GEB3723 Exam 2

US Italy Beer 5 kegs 8 kegs Pizzas 10 pizzas 12 pizzas According to the theory of comparative advantage, the U.S. should A. not engage in trade with Italy but produce both beer and pizza domestically B. specialize in pizza production and import beer from Italy C. specialize in beer production and import pizza from Italy D.import both beer and pizza from Italy

U.S. France Pairs of jeans 8 12 Bottles of wine 16 8 France has an absolute advantage in the production of A. both jeans and wine B. wine only C. neither jeans nor wine D. jeans only

U.S. FRANCE Pairs of jeans 4 6 Bottles of wine 3 2 France has the absolute advantage in producing both jeans and wine. True / False?

Which theory states that success in international trade comes from the interaction of four​ country- and​ firm-specific elements? A. Country similarity theory B. New Trade Theory C. Theory of national competitive advantage D. Theory of relative factor endowments

Porter's Theory of National Competitive Advantage states that international-trade success comes from which of the following elements? A. related and supporting industries and firm strategy, structure, and rivalry B. ownership advantages and demand conditions C. comparative advantage and factor conditions D. internalization and location advantages

In the Internalization Theory of foreign direct investment, what are "transaction costs"? A. the costs of negotiating and enforcing contracts for exporting, licensing, franchising, or contract manufacturing B. the costs of doing business in a particular country, including taxes and tariffs C. international transportation costs D. the costs of negotiating and enforcing contracts for FDI, labor, wages, benefits, and/or constructions materials

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

According to data presented in the Chapter 6 PowerPoint from the UNCTAD World Investment Report, which two markets in Asia receive the most FDI inflows? A. China and Singapore B. Japan and Russia C. Hong Kong and the U.S. D. China and Hong Kong

What is the Lincoln Fallacy? A. When we buy goods from foreigners, we get the goods and foreigners get the money B. When we invest in foreign countries, we get goods and foreigners get money C. When foreigners invest in our country, we get money and foreigners get goods D. When foreigners buy goods from us, we get the goods and foreigners get the money

According to the Product Life Cycle Theory, _______ competitors emerge during the _______ Product Stage. A. only foreign; Maturing Product B. only domestic; Standardized C. both domestic and foreign; Standardized D. both domestic and foreign; Maturing Product

When the profitability of a product is uncertain and customer reactions are closely monitored, the product is most likely in which stage of the product Life Cycle? A. New Product Stage B. Maturing Product Stage C. Standardized Product Stage D. Expanding Product Stage

Which of the following is an example of an economy of​ scale? A. The cost of computers increases as the quantity that is produced decreases B. The cost of computers increases as the quantity that is produced increases C. The cost of computers decreases as the quantity that is produced increases D. The cost of computers stays the same whether production increases or decreases

According to Dunning's Eclectic Theory, FDI occurs when all of the following conditions are met EXCEPT A. internalization advantage B. location advantage C. internationalization advantage D. ownership advantage

Which of the following would be an example of the experience​ curve? A. An advantage that a company gets with factory workers who have experience with a certain product B. An advantage that a company gets with years of proven financial success C. An advantage that a company gets with years of experience in a given regional market D. An advantage that a company gets with experience in trading and interacting in foreign markets

According to the _____ Theory, a country will have a(n) _______ advantage in producing goods that intensively use resources it has in abundance. A. Mercantilist; comparative B. Heckscher-Ohlin; comparative C. Mercantilist; absolute D. Heckscher-Ohlin; absolute

A firm is more likely to engage in FDI and produce goods abroad in a particular country if import tariffs there are ____ and economic incentives there are _____. A. high; generous B. high; nonexistent C. low; generous D. low; nonexistent

Why might trade barriers encourage FDI? A. Due to WTO rules, tariffs and FDI levels must be linked B. Companies may avoid a country with generous economic incentives for FDI and instead produce at home C. Countries generally require FDI when they impose tariffs D. Companies may choose to build a factory and produce inside a country to avoid tariffs that come with exports

Intraindustry trade may occur because A. countries with divergent per capita incomes have divergent preferences B. countries with similar per capita incomes have divergent preferences C. countries with similar per capita incomes have similar preferences D. countries with divergent per capita incomes have similar preferences

Which of the following is NOT a reason for the development of modern​ firm-based trade​ theories? A. The recognition that​ countries, not​ firms, are the agents for international trade B. The inability of the country based theories to explain and predict the existence and growth of intraindustry trade C. Firm-based theories incorporate factors such as​ quality, technology, brand​ names, and customer loyalty into explanations of trade flows D. Recognition of the growing importance of MNCs in the postwar international economy

According to New Trade Theory, multinational enterprises can achieve a sustainable competitive advantage with all of the following methods EXCEPT A. Owning intellectual property rights B. Investing in research and development C. Using economies of scope to lower costs D. Trading only with unrelated industries

Which of the following is an example of a capital outflow for the United States? A. U.S. machinery company Caterpillar sells a production facility in India to Japanese competitor Kubota B. John Deere, another U.S. machinery company, acquires Caterpillar in a multimillion dollar transaction C. German car company Audi sells stock in GM to an American resident D. Ford exports a 2017 Explorer to France

Which of the following is an example of a capital inflow to the United States? A. An Israeli drug manufacturer buys a Pennsylvania-based pharmaceutical company B. Pepsi buys 74% of Russian beverage co. OAOL C. India's Tata Motors sells its stake in U.S. Ford Motors to German car company Audi D. German mutual fund sells stock in GM to U.S. resident

The World Bank system is controlled by _______. A. a weighted voting system B. equal voting rights by all controlling members C. the changing needs of the economy D. the elected leaders of the board

The Balance of Payments Accounting System does not provide any signals about the health of a nation's economy. True / False ?

If two countries each devalue their currency by 20​ percent, which of the following would​ happen? A. Both countries would gain advantage because each​ currency's value would differ from the other based on world market B. Neither would gain an advantage because each​ currency's value relative to the other would remain the same C. The country that devalued their currency second would have an advantage over the other because the currency value would be lower initially D. The country that devalued their currency first would experience a disadvantage because the currency value would be higher initially

Why did the United States sell​ one-third of its gold reserves in​ 1971? A. To lower the value of its SDRs B. too much gold on hand C. Not enough paper currency on hand D. To maintain the​ dollar's value

If domestic ownership of foreign assets falls, this is considered a A. current account credit B. current account debit C. capital inflow D. capital outflow

If domestic ownership of foreign assets increases, this is considered a A. Capital inflow B. Current account credit C. Capital outflow D. Current account debit

Assume we are operating under the gold standard. The par value of the Japanese Yen (¥) is 9 and the par value of the American dollar ($) is 2, what is the fixed exchange rate? A. 18 B. 0.22 C. 4.5 D. 2

Assume we are operating under the gold standard. If the fixed exchange rate between the dollar and the pound is 5 and the dollar's par value is 10, what is the pound's par value? A. 0.5 B. 500 C. 2 D. 50

Assume we are operating under the Bretton Woods system. The Australian dollar is pegged at US$2.50. What would happen if the Australian dollar appreciated to US$3.50? A. The U.S. government would buy gold and foreign currency on the foreign exchange market B. The U.S. government would sell gold and foreign currency on the foreign exchange market C. The Australian government would sell gold and foreign currency on the foreign exchange market D. The Australian government would buy gold and foreign currency on the foreign exchange market

Assume we are operating under the Bretton Woods system. The British pound is pegged at US$3.50. Which of the following would NOT occur if the British pound depreciates to US $3.395? A. The British government could sell gold to buy pounds B. The British government could sell U.S. dollar reserves to buy pounds C. The British government could do nothing as long as the pound remains within 5% of the peg D. The British government could implement policies to attempt to increase the international demand for pounds

The balance on services reflects which of the​ following? A. Competitiveness of the import sector on services B. The service​ sector's global competitiveness C. The merchandise​ sector's global competitiveness D. Competitiveness of the manufacturing sector

Which of the following is/are a signal/signals that the BOP accounting system provides about a country's economy? A. Shows a decrease in foreign-exchange reserves B. Warns of policies that may change the business climate C. all of these D. Identifies emerging markets for goods and services

Why did the Bretton Wood System collapse? A. The IMF had exhausted all its funds trying to support it B. The U.S. supply of gold and dollars could no longer support it C. President Nixon was globally unpopular D. The Smithsonian conference failed to save it

What is the Triffin Paradox? A. Although foreigners needed U.S. dollars in the Bretton Woods System, the more dollars they held, the less they trusted the system B. A country's real and nominal interest rates always move in opposite directions even though exchange rates always move in the same direction C. The investment mechanism that triggered the 2008 subprime meltdown D. Petrodollars being lent to developing countries

All of the following helped cause the 1997 Asian financial crisis EXCEPT A. increasing trade deficits B. bank and business debt C. financial panic D. significant capital outflows

Which of the following is cited as one of the causes of the 1997 Asian Currency Crisis? A. a coup in Thailand B. an extended period of financial stability C. significant capital outflows D. increasing trade deficits

All of the following are potential problems with adopting the gold standard EXCEPT A. It would eliminate the government's ability to conduct fiscal policy B. It would eliminate the government's ability to conduct monetary policy C. The world's need more money may increase faster than the supply of gold D. Gold has no intrinsic value, so the system would be no more stable than our current system

Using the gold standard eliminates the possibility that inflation can occur. True / False ?

The PPP Theory states that A. Big Macs all cost about the same worldwide B. prices of goods tend to equalize across countries due to exchange rate changes C. arbitrage should happen frequently due to fluctuations in the forex market D. worldwide, workers work the same amount of hours to earn the same wage

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? A. Swap transaction B. Two-point arbitrage C. Currency option D. Currency future

All of the following cities are large foreign-exchange markets EXCEPT A. London B. Rome C. New York City D. Tokyo

Eurodollars came about when A. Communist nations in Eastern Europe found European banks willing to hold accounts for them in US dollars B. Middle Eastern oil producers moved their petrodollars from their domestic banks to European banks C. Middle Eastern oil producers moved their petrodollars from European banks to their domestic banks D. Communist nations in Eastern Europe found American banks willing to hold accounts for them in US dollars

Eurocurrency is A. another name for the EU's currency, the euro B. exactly the same thing as Eurodollars C. money held outside its country of issue D. none of these

Suppose that ₤1 buys $2 in New York and $2.10 in Tokyo. Then A. no opportunities for arbitrage exist B. an opportunity for three-point arbitrage exists C. an opportunity for two point arbitrage exists D. an opportunity for both two- and three-point arbitrage exists

According to the Chapter 8 lecture, all of the following factors influence exchange rates EXCEPT A. interest rates B. public debt C. inflation rate differentials D. political stability

Suppose your company is considering investing in a new market, and your boss asks you to determine how stable its currency is likely to be over the next few years. What would be the best metric to help you make that judgment? A. the country's official reserves account B. the country's IMF borrowing position C. the 3-month forward rate on the country's currency D. the spot rate on the country's currency

According to the International Fisher Effect, if a country's inflation rate is expected to increase, the nominal interest rate will A. rise B. fall C. fall, then rise D. stay the same

According to the International Fisher Effect, if a country's inflation rate is expected to fall, the forward discount will A. shrink B. shrink, then widen C. widen, then shrink D. widen

Suppose the spot rate is $1 = €0.7960 and the 3-month forward rate is $1 = €0.7973. What is the annualized forward premium or discount? (Answer may or may not be approximate.) A. -0.65% B. 0.65% C. -0.49% D. 0.49%

Assume we are comparing the ₤ and the $. Suppose the annualized forward premium on the ₤ = 1.6%. The spot price of the ₤ = $1.25, and we are calculating the AFP based on the 6-month forward price. What is the forward price of the ₤? (Answer may or may not be approximate.) A. 1.247 B. 1.253 C. 1.24 D. 1.26

The indirect exchange rate is $0.05 / ¥1. Then the direct exchange rate is A. *¥20 / $1 B. $20 / ¥ 1 C. ¥1 / $0.05 D. ¥0.05 / $1

Suppose: €1 buys $1.10 in NY, Tokyo, and London ₤1 buys $1.05 in NY, Tokyo, and London ₤1 buys €0.90 in NY, Tokyo, and London Which of the following statements is true? A. The cross rate and direct quote are the same, so there is no opportunity for three-point arbitrage B. The cross rate and direct quote differ, so there is an opportunity for three-point arbitrage C. The cross rate and direct quote differ, so there is no opportunity for three-point arbitrage D. The cross rate and direct quote are the same, so there is an opportunity for three-point arbitrage

Suppose: ₤1 buys €1.50 in NY, Tokyo, and London €1 buys $1.50 in NY, Tokyo, and London ₤1 buys $1.50 in NY, Tokyo, and London Is there an opportunity for two-point arbitrage? A. Yes, because the direct rates are the same in all markets B. Yes, because the direct rates differ in all markets C. No, because the direct rates differ in all markets D. No, because the direct rates are the same in all markets

Your employer has significant liabilities in €. After analyzing the forex market, you conclude that the € is selling at a forward premium. As a result, you should recommend that your company A. make no changes in its holdings B. increase its liabilities in € C. wait until the € rises more before acting D. decrease its liabilities in €

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? A. No. As the​ ₤ appreciates,​ ₤-denominated assets lose value B. No. As the​ ₤ appreciates,​ ₤-denominated assets become more costly C. Yes. A premium means the value of the​ ₤ is​ falling, so assets become cheaper D. Yes. A premium means that assets will increase in value

In the​ U.S., a Big Mac costs on average​ $5. In​ Mexico, the Big Mac costs​ $1.00. 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. A. overvalued 80 B. overvalued; 100 C. undervalued; 100 D. undervalued; 80

Fair trade is defined as governments A. refusing to intervene in import and export markets B. relying on the market to control imports and minimize domestic job losses C. exerting minimal influence on the export and import decisions of private firms D. enacting "managed trade" policies

A tariff is defined as a A. Tax on a good traded domestically B. Tax on a good traded internationally C. Subsidy on a good traded internationally D. Subsidy on a good traded domestically

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? A. Tariff protection B. Nontariff barrier C. Economic incentives D. Industrial policy

A country may choose to limit its own exports for all of the following reasons EXCEPT A. to keep good relations with an ally B. the WTO requires it C. to promote competitiveness in related domestic industries D. to help another country

Firms sometimes believe that foreign competitors gain an unfair advantage due to which of the​ following? A. Economic status B. Location C. Government policies D. Resources

The U.S. 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? A. Voluntary export restraint B. Local subsidies C. Harmonized tariff schedule D. Foreign trade zones

According to _______, special interest groups often dominate the general interest on any given issue because they are willing to work harder for laws favorable to their interests than the public is willing to work against those laws unfavorable to its interest. A. Industrial Policy B. Maintenance of Jobs Argument C. Strategic Trade Theory D. Public Choice Analysis

According to the Chapter 9 lecture, where has Industrial Policy been successful? A. South Korea B. France C. South Africa D. Peru

Suppose the U.S. imposes a very low tariff rate on the first 10,000 tons of bananas imported into the country, but that any bananas above that threshold are subject to a 300% ad valorem tariff. This is known as a A. harmonized tariff schedule B. tariff rate quota C. compound tariff D. voluntary export restraint

Which Russian firm most likely publicly revealed and compromised a U.S. military cyber effort to gather intelligence on ISIS in the Middle East? A. Russia Today B. Rosneft C. Kaspersky D. Kremlin

Egypt gives​ state-owned enterprises a 15 percent bidding preference on public​ contracts, while Argentina grants domestically owned firms a 5 to 7 percent​ preference; Turkey, a 15 percent​ preference; Thailand, 7​ percent; and​ Paraguay, 20 percent. Russia grants local firms a 15 percent preference on pharmaceutical​ contracts, while​ Kenya's Public Procurement and Disposal Act requires that certain government contracts be given only to Kenyan citizens. These are examples of what type of​ non-quantitative NTB? A. Local-purchase requirements B. Regulatory controls C. Public-sector procurement policies D. Product and testing standards

U.S. tariffs on steel will mostly likely cause A. job gains in industries that use steel as an input B. job losses in the U.S. steel industry C. net job gains D. net job losses

All of the following would likely support a U.S. tariff on Canadian lumber imports EXCEPT A. American lumberjacks B. American logging companies C. American construction companies D. Congressional representatives from districts with logging companies

Removing trade barriers across the continent of Africa could increase trade by up to _____ annually. A. $53 billion B. $34 billion C. $73 billion D. $14 billion

Suppose the U.S. government eliminates subsidies for its commercial aircraft sector. As a result, the domestic supply of commercial aircraft will _____, causing the price to ______. A. decrease; increase B. decrease; decrease C. increase; increase D. increase; decrease

What is the difference between a countervailing duty (CVD) and an anti-dumping law (ADL)? A. CVDs deal with subsidies; ADLs deal with price discrimination B. There is no difference; both deal with price discrimination C. There is no difference; both deal with subsidies D. ADLs deal with subsidies; CVDs deal with price discrimination