SOM Ch 11 MC

Which of the following refers to the institutional arrangements that govern exchange rates? A. Generally accepted accounting principles B. General agreement on tariffs and trade C. International monetary system D. General agreement on trade in services E. Financial management information system

Which of the following refers to a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand? A. Fixed exchange rate B. Floating exchange rate C. Forward exchange rate D. Pegged exchange rate E. Nominal exchange rate

In which kind of exchange rate is the value of the currency fixed relative to a reference currency, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate? A. Flexible B. Pegged C. Real D. Dirty-float E. Floating

Many of the world's developing nations peg their currencies, primarily to the: A. U.S. dollar. B. Saudi riyal. C. Japanese yen. D. Chinese yuan. E. German deutsche mark.

In a floating exchange rate, the relative value of a currency: A. is more predictable and less volatile. B. is determined by market forces. C. changes infrequently only under a specific set of circumstances. D. is set against other currencies at some mutually agreed on exchange rate. E. does not depend on the free play of market forces.

Which of the following refers to a system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value? A. Fixed float B. Clean float C. Pegged float D. Dirty float E. Capital float

Which of the following statements is true about the various exchange rate systems? A. In a fixed exchange rate system, the value of a currency is adjusted according to the day to day market forces. B. In a clean float, the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency. C. After the collapse of the Bretton Woods system of floating exchange rates in 1973, the world has operated with a fixed exchange rate system. D. Under the Bretton Woods system, currency devaluations over 10 percent were allowed only with the approval of the IMF. E. In dirty float, the exchange rate between a currency and other currencies is relatively fixed against a reference currency exchange rate.

In which kind of exchange rate system are the values of a set of currencies set against each other at some mutually agreed on exchange rate? A. Clean float B. Floating C. Fixed D. Dirty-float E. Pegged

The 1944 Bretton Woods conference created two major international institutions that play a role in the international monetary system—the International Monetary Fund (IMF) and the: A. United Nations. B. European Union. C. World Trade Organization. D. World Bank. E. G20.

Which of the following refers to the gold standard? A. Pegging currencies to gold and guaranteeing convertibility B. Conducting international trade by physically exchanging gold C. The most valuable currency in the world at any given point in time D. The common global standard of gold quality to be maintained E. The quality of merchandise to be maintained for it to be exportable

Which of the following is a reason for the emergence of the gold standard? A. Expansion in the volume of international trade due to the Industrial Revolution B. Inability of governments to convert gold into paper currency on demand at a fixed rate C. Widening gap between the developed and the developing nations D. Failure of the Bretton Woods fixed exchange rate system E. Failure of the U.S. dollar to act as a reference currency

In terms of the gold standard, the amount of currency needed to purchase one ounce of gold was referred to as the: A. gold to bond ratio. B. gold reserve ratio. C. gold mix ratio. D. gold par value. E. gold net value.

Which of the following describes a country when the income its residents earn from exports is equal to the money its residents pay to other countries for imports? A. A currency crisis B. Balance-of-trade equilibrium C. Balance-of-payments deficit D. Balance-of-trade surplus E. Fiscal deficit

Which of the following is a great strength of the gold standard? A. It helped establish the dollar as a predominant vehicle currency. B. It helped governments raise foreign exchange reserves thereby increasing economic stability. C. It contained a powerful mechanism for achieving balance-of-trade equilibrium by all countries. D. It helped reduce inflation to near-zero levels in all countries engaged in international trade. E. It helped to establish a common currency across the globe to fund international trade.

Which of the following statements is true about the gold standard? A. Given a common gold standard, the value of any currency in units of any other currency was easy to determine. B. Establishing a gold standard seemed impractical as the volume of international trade expanded in the wake of the Industrial Revolution. C. A drawback of the gold standard was that it failed to provide a mechanism for achieving balance-of-trade equilibrium by all countries. D. Under the gold standard, when a country has a trade deficit, there will be a net flow of gold from the other countries to that country. E. The gold standard refers to the use of gold coins as a medium of exchange between countries involved in international trade.

In the 1930s, countries were devaluing their currencies at will in order to boost exports, thus shattering confidence in the: A. floating exchange rate system. B. gold standard system. C. fixed exchange system. D. Bretton Woods system. E. managed-float system.

Certovia and Norkland are two neighboring countries that actively trade goods and services with each other. Under the gold standard, there will be a net flow of gold from Norkland to Certovia when: A. Certovia is in trade deficit with Norkland. B. Norkland is in balance-of-trade equilibrium with Certovia. C. Certovia is in trade surplus with Norkland. D. Certovia imports more than it exports to Norkland. E. Norkland's balance of payment to Certovia is favorable.

Argonia Republic is in trade surplus with Kamboly. Under the gold standard, which of the following statements is true until a balance-of-trade equilibrium is achieved? A. There will be a net flow of gold from Argonia Republic to Kamboly. B. The money supply in Kamboly will be reduced due to the flow of gold to Argonia Republic. C. The prices of the traded goods in Kamboly will increase. D. The demand for traded goods in Argonia Republic will increase. E. Kamboly will start to buy more goods from Argonia Republic.

Which of the following was a reason that led to the collapse of the gold standard in 1939? A. Difficulty and complexity in using the gold standard to determine the exchange rate B. Agreement by governments to convert paper currency into gold on demand at a fixed rate C. A cycle of competitive currency devaluations by various countries D. Expansion in the volume of international trade in the wake of the Industrial Revolution E. The inability of the gold standard to act as a mechanism for achieving balance-of-trade equilibrium by all countries

All countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold, according to the 1944: A. Bretton Woods agreement. B. Washington Consensus. C. World Bank treaty. D. Group of Five treaty. E. United Nations agreement.

The objective of establishing the World Bank was to: A. revive the gold standard. B. promote general economic development. C. control and manage the International Monetary Fund. D. promote a floating exchange rate system. E. approve large currency devaluations.

Which of the following observations is true of the Bretton Woods agreement? A. The participating countries were required to exchange their currencies for gold. B. Devaluation was accepted as a tool of competitive trade policy. C. The agreement called for a system of floating exchange rates. D. For weak currencies, devaluation of up to 10 percent was allowed without any formal approval by the International Monetary Fund. E. A fixed exchange rate system was deemed impractical.

An aspect of the Bretton Woods agreement was a commitment not to use: A. the system of fixed exchange rates. B. devaluation as a weapon of competitive trade policy. C. gold as a measure to fix the value of currencies. D. funds from the International Monetary Fund and the World Bank. E. the U.S. dollar as a reference currency.

Under a fixed exchange rate regime, what would be the result if a country rapidly increased its money supply by printing currency? A. It would lead to an increase in the worth of the currency. B. The prices of imports would become more attractive in the country. C. The country's goods would be highly competitive in world markets. D. Trade surplus in the country would increase. E. It would lead to price deflation in the country.

The architects of the Bretton Woods agreement built limited flexibility into the fixed exchange rate system in order to: A. avoid high unemployment. B. facilitate competitive currency devaluations. C. widen balance-of-payments gap between countries. D. increase money supply and thereby price inflation. E. avoid balance-of-trade equilibrium between countries.

How does the International Monetary Fund (IMF) provide loans to deficit-laden countries? A. It prints the required currencies, thereby increasing money supply in those countries. B. It acts as a market, buying goods from these countries and selling them to developed countries. C. A pool of gold and currencies contributed by its members provides the resources for lending operations. D. The World Bank lends the required amount to the IMF at a low interest rate. E. It collects money from those countries that wish to devaluate their currencies.

Which term was not defined in the International Monetary Fund's Articles of Agreement but was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products? A. Competitive disadvantage B. Capital flight C. Fundamental disequilibrium D. Break-even point E. Diseconomies of scale

Without currency devaluation, a country in "fundamental disequilibrium" would experience: A. a persistent trade surplus. B. a balance-of-payments equilibrium. C. an increase in exports. D. high unemployment. E. deflation.

Which of the following was the initial mission of the World Bank? A. Maintaining order in the international monetary system B. Financing the building of Europe's economy by providing low-interest loans C. Taking over as the successor to the International Monetary Fund D. Reviving the gold standard system E. Enforcement of the floating exchange rate system

Which of the following was responsible for the World Bank shifting its focus from Europe to third-world nations? A. The Great Depression B. The Jamaica agreement C. World War II D. The Marshall Plan E. The Bretton Woods agreement

What was the effect of the Marshall Plan? A. The United States lent money directly to European nations to help them rebuild their economies. B. Member countries of the International Monetary Fund were free to engage in competitive currency devaluations. C. The World Bank lent funds to reconstruct the war-torn economies of Europe. D. The United States lent money to third-world nations to support their public-sector projects. E. The World Bank lent money to the International Monetary Fund so that it could finance deficit-laden countries.

Which of the following is true of the International Bank for Reconstruction and Development (IBRD) scheme of the World Bank? A. Resources to fund IBRD loans are raised through subscriptions from wealthy members. B. The interest rate charged by the World Bank is higher than the commercial banks' market rate. C. Borrowers have to pay the bank's cost of funds plus a margin for expenses. D. The bank avoids offering low-interest loans to risky customers whose credit rating is often poor. E. It was established to approve currency devaluations that are beyond 10 percent.

Which of the following observations about the International Development Association (IDA) scheme of the World Bank is true? A. Money is raised through bond sales in the international capital market. B. Borrowers have up to 50 years to repay at an interest rate of less than 1 percent a year. C. IDA loans go only to European countries. D. Grants and interest-free loans are denied to governments of underdeveloped nations. E. The bank offers loans only to customers with a satisfactory credit rating.

The collapse of the fixed exchange rate system has been traced to the: A. U.S. macroeconomic policy package of 1965-1968. B. inflexibility of the fixed exchange rate system that led to high unemployment. C. Marshall Plan, under which the United States lent money heavily to European nations. D. failure of the International Monetary Fund to impose monetary discipline. E. increased taxes in the United States to finance its welfare programs.

Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by: A. the sale of gold reserves. B. borrowing from the International Monetary Fund. C. an increase in the money supply. D. an increase in taxes. E. selling bonds in the international capital market.

Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by an increase in the money supply, resulting in: A. increased exports. B. a rise in price inflation. C. increased taxes. D. a positive trade balance. E. an increase in the worth of currency.

Which of the following was an announcement made by U.S. President Nixon to enable the devaluation of the dollar during the increase in inflation in 1971 in the United States? A. The IMF member countries would adopt the gold standard to fix exchange rates. B. The United States would no longer support the World Bank. C. A new 15 percent tax would be charged on U.S. exports. D. The dollar would no longer be convertible into gold. E. German deutsche marks would be the new reference currency.

Which of the following was the weakness of the Bretton Woods system? A. It could be wrecked by heavy borrowings from the World Bank and the International Monetary Fund. B. It could not work if the U.S. dollar was under speculative attack. C. The inflexibility of the system resulted in high unemployment. D. It forced fiscal and monetary discipline on participating nations. E. It allowed the countries to engage in competitive currency devaluations.

In January 1976, which one of the followed revised the International Monetary Fund's Articles of Agreement to reflect the new reality of floating exchange rates? A. Jamaica agreement B. Bretton Woods agreement C. Marshall Plan D. General agreement on Tariffs and Trade E. Plaza Accord

Which of the following was abandoned as per the Jamaica agreement of 1976? A. Floating exchange rate system B. U.S. dollar as the reference currency C. Gold as a reserve asset D. Membership to the International Monetary Fund E. Granting International Monetary Fund loans to less developed countries

Which of the following statements is true about the changes in the world monetary system since March 1973? A. The value of the U.S. dollar has never seen a fall ever since. B. Exchange rates have become much more volatile. C. Exchange rates have become more predictable. D. The fixed rate system was adopted to calculate exchange rates. E. The European Monetary System as an institution has gained more prominence.

Which of the following is one of the reasons for the rapid rise in the value of the dollar between 1980 and 1985 despite a large trade deficit? A. Political stability in all other parts of the world B. Heavy capital outflows from the United States C. Low real interest rates in the United States D. Slow economic growth in the developed countries of Europe E. Increasing exports against decreasing imports in the United States

The fall in the value of the U.S. dollar between 1985 and 1988 was caused by: A. economic growth in the developed countries of Europe. B. a fall in prices of exported U.S. goods. C. a trade surplus in the United States during the previous years. D. a combination of government intervention and market forces. E. the protectionism measures adopted by European countries.

Under the Plaza Accord of 1985, the Group of Five major industrial countries concluded that it would be desirable if: A. the countries returned to a system of fixed exchange rates. B. the participating members reverted to the gold standard. C. the United States adopted protectionism to improve its trade balance. D. most major currencies appreciated vis-à-vis the U.S. dollar. E. governments did not regulate the buying and selling of currency.

Which of the following explains the rise of the dollar against most major currencies in the late 1990s, even though the United States was still running a significant balance-of-payments deficit? A. Reduced government intervention in the foreign exchange market B. Increased foreign investments in U.S. financial assets C. Low real interest rates in the United States compared to the rest of the world D. Increased exports as opposed to imports E. Increased communism in the United States

From mid-2008 through early 2009, the value of the dollar moderately increased against major currencies, despite the fact that the American economy was suffering from a serious financial crisis. Which of the following was a reason for this phenomenon? A. High real interest rates in the United States compared to any other developed region in the world sparked an inflow of funds into the country. B. U.S. assets were characterized by a high-risk, high-return payoff which prompted foreign investors to park their funds. C. Foreign investors were excited at the possibility of high returns following the government bail-out of financial institutions. D. Foreign investors put their money in low-risk U.S. assets such as low-yielding U.S. government bonds. E. Foreign investors saw opportunities in the United States as the level of indebtedness had begun to reduce.

Which of the following is a characteristic of the floating exchange rate regime? A. It allows for automatic trade balance adjustments. B. The use of monetary policy by the government is restricted. C. It allows for greater monetary discipline. D. It limits the destabilizing effects of exchange rate speculation. E. It eliminates volatility and uncertainty associated with exchange rates.

Which of the following is an argument for a fixed exchange rate system? A. Governments can contract their money supply without worrying about the need to maintain parity. B. Trade balance adjustments do not require the intervention of the International Monetary Fund. C. It ensures that governments do not expand the monetary supply too rapidly, thus causing high price inflation. D. Speculations in exchange rates boost exports and reduce imports. E. Each country should be allowed to choose its own inflation rate.

Which of the following is true of monetary contraction in a fixed exchange rate system? A. It requires low interest rates. B. It increases the demand for money. C. It puts downward pressure on a fixed exchange rate. D. It leads to an inflow of money from abroad. E. It can lead to high price inflation.

Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade that could not be corrected by domestic policy, this would require the: A. country to import more than it exports. B. country to make its exports more expensive. C. International Monetary Fund to agree to a currency devaluation. D. government to expand monetary supply in the economy. E. government to undertake activities that led to exchange rate appreciation.

Which of the following is an argument for a floating exchange rate system? A. Each country should be allowed to choose its own inflation rate. B. Speculation in exchange rates dampens the growth of international trade and investment. C. Unpredictability of exchange rate movements makes business planning difficult. D. Removal of the obligation to maintain exchange rate parity destroys a government's monetary control. E. Trade deficits can be determined by the balance between savings and investment in a country, not by the external value of its currency.

In comparison to a floating exchange rate regime, a fixed exchange rate system is characterized by: A. smoother trade balance adjustments. B. increased destabilizing effects of exchange rate speculation. C. greater autonomy in terms of monetary policy. D. higher monetary discipline. E. greater exchange rate uncertainty and volatility.

Critics of floating exchange rates claim that trade deficits are determined by the: A. balance between savings and investment in a country. B. external value of the currency of a country. C. exchange rates of other currencies. D. valuations made by International Monetary Fund and the World Bank. E. mechanism of competitive currency devaluation.

Which one of the following refers to an exchange rate system under which a country's exchange rate is allowed to fluctuate against other currencies within a target zone? A. Free float B. Fixed peg C. Adjustable peg D. Pure float E. Capital float

Which of the following holds true for a pegged exchange rate system? A. Adopting a pegged exchange rate regime increases inflationary pressures in a country. B. It is necessary for a country whose currency is chosen for the peg to pursue a sound monetary policy. C. Pegged exchange rates are popular among many of the world's largest and developed nations. D. The value of a pegged currency falls when the reference currency rises in value. E. It is similar to a floating exchange rate system rather than a fixed system.

Adopting which kind of an exchange rate regime moderates inflationary pressures in a country? A. Nominal B. Pegged C. Pure "free float" D. Clean float E. Real

What can a country introduce if it wants to commit itself to converting its domestic currency on demand into another currency at a fixed exchange rate? A. A free-float exchange rate system B. A clean-float exchange rate system C. A pure-float exchange rate system D. A currency board E. A gold standard

How does a country that introduces a currency board make its commitment to converting its domestic currency on demand into another currency at a fixed exchange rate credible? A. By borrowing funds from the International Monetary Fund and the World Bank B. By maintaining a trade surplus with foreign countries C. By holding foreign currency reserves equal at the fixed exchange rate to at least 100 percent of the domestic currency issued D. By importing more goods from foreign countries than it exports E. By printing foreign currencies

Which of the following statements is true about a currency board system? A. Under a strict currency board system, interest rates adjust automatically based on the supply and demand of domestic currency. B. To convert domestic currency on demand into another currency, a currency board takes grants from the International Monetary Fund. C. This system is a true fixed exchange rate regime, because the domestic currency is fixed against other currencies. D. A currency board can issue additional domestic currency even when there are no foreign exchange reserves to back it. E. A currency board authorizes the government to print money and set interest rates.

Which of the following is a drawback of the currency board system? A. The ease with which governments can set and manipulate interest rates acts as a limitation. B. Higher domestic inflation rates compared to the inflation rate in the country to which the currency is pegged can make the currency uncompetitive. C. The currency board can issue additional domestic notes and coins even when there are no foreign exchange reserves to back it. D. The system is a true fixed exchange rate regime, because the domestic currency is fixed against other currencies. E. The system lacks commitment to convert domestic currency on demand into another currency.

Which of the following is a reason why Great Britain and the United States could finance their deficits by borrowing private money since the early 1970s? A. Rapid development of global capital markets B. Shortage of International Monetary Fund grants available for disbursal C. High interest rate charged by the International Monetary Fund D. Establishment of currency boards in these countries E. Decline of the Bretton Woods system

Which of the following is an implication of a currency crisis? A. It occurs due to a sharp appreciation in the value of a currency. B. It forces authorities to block large volumes of international currency reserves. C. A country in currency crisis is not eligible for loans from the International Monetary Fund. D. It results in the government sharply increasing interest rates to defend the prevailing exchange rate. E. A country in currency crisis faces sharp decreases in stock and property prices.

Which of the following is true of a banking crisis? A. It leads to individuals and companies withdrawing their deposits from banks. B. It results in a sharp appreciation in the value of the currency. C. It happens due to a decline in domestic borrowing. D. It occurs due to asset price deflation. E. It results in low government deficits.

Which of the following is a common underlying macroeconomic cause of financial crises? A. Low relative price inflation rates B. Narrowing current account deficit C. Increases in stock and property prices D. Decline in domestic borrowing E. Increases in the value of domestic currency

Most of the International Monetary Fund's loan activities since the mid-1970s have been targeted toward developing nations typically because: A. developed nations are not willing to enact certain macroeconomic policies in return for money. B. developing nations are more than twice as likely to experience financial crises as developed nations. C. it does not have enough funds to lend to large and developed countries. D. only developing nations are allowed to be its beneficiaries. E. of relatively slow economic growth in the developed countries of Europe.

According to the agreement reached between the International Monetary Fund and the South Korean government in 1997, in return for funding, the South Koreans were required to: A. adopt communist ideologies. B. reduce their imports by enforcing restrictive import licensing. C. open their economy to greater foreign competition. D. oppose the ideologies of the World Trade Organization. E. engage in competitive currency devaluation.

All International Monetary Fund (IMF) loan packages come with conditions attached. Which of the following is prevented due to these policies of the IMF? A. Trade liberalization B. Elimination of restrictive import licensing C. Excessive government spending and debt D. Privatization of state-owned assets E. Deregulation of the economy to increase competition

In the context of the 1997 Asian crisis, how did the International Monetary Fund's "one-size-fits-all" approach to macroeconomic policy affect South Korea? A. It led to a decrease in the interest rates of short-term loans. B. It made it difficult for companies to service their excessive short-term debt obligations. C. It decreased the probability of widespread corporate defaults. D. South Korea failed to recover from its financial crises. E. South Korea was forced to increase restrictions on foreign direct investment.

Which of the following arises when people behave recklessly because they know they will be saved if things go wrong? A. Systemic risk B. Moral hazard C. Ethical dilemma D. Tragedy of the commons E. Risk compensation

Jade, a working professional, began driving rashly ever since she got her car insured against damage. She believed that the insurance claim would cover her in case of any accidents. What does Jade's behavior display? A. Cognitive dissonance B. Conflict of interest C. Systemic risk D. Moral hazard E. Tragedy of the commons

The International Monetary Fund has been criticized for: A. its lack of a "one-size-fits-all" approach to macroeconomic policy. B. encouraging moral hazard among banks. C. its lack of power and authority. D. using external experts to gain knowledge about a country. E. keeping its operations open to outside scrutiny.

According to the critics of the International Monetary Fund (IMF), how should the problem of moral hazard exhibited by banks be resolved? A. The IMF should use a "one-size-fits-all" approach to macroeconomic policy. B. The IMF should establish a mechanism for accountability. C. The IMF should free all banks from the obligation of financial reporting. D. The banks should be forced to pay the price for their rash lending policies. E. The IMF should bail out the banks whose loans gave rise to financial crises.

According to the noted economist Jeffrey Sachs, the International Monetary Fund should: A. not be accountable to anyone as it is a powerful institution. B. bail out banks that have rash lending policies. C. have a "one-size-fits-all" approach to macroeconomic policy. D. keep its operations open to greater outside scrutiny. E. lend only to countries with safe credit ratings.

In response to the global financial crisis of 2008-2009, the International Monetary Fund began to: A. exercise tight controls on fiscal policy of the borrowing countries. B. encourage activities that prevent high inflation rates. C. display inflexibility in policy responses. D. urge countries to adopt policies that included fiscal stimulus and monetary easing. E. adopt a "one-size-fits-all" approach to macroeconomic policy.

Which of the following observations about the International Monetary Fund (IMF) is true? A. The IMF can force countries to adopt the policies required to correct economic mismanagement. B. Internal political problems can affect a government's commitment to taking corrective action in return for an IMF loan. C. In recent years, the IMF has begun to make its policies more tight and inflexible. D. In response to the global financial crisis of 2008-2009, the IMF began to adopt a "one-size-fits-all" approach to macroeconomic policy. E. In recent years, the IMF has begun to urge countries to oppose fiscal stimulus and monetary easing.

Which of the following poses a problem for international businesses in the long run? A. Using exchange rate instruments like the forward market and swaps B. Volatility of the global exchange rate regime C. Anti-inflationary monetary policies D. Maintaining strategic flexibility by dispersing production to different locations E. A policy of reduction in government spending

Which of the following statements is true about the current monetary system? A. Use of instruments such as the forward market and swaps has decreased since the breakdown of the Bretton Woods system. B. The present monetary system lacks the volatile movements in exchange rates that existed in a fixed exchange rate system. C. The current foreign exchange market works exactly as depicted in the purchasing power parity theory. D. Instruments such as the forward market and swaps increase the foreign exchange risk a company faces. E. A combination of government intervention and speculative activity drives the current foreign exchange market.

Which of the following is a feature of the current monetary system? A. It is free from government intervention. B. It is free from volatile movements in exchange rates. C. It has increased foreign exchange risk for businesses. D. It has made it easier to get insurance coverage against exchange rate changes. E. Instruments like forward market and swaps have lost their importance in the present system.

Vornoda Inc., a multinational clothing and accessory brand, has been facing huge economic losses due to unpredictable exchange rate movements. In order to gain considerable immunity against such currency fluctuations, Vornoda Inc. should: A. pursue strategies that increase its economic exposure. B. avoid using instruments like forward market and swaps. C. disperse production to different locations around the globe. D. not contract out manufacturing. E. restrict its low-value-added manufacturing to one location.

It is most appropriate for a firm to contract out manufacturing when: A. individual manufacturers have few firm-specific skills that contribute to the value of their product. B. the value of the host country currency is expected to appreciate. C. supplier switching costs are correspondingly high. D. firm-specific technology and expertise add significant value to the product. E. the currency used for pricing a product is anticipated to stay weak in the long run.