

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Why is the European Council said to be the ultimate controlling authority within the EU?

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Since draft legislation from the commission can become EU law only if the council agrees

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According to the _____ policy, subsidies can help a firm achieve a first-mover advantage in an emerging industry.

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strategic trade

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Tariffs do not benefit:

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consumers

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How does the NAFTA seem to increase the international competitiveness of U.S. and Canadian firms?

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It allows them to take advantage of lower labor costs in Mexico.

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Specific tariffs are:

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levied as a fixed charge for each unit of a good imported.

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Which of the following observations about subsidies is true? rev: 10_29_2015_QC_CS-31314

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Government subsidies must be paid for, typically by taxing individuals and corporations.

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Suppose the price of a Big Mac in New York is $3.00 and the price of a Big Mac in Paris is equivalent to $3.75 at the prevailing euro/dollar exchange rate. Using the concept of purchasing power parity, the euro is:

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overvalued by 25 percent against the dollar.

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The _____ is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day.

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spot exchange rate

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Which level of economic integration eliminates trade barriers between member countries and adopts a common external trade policy?

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customs union

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When a country runs a current account deficit, what happens to the money that flows to other countries?

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It is used to buy assets in the deficit country.

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_____ is the impact of short-run currency exchange rates changes on the reported financial statements of a company.

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translation exposure

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Identify the theory that argues that advanced nations have an incentive to develop a new offering and hence such nations always tend to create a good or service for the first time.

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product life-cycle

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When a company brings capital and/or technology to a host country, the host country benefits from the:

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resource-transfer effect of FDI.

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Which term refers to the rate at which one currency is converted into another?

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exchange rate

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A political benefit of economic integration is that:

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it reduces the potential for violent conflict.

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A country rejects FDI proposals in certain industries. It does so because the tangible advantages of such investments are lesser than potential costs like loss of employment and reduction of overall well-being. However, it aggressively pursues inviting foreign investments in sectors like infrastructure, education, and healthcare because of the benefits that accrue with them. Which political view of FDI is discussed in this example?

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The pragmatic nationalist view

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International businesses use foreign exchange markets for all of the following reasons except:

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to cover themselves from all risks involved in currency speculation

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The "millennium round" ended in 1999 with:

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no agreement on the reduction of barriers to cross-border trade and investment

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Which of the following balance-of-payment accounts records one-time changes in the stock of assets?

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Capital account

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What is the most enduring free trade area in the world?

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EFTA

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Identify the theory that seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets.

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Internalization theory

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Which of the following is a direct consequence of the interdependence between firms in an oligopoly?

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imitative behavior

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When contemplating FDI, why do firms apparently prefer to acquire existing assets rather than undertake greenfield investments?

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Mergers and acquisitions are quicker to execute than greenfield investments.

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Licensing would be a good option for firms in which of the following industries?

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In fragmented, low-technology industries in which globally dispersed manufacturing is not an option.

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Which of the following is a reason why Turkey is not yet a member of the EU?

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Because of concerns over human rights issues in the country.

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Wal-Mart makes bulk purchases from its vendors and hence it is able to get better deals than its competitors. This allows Wal-Mart to offer greater discounts to its customers. In this case, Wal-Mart benefits from ____.

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economies of scale

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Which of the following is directly elected by the populations of the member states and is primarily a consultative rather than legislative body?

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The European Parliament

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According to the _____ argument, governments should temporarily support new industries until they have grown strong enough to meet international competition

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infant industry

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_____ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

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multipoint competition

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Import tariffs:

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reduce the overall efficiency of the world economy.

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A currency is said to be freely convertible when:

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both residents and nonresidents are allowed to purchase unlimited amounts of a foreign currency with it.

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Which of the following is a major drawback of using Knickerbocker's theory in explaining FDI?

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It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license

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The move toward economic union raises the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations. Which of the following offers a solution to this problem?

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political union

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In 1997, two South Korean manufacturers of semiconductors, LG Semicon and Hyundai Electronics, were accused of selling dynamic random access memory chips (DRAMs) in the U.S. market at below their costs of production. It was alleged that the firms were trying to unload their excess production in the United States. This is an example of:

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dumping

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The Smoot-Hawley Act aimed at:

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avoiding rising unemployment

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Which of the following statements is true of the Leontief Paradox?

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It raised questions about the validity of the Heckscher-Ohlin theory

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A(n) _____ involves the free flow of products and factors of production between member countries, the adoption of a common external trade policy, a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy.

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economic union

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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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local content regulations:

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protect domestic producers by limiting foreign competition.

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Assume that the law of one price holds. A shirt that retails for $120 in New York sells for £60 in London. The exchange rate between the British pound and the dollar is £1 = $1.50. Assuming away transportation costs and trade barriers, this creates a profit-making opportunity called ____.

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arbitrage

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_____ is a direct restriction on the quantity of some good that may be imported into a country.

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import quota

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_____ is most likely to occur when the value of the domestic currency is depreciating rapidly because of hyperinflation or when a country's economic prospects are shaky in other respects.

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capital flight

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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

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common market

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Which of the following is an example of a basic factor that a nation will possess as proposed by Porter?

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Natural Resources

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Which of the following observations is consistent with Michael Porter's theory of national competitive advantage?

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Factors such as domestic demand and domestic rivalry determine nations' dominance on production.

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The _____ states that a country's "nominal" interest rate is the sum of the required "real" rate of interest and the expected rate of inflation over the period for which the funds are to be lent.

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Fisher Effect

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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?

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licensing

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Which of the following terms refers to the unit cost reductions associated with large sized outputs?

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economies of scale

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Which of the following acts allows Americans to sue foreign firms that use property in Cuba confiscated from them after the 1959 revolution?

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Helms-Burton Act

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According to Ricardo's theory of comparative advantage, a country should produce goods ____.

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that it produces most efficiently

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Which of the following is true of ASEAN?

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It is slowly progressing toward establishing a free trade zone

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What is double taxation in the context of FDI?

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Taxation of income in both home and host country

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The U.S. government has used the threat of punitive trade sanctions to try to get the Chinese government to enforce its intellectual property laws. This is an example of government intervention based on:

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retaliation

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Which of the following explains why economic integration has never been easy to achieve or sustain, despite the strong economic and political arguments in support?

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While a nation as a whole may benefit significantly, certain groups may lose.

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According to the _____ view of FDI, MNEs extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange.

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radical

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Which treaty, signed in December 1991, committed EC members to adopting a common currency by January 1, 1999?

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The Maastricht Treaty

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Bolivia, Peru, Ecuador, Columbia, and Venezuela are all members of:

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Andean Pact

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In early 2006, six CARICOM members and the United States established the ____, which was modeled on the EU's single market.

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Caribbean Single Market and Economy

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The WTO argues that removing tariff barriers and subsidies in the agricultural sector could:

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lower prices to consumers

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The European Community was established by:

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the Treaty of Rome signed in 1957.

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Assume that the current exchange rate is €1 = $1.50. If you exchange 1,000 euros for dollars, you will receive ____.

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$1500

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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?

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common market

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According to the law of one price, if the exchange rate between the British pound and the dollar is £1 = $1.50, a shirt that retails for $120 in New York should sell for _____ in London.

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£80

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Identify the theory that predicts that countries will export those goods that make intensive use of factors that are locally abundant.

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Heckscher-Ohlin Theory

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In a(n) ____, similarities in the underlying structure of economic activity make it feasible to adopt a single currency and use a single exchange rate as an instrument of macroeconomic policy.

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optimal currency area

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Which of the following theories suggests that first mover advantage is significant in the export of a good?

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New trade theory

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Which of the following is a consequence of subsidies?

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Subsidies protect inefficient domestic producers.

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Which of the following is a reason why the European Union is considered an imperfect economic union?

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Not all members of the union have adopted the euro.

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The _____ suggests that given relatively efficient markets, the price of a "basket of goods" should be roughly equivalent in each country.

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purchasing power parity theory

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By lowering production costs, _____ help domestic producers compete against foreign imports.

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subsidies

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Which of the following occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area?

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trade diversion

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Which of the following was required for new applicants to qualify for EU membership?

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deregulation of markets

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_____ is variously defined as selling goods in a foreign market at below their costs of production or as selling goods in a foreign market at below their "fair" market value.

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dumping

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According to ____, some specific fraction of a good must be produced domestically.

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local content requirements

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An exchange rate of €1 = $1.30 indicates that:

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one euro buys 1.30 dollars.

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Foreign producers typically agree to voluntary export restrictions because:

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they fear far more damaging punitive tariffs or import quotas might follow if they do not.

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Which of the following arguments supports the Paul Samuelson's critique?

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A rich country cannot produce net gains by engaging in free trade with a poor country.

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Which of the following summarizes the total amount of resources invested in factories, stores, office buildings, and the like?

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gross fixed capital formation

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Advantages that arise from using resource endowments or assets that are tied to a particular place and that a firm finds valuable to combine with its own unique assets are known as:

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location-specific advantages

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According to the 1986 Uruguay Round, the _____ was to be created to implement the GATT agreement.

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World Trade Organization

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Which feature of a customs union differentiates it from a free trade area?

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A common external trade policy toward nonmembers

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Assume that the yen/dollar exchange rate quoted in Tokyo at 3:00 p.m. is ¥120 = $1, and the yen/dollar exchange rate quoted in New York at the same time is ¥123 = $1. A dealer in New York uses dollars to purchase yen and then immediately sells the yen to buy dollars in Tokyo, thereby making a profit. The dealer has engaged in a(n):

answer

arbitrage

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The _____ school of thought argues that forward exchange rates do the best possible job of forecasting future spot rates and therefore investing in forecasting services would be a waste of money.

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efficient market

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Which of the following arises when a country is importing more goods and services than it is exporting?

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trade deficit

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According to the strategic trade policy argument:

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government support can help domestic firms overcome the first-mover advantages enjoyed by foreign competitors.

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According to Knickerbocker's theory:

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when a firm that is part of an oligopolistic industry expands into a foreign market, other firms in the industry will be compelled to make similar investments.

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Which political view allows FDI so long as the benefits outweigh the costs?

answer

pragmatic nationalist view

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_____ uses price and volume data to determine past trends, which are expected to continue into the future.

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technical analysis

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The _____ states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.

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law of one price

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Which of the following theories emphasizes the interplay between the proportions in which the factors of production are available in different countries and the proportions in which they are needed for producing particular goods?

answer

Heckscher-Ohline theory

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What was the main objection raised by those in the United States and Canada who opposed the ratification of the NAFTA?

answer

job losses

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Which of the following is seen as a disadvantage of the euro?

answer

National authorities losing control over monetary policy

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What is the concept that is concerned with the long-run effect of changes in exchange rates on future prices, sales, and costs?

answer

economic exposure

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The lowering of barriers to trade and investment between countries is likely to lead to _____ throughout the EU.

answer

increased price competition

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_____ are exchange rates governing some specific future date foreign exchange transactions.

answer

forward exchange rates

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How can FDI undertaken to serve the home market stimulate economic growth in the home country?

answer

By freeing home-country resources to concentrate on activities where the home country has a comparative advantage

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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?

answer

Country A should import product X from country B and it should not attempt to produce it at home

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Country X, a poor country, invents a revolutionary electronic product. The country markets this new product in other poor countries to garner large profits. This occurrence is against the idea of ____.

answer

product life-cycle theory

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Country X and Country Y reach an agreement to boost bilateral trade. They agree to remove all barriers to the trade of goods and services. They, however, are free to determine their own trade policies with regard to nonmembers. Which level of economic integration is this an example of?

answer

free trade area

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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?

answer

free trade

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FDI occurs when a firm:

answer

invests directly in facilities to produce a product in a foreign country.

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Which of the following is the prime reason why Africa has attracted FDI in recent years?

answer

raw material availability

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Which of the following factors, according to Porter's National Diamond, is most likely to give a country competitive advantage over another country?

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skilled labor

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The stock of FDI is:

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the total accumulated value of foreign-owned assets at a given time.

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_____ is a quota on trade imposed by the exporting country, typically at the request of the importing country's government.

answer

Voluntary export restraint

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When two parties agree to exchange currency and execute the deal immediately, the transaction is a:

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spot exchange

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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?

answer

nontariff barriers

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Which of the following terms refers to the extent to which a country is gifted with such resources as land, labor, and capital?

answer

factor endowments

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In which of the following situations would FDI improve the current account of the host country's balance of payments?

answer

If the FDI is a substitute for imports of goods or services

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The _____ suggests that a firm will establish production facilities where foreign assets or resource endowments that are important to the firm are located.

answer

eclectic paradigm

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Which of the following observations concerning Knickerbocker's theory is true?

answer

It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license.

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Identify the INCORRECT statement about trade barriers.

answer

They may put a firm at a competitive advantage to indigenous competitors.

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If the demand for dollars outstrips its supply and if the supply of Japanese yen is greater than the demand for it, what will happen?

answer

The dollar will appreciate against the yen

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Which of the following is a major benefit of engaging in free trade?

answer

It gives countries access to products that they cannot produce.

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Why do governments limit currency convertibility?

answer

To preserve foreign exchange reserves.

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Company A entered the production of office software before its competitors. Because of this, the company's products are more familiar among and favored by customers. This situation exemplifies the ____.

answer

first-mover advantage

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Which of the following is a major flaw associated with mercantilism?

answer

Mercantilists view trade as a zero-sum game.

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Diminishing returns to specialization occurs when ____.

answer

more units of resources are required to produce each additional unit

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