Sjsu 187 Mid 2 Kepple

Front 1

Mercantilism advocated that countries should simultaneously encourage exports and discourage imports. TF

Back 1

True

Feedback:
Page: 168
Difficulty: Medium

Front 2

There may be benefits to trade even for products a country can produce for itself. TF

Back 2

True
Feedback:
Page: 169
Difficulty: Medium

Front 3

Adam Smith and David Ricardo were able to demonstrate that international trade is fundamentally a zero-sum game. T F

Back 3

False
Feedback:
Page: 171
Difficulty: Medium

Front 4

Research has shown that countries that adopt an open economy and embrace free trade will enjoy higher economic growth rates. t f

Back 4

True
Feedback:
Page: 180
Difficulty: Medium

Front 5

According to Porter, there is a weak association between vigorous domestic rivalry and the creation and persistence of competitive advantage in an industry. t f

Back 5

False
Feedback:
Page: 191
Difficulty: Medium

Front 6

When a government does not attempt to influence through trade barriers what its citizens can buy from another country, or what they can sell to another country, the government is promoting
free trade
capitalism
mercantilism
ethnocentrism

Back 6

free trade
Feedback:
Page: 168
Difficulty: Easy

Front 7

According to _______, the invisible hand of the market mechanism should determine what a country imports and what it exports.
mercantilism
Porter
Smith
the Hecksher-Ohlin theory

Back 7

Smith
Feedback:
Page: 168
Difficulty: Medium

Front 8

If France is the most efficient producer of wine in the world, then France has
an absolute advantage in the production of wine
an absolute disadvantage in the production of wine
a comparative advantage in the production of wine
a comparative disadvantage in the production of wine

Back 8

an absolute advantage in the production of wine

Feedback:
Page: 171
Difficulty: Medium

Front 9

The theory of comparative advantage:
holds that it may make sense to purchase goods from another country even if your country can efficiently produce it.
repudiated Adam Smith's theory of absolute advantage
holds that in some cases it is better to restrict trade to gain a comparative advantage.
is no longer relevant in today's world because of the impact of the Internet.

Back 9

holds that it may make sense to purchase goods from another country even if your country can efficiently produce it.
Feedback:
Pages 174-6
Difficulty: Medium

Front 10

One of the weaknesses of the theory of comparative advantage is the number of assumptions that must be made. Which of the following is NOT one the important assumptions?
The theory is based on a simple world of only two countries.
The theory assumes transportation costs are included in the prices.
The theory assumes each country has a fixed stock of resources.
Income distribution within a country has no effect on trade.

Back 10

The theory assumes transportation costs are included in the prices.
Feedback:
Page 176
Difficulty: Easy

Front 11

In the theory of comparative advantage, constant returns to specialization means units of resources remain constant. Diminishing returns to specialization means:
Fewer units of resources are required to produce each additional unit.
Resources are of the same quality, but how they are used affects production.
Different goods use resources in different proportions.
It is feasible for a country to specialize the way Ricardo proposed.

Back 11

differences in national factor endowments
Feedback:
Page: 182
Difficulty: Medium
Feedback:
Page: 182
Difficulty: Medium

Front 12

The Hecksher Ohlin theory:
is not particularly attractive to economists because of its complexity.
has been validated by the Leontief Paradox.
is a good predictor of trade patterns.
gains predictive power when the differences of technology on productivity is controlled for.

Back 12

gains predictive power when the differences of technology on productivity is controlled for.
Feedback:
Pages 182-3
Difficulty: Medium

Front 13

According to _________, over time, a country switches from being an exporter of a product to being an importer of the same product.
Ricardo
Hume
Samuelson
Vernon

Back 13

Vernon
Feedback:
Page: 184
Difficulty: Hard

Front 14

The product life-cycle theory:
continues to maintain its vitality into the 21st Century as new products are developed in the US.
seems ethnocentric as it assumes innovations and new products come from the US
has never been able to explain international trade patterns despite its intuitive appeal
is useful in marketing, but has no particular relevance to international trade theory.

Back 14

seems ethnocentric as it assumes innovations and new products come from the US
Feedback:
Pages 184-5
Difficulty: Medium

Front 15

Economies of scale:are unit cost reductions associated with a large scale of output.
are essential parts of both comparative advantage and product life-cycle theories
are useful to only a few large service companies.
makes no distinction between fixed and variable costs in globalization of production.

Back 15

are unit cost reductions associated with a large scale of output.
Feedback:
Page 186
Difficulty: Easy

Front 16

The _________ suggests that trade is mutually beneficial because it allows for the specialization of production, the realization of scale economies, the production of a greater variety of products, and lower prices.
product life cycle theory
new trade theory
theory of competitive advantage
theory of comparative advantage

Back 16

new trade theory
Feedback:
Page: 186
Difficulty: Medium

Front 17

A theme in new trade theory is first mover advantage. This means:
companies with a solid exit strategy to move out of a market first will have a major advantage over time.
companies can gain an important political advantage by being the first to support emerging candidates and political parties.
companies have fewer risks by taking pioneering first steps before competition heats up.
companies may dominate exports of certain goods because they were the first to capture economies of scale.

Back 17

companies may dominate exports of certain goods because they were the first to capture economies of scale.
Feedback:
Page 187
Difficulty: Medium

Front 18

________ suggests that there may be an economic rationale for a proactive trade policy such as the provision of government subsidies to improve the chances for a company to succeed.
mercantilism
new trade theory
Vernon
Ricardo

Back 18

new trade theory
Feedback:
Page: 188
Difficulty: Medium

Front 19

Porter argues that
the diamond is a mutually reinforcing system
government should not play a role in a nation's competitiveness
chance has little bearing on the success of a firm
factor endowments should be treated as a constant

Back 19

the diamond is a mutually reinforcing system
Feedback:
Page: 189
Difficulty: Medium

Front 20

Porter distinguishes between _______ factors.
known and unknown
natural and manmade
organized and relational
advanced and basic

Back 20

advanced and basic
Feedback:
Page: 190
Difficulty: Medium

Front 21

Hecksher and Ohlin examined ______ in their theory of why nations trade.
differences in labor productivity
differences in national factor endowments
differences in production levels
differences in trade barriers

Back 21

differences in national factor endowments

Feedback:
Page: 182
Difficulty: Medium

Front 22

Porter distinguishes between _______ factors.
known and unknown
natural and manmade
organized and relational
advanced and basic

Back 22

advanced and basic
Feedback:
Page: 190
Difficulty: Medium

Front 23

Porter argues that when a nation's consumers are ___________, a nation's firms gain competitive advantage over firms in nations where consumers are _________.
sophisticated and demanding, less sophisticated
unreliable, reliable
competitive and knowledgeable, sophisticated
reliable, knowledgeable

Back 23

sophisticated and demanding, less sophisticated
Feedback:
Page: 190
Difficulty: Medium

Front 24

The knowledge that flows within Germany's textile and apparel sector is an example of _______ in Porter's model.
demand conditions
related and supporting industries
firm strategy, structure, and rivalry
factor endowments

Back 24

related and supporting industries
Feedback:
Page: 191
Difficulty: Medium

Front 25

Porter's theory has proven to be ________ of world trade patterns.
a powerful predictor
poor predictor
an unreliable predictor
an unknown predictor

Back 25

an unknown predictor
Feedback:
Page: 193
Difficulty: Medium

Front 26

Which of the following is NOT an important implication for international business of international trade theory?
It makes sense for a firm to disperse its productive activities to countries where they can be performed most efficiently.
It makes sense for the individual firm to invest substantial resources to build a first mover or early mover advantage.
Businesses can exert a strong influence on government trade policy so it is important to understand the theories of international trade.
Because of the many debates on international trade theory, it is generally wiser for a company to ignore international trade theory and focus on its own strategies and tactics.

Back 26

Because of the many debates on international trade theory, it is generally wiser for a company to ignore international trade theory and focus on its own strategies and tactics.
Feedback:
Pages 193-5
Difficulty: Medium

Front 27

A specific tariff is levied as a fixed charge for unit of an imported good. t f

Back 27

True
Feedback:
Page: 207
Difficulty: Easy

Front 28

Both government and consumers realize significant gains as a result of tariffs, while domestic producers typically see a negative effect. t f

Back 28

False
Feedback:
Page: 207
Difficulty: Medium

Front 29

Agriculture tends to be one of the largest beneficiaries of subsidies in most countries. t f

Back 29

True
Feedback:
Page: 208
Difficulty: Medium

Front 30

The extra profit that producers make when supply is artificially limited by an import quota is referred to as quota rent. T F

Back 30

True
Feedback:
Page: 210
Difficulty: Easy

Front 31

Countries may impose trade barriers in an effort to protect national security. t f

Back 31

True
Feedback:
Page: 214
Difficulty: Medium

Front 32

_____________ refers to a situation in which a government does not attempt to restrict what its citizen can buy from or sell to another country.
>Political economy
>Strategic trade policy
>Mercantilism
>Free trade

Back 32

Free trade.
Feedback:
Page 206
Difficulty: Easy

Front 33

Subsidies, quotas, voluntary export restraints, and antidumping duties are all examples of
>foreign policy
>tariffs
>administrative policies
>nontariff barriers

Back 33

nontariff barriers
Feedback:
Page: 206
Difficulty: Medium

Front 34

When tariffs are imposed, prices generally
fall
are not affected
rise
stabilize

Back 34

rise
Feedback:
Page: 207
Difficulty: Medium

Front 35

All of the following are true about local content requirements EXCEPT:
Local content requirement are costly to consumers by limiting their access to foreign goods.
In the United States, the federal government must give preference to domestic producers unless there is a significant price difference between domestic and foreign goods.
Content is measured in physical terms, not in value.
Local content requirements are generally used to protect employment.

Back 35

Content is measured in physical terms, not in value.
Feedback:
Page 211
Difficulty: Medium

Front 36

If a country requires that all imports of a certain product arrive through a small customs entry point that is both remote and poorly staffed, the country is using _______ as a means of limiting imports.
local content requirements
quota rents
administrative policies
antidumping policies

Back 36

administrative policies
Feedback:
Page: 211
Difficulty: Medium

Front 37

Dumping:
is an environmental concern that affects both groundwater and the oceans.
is the slang term for measure firms use to protect themselves from countervailing duties.
is the selling of goods in a foreign market below the cost to produce them
is commonly used method of selling off obsolete or slow moving goods.

Back 37

is the selling of goods in a foreign market below the cost to produce them
Feedback:

Front 38

If France threatens punitive trade sanctions to force Canada to "play by the rules," France is employing a _____ policy.
retaliation
national security
consumer protection
human rights protection

Back 38

retaliation
Feedback:
Page: 214
Difficulty: Medium

Front 39

Trade can be used to support foreign policy objectives. For example, the U.S. Congress passed the Helms-Burton Act and the D'Amato Act, which
became model legislation adopted by most European Union countries.
were instrumental in bringing down Communist governments.
were well-intentioned, but difficult to enforce.
were instrumental in the development of the WTO.

Back 39

were well-intentioned, but difficult to enforce.
Feedback:
Page 216
Difficulty: Medium

Front 40

Many economists criticize ______ for trade intervention arguing that it leads to prolonged inefficiency.
the retaliation policy
strategic trade policy
the infant industry argument
human rights protection

Back 40

the infant industry argument
Feedback:
Page: 218-9
Difficulty: Medium

Front 41

According to Krugman, trade policy designed to retaliate against another country's trade policy
would benefit consumers
would benefit taxpayers
would hurt the initiating nation
would hurt the citizens of both countries

Back 41

would hurt the citizens of both countries
Feedback:
Page: 219
Difficulty: Hard

Front 42

GATT was replaced in 1995 by
the UN
the WTO
the OECD
the Smoot-Hawley Act

Back 42

the WTO
Feedback:
Page: 220
Difficulty: Medium

Front 43

The _______, passed in 1930 by the U.S., raised tariff barriers in an effort to protect domestic industries and encourage Americans to buy domestically produced products.
Smoot-Hawley Act
GATT
WTO
Helms-Burton Act

Back 43

Smoot-Hawley Act
Feedback:
Page: 217
Difficulty: Hard

Front 44

Protectionism
increased in the 1980's and 1990's after a period of relative decline.
was endorsed by the theories of both Adam Smith and David Ricardo.
helps consumers by keeping prices low.
preserves jobs in both the short-term and long-term.

Back 44

increased in the 1980's and 1990's after a period of relative decline.
Feedback:
Page 222
Difficulty: Medium

Front 45

____________is an attempt to narrow the gaps in the way intellectual property rights are protected around the world, and to bring them under common international rules.
TRIPS
GATS
The Smoot-Hawley Act
The Foreign Intellectual Property Rights Accord

Back 45

TRIPSFeedback:
Page: 223
Difficulty: Medium

Front 46

The WTO's role as a global policeman for trade has so far been
successful
moderately unsuccessful
quite ineffective
completely disorganized

Back 46

successful
Feedback:
Page: 224
Difficulty: Medium

Front 47

In November 1999, WTO representatives met in Seattle to launch the "millennium round" of talks. This became a watershed because:
it was the most successful round of talks held under the GATT and WTO umbrellas.
despite the protests outside, the delegates reached consensus on key goals.
the sponsorship of prominent Washington state companies like Microsoft and Boeing pioneered a new way to sponsor such international meetings.
a wide range of labor, environmental and human rights groups focused new attention on the role of trade.

Back 47

a wide range of labor, environmental and human rights groups focused new attention on the role of trade.
Feedback:
Page 225
Difficulty: Medium

Front 48

Intellectual property rights have become thorny areas of international trade, especially in relation to software, pharmaceuticals, music and entertainment. In response,
uniform patent and copyright laws have been adopted and enforced by all WTO members.
both the developed and developing world are standing together on protect the rights of companies.
there has been a growing awareness that innovation has become a driver for economic growth.
this was one area of agreement in the Doha round and meetings leading up to it.

Back 48

there has been a growing awareness that innovation has become a driver for economic growth.
Feedback:
Page 229
Difficulty: Hard

Front 49

The Doha Round is focusing on all of the following issues except
cutting tariffs on industrial goods and services
phasing out subsidies to agricultural producers
reducing barriers to cross-border investment
encouraging the establishment of anti-dumping laws

Back 49

encouraging the establishment of anti-dumping laws
Feedback:
Page: 231
Difficulty: Medium

Front 50

A firm will need to consider ________________ as it develops and executes its strategy, disperse activities around the globe and recognizes its cost structures.
trade barriers
the culture of its "C level" leadership
language barriers
theories of mercantilism

Back 50

trade barriers
Feedback:
Pages 232-3
Difficulty: Medium

Front 51

Business firms are major players on the international trade scene, and as such:
they should ignore the minor complaints and extreme demands of protestors.
they should pay less attention to national laws and focus more on their own strategies.
they may ignore world events and international trade theory at the operational level and let experts with specialized policy backgrounds make the decisions to prevent costly errors.
be aware of the problems both protectionism and free trade can bring.

Back 51

be aware of the problems both protectionism and free trade can bring.
Feedback:
Pages 233-4
Difficulty: Hard

Front 52

A greenfield investment involves the establishment of new operations in a foreign country.
True
False

Back 52

True
Feedback:
Page: 242
Difficulty: Easy

Front 53

FDI flows were steadily increasing from 1975 to 2000, but have been decreasing ever since.
True
False

Back 53

False
Feedback:
Page 242
Difficulty: Easy

Front 54

Since 2002 the number of regulations that have been unfavorable to FDI have increased, particularly in Latin America.
True
False

Back 54

True
Feedback:
Page 243
Difficulty: Medium

Front 55

Research shows that in general, MNEs do not transfer significant technology when they invest in a foreign country.
A)
True
B)
False

Back 55

False
Feedback:
Page: 258
Difficulty: Medium

Front 56

The Organization for Economic Cooperation and Development (OECD) is an organization for "wealthy nations" to discuss problems and share solutions, often with a focus on FDI-related issues.
True
False

Back 56

True
Feedback:
Page: 265
Difficulty: Medium

Front 57

When a firm undertakes FDI it becomes
A)
an MNE
B)
a transnational corporation
C)
an international company
D)
more diverse

Back 57

A) an MNE
Feedback:
Page: 242
Difficulty: Easy

Front 58

The flow of FDI refers to
A)
the amount of FDI undertaken over a given time period
B)
the total accumulated value of foreign-owned assets at a given time
C)
the flow of FDI out of a country
D)
the flow of FDI into a country

Back 58

A)
the amount of FDI undertaken over a given time period
Feedback:
Page: 242
Difficulty: Easy

Front 59

Over the last decade, the largest recipient of FDI is
A)
South Korea
B)
India
C)
China
D)
Mexico

Back 59

C)
China
Feedback:
Page: 244
Difficulty: Hard

Front 60

If a company wants a quick entry into a foreign market, ______ is appropriate.
A)
mergers and acquisitions
B)
greenfield investment
C)
portfolio investment
D)
monopoly investment

Back 60

A)
mergers and acquisitions
Feedback:
Page: 247
Difficulty: Medium

Front 61

Which of the following factors is not a driver in the shift toward services in FDI?
A)
The shift follows the general trend away from services and into extractive industries and manufacturing.
B)
Many services cannot be traded internationally.
C)
Countries have been liberalized regulations to facilitate FDI in services.
D)
The internet has allowed some services to relocate value-creation activities.

Back 61

A)
The shift follows the general trend away from services and into extractive industries and manufacturing.
Feedback:
Page: 248
Difficulty: Medium

Front 62

There are several theories focusing on foreign direct investment. Which of the following is not?
A)
One set of theories seeks to explain why FDI instead of exporting or licensing.
B)
One set of theories seeks to explain why firms in the same industry undertake FDI in the same locations at the same time.
C)
One set of theories seeks to explain the role of the Internet, without which FDI would be impossible.
D)
One seeks to create an eclectic approach, blending elements of other theories.

Back 62

C)
One set of theories seeks to explain the role of the Internet, without which FDI would be impossible.
Feedback:
Pages 248-9
Difficulty: Medium

Front 63

Which of the following is recognized as a limitation of exporting?
A)
Exporting is effective only when a firm is relatively large.
B)
Exporting is constrained by transportation costs and trade barriers.
C)
Exporting is not permitted to developing countries.
D)
Exporting is subject to universally recognized UN regulations.

Back 63

B)
Exporting is constrained by transportation costs and trade barriers.
Feedback:
Page 249
Difficulty: Medium

Front 64

When any of the following conditions exist except ______, markets fail as a mechanism for selling know-how and FDI becomes more profitable than licensing.
A)
when the firm has valuable know-how that cannot be adequately protected by a licensing contract
B)
when there are strong patent and copyright enforcement policies in the host and home countries
C)
when the firm needs tight control over a foreign entity to maximize its marketshare and earnings in that country
D)
when a firm's skills and know-how are not amenable to licensing

Back 64

B)
when there are strong patent and copyright enforcement policies in the host and home countries

Feedback:
Page: 251
Difficulty: Medium

Front 65

A(n) _____________ is an industry composed of a limited number of large firms that are interdependent and tend to imitate the behavior of each other.
A)
intertwined industry
B)
common market
C)
oligopoly
D)
growth industry

Back 65

C)
oligopoly
Feedback:
Page 251
Difficulty: Medium

Front 66

______ argued that the firms that pioneer a product in their home country often undertake FDI to produce a product for consumption in foreign markets.
A)
Knickerbocker
B)
Vernon
C)
Porter
D)
Smith

Back 66

B)
Vernon
Feedback:
Page: 252
Difficulty: Hard

Front 67

Knowledge spillovers such as those arising from the concentration of intellectual talent in Silicon Valley are referred to as
A)
knowledge pools
B)
knowledge bases
C)
knowledge epicenters
D)
externalities

Back 67

D)
externalities
Feedback:
Page: 253
Difficulty: Easy

Front 68

______________ is the political ideology most hostile to FDI, and ______________ is the most supportive of FDI.
A)
The radical view; pragmatic nationalism
B)
Pragmatic nationalism; the free market view
C)
The radical view; the free market view
D)
The free market view; pragmatic nationalism

Back 68

C)
The radical view; the free market view

Feedback:
Pages 254-5
Difficulty: Medium

Front 69

While the number of countries that adhere to a radical ideology has markedly declined, two countries that have become increasingly hostile to FDI are:
A)
China and North Korea
B)
Vietnam and Cambodia
C)
Venezuela and Bolivia
D)
France and Ireland

Back 69

C)
Venezuela and Bolivia

Feedback:
Page: 256
Difficulty: Medium

Front 70

Which of the following is not one of the four main benefits of FDI for a host country?
A)
the resource transfer effect
B)
the employment effect
C)
the balance-of-payments effect
D)
the exchange rate effect

Back 70

D)
the exchange rate effect
Feedback:
Page: 257-8
Difficulty: Medium

Front 71

If a country is running a current account deficit:
A)
governments are generally pleased for both the short and long term.
B)
occurs when a country is exporting more goods and services than it is importing.
C)
the deficit must be financed by the sales of assets of the country.
D)
is an important consideration, but FDI cannot help a country address the deficit.

Back 71

C)
the deficit must be financed by the sales of assets of the country.
Feedback:
Page: 259
Difficulty: Hard

Front 72

Which of the following is not a concern of host country in regard to FDI?
A)
Indigenous companies may not be able to compete effectively against multinational enterprises.
B)
Earnings of the MNE might flow out of the country and have a negative affect on the balance of payments.
C)
There may be a loss of national sovereignty.
D)
Among the community of nations, a lack of FDI means the country will not earn the respect of other countries and increase its vulnerability.

Back 72

D)
Among the community of nations, a lack of FDI means the country will not earn the respect of other countries and increase its vulnerability.
Feedback:
Page 260
Difficulty: Medium

Front 73

_______________ is a benefit to the home country of FDI, and ________________ is a cost to the home country of FDI.
A)
The MNE's learning from exposure to foreign markets; the substitution for domestic production
B)
The balance of payments improvement from foreign earnings; increased employment opportunity for its citizens
C)
Increased employment through demand for exports; a balance of payment improvement with the initial capital requirements
D)
The resource transfer effect; the current account of the balance of payments affected by transferring production to lower cost foreign locations

Back 73

A)
The MNE's learning from exposure to foreign markets; the substitution for domestic production
Feedback:
Page 261
Difficulty: Hard

Front 74

All of the following are types of incentives designed to encourage foreign firms to invest in their countries except
A)
tax concessions
B)
low-interest loans
C)
grants
D)
double taxation

Back 74

D)
double taxation
Feedback:
Page: 264
Difficulty: Medium

Front 75

Which of the following is most useful from a business perspective?
A)
the product life cycle theory
B)
Knickerbocker's theory of horizontal FDI
C)
the market imperfections approach
D)
Vernon's theory of FDI stages

Back 75

C)
the market imperfections approach
Feedback:
Page: 267
Difficulty: Medium

Front 76

When a MNE considering FDI is negotiating with a country about a potential investment which of the following is not an important factor?
A)
The value each side places on what the other has to offer.
B)
The strength of the military and police forces of the country
C)
The number of comparable alternative available to each side
D)
Each party's time horizon.

Back 76

B)
The strength of the military and police forces of the country
Feedback:
Page: 267
Difficulty: Easy

Front 77

The desire by European to hold their own on the world's economic and political stage prompted the formation of the EU.
A)
True
B)
False

Back 77

A)
True
Feedback:
Page: 281
Difficulty: Medium

Front 78

The Single European Act committed EU countries to adopt a single currency, the euro.
A)
True
B)
False

Back 78

B)
False
Feedback:
Page: 285
Difficulty: Medium

Front 79

NAFTA's initial impact on jobs was very small.
A)
True
B)
False

Back 79

A)
True
Feedback:
Page: 293
Difficulty: Medium

Front 80

In 2005-6, Venezuela withdrew from the Andean Pact to join MERCOSUR, though it may take years for Venezuela to become fully integrated into MERCOSUR.
A)
True
B)
False

Back 80

A)
True

Feedback:
Page 294
Difficulty: Easy

Front 81

The AFTA Agreement represents Africa's first attempt at regional economic integration.
A)
True
B)
False

Back 81

B)
False
Feedback:
Page: 296, 299
Difficulty: Medium

Front 82

When countries agree to reduce and remove tariff and non-tariff barriers to the free flow of goods, services, and factors of production between each other, the countries have agreed to
A)
a free trade area
B)
a customs union
C)
regional economic integration
D)
a single economic entity

Back 82

C)
regional economic integration
Feedback:
Page: 276
Difficulty: Medium

Front 83

Norway, Iceland, Liechtenstein, and Switzerland all belong to
A)
the EU
B)
MERCOSUR
C)
NAFTA
D)
EFTA

Back 83

D)
EFTA

Feedback:
Page: 277
Difficulty: Medium

Front 84

Several levels of economic integration are possible. Three such levels from the least integrated to the most integrated are:
A)
free trade area, customs union, common market
B)
customs union, political union, economic union
C)
free trade area, political union, common market
D)
common market, customs union, political union

Back 84

B)
customs union, political union, economic union
Feedback:
Pages 277-8
Difficulty: Medium

Front 85

Which of the following is considered part of the economic case for regional integration:
A)
increasing the political sovereignty of member countries.
B)
an attempt to achieve additional gains from the free flow of trade and investment between countries.
C)
creating greater independence of the member states through increased economic strength.
D)
international trade theories suggest that the dominant partner in regional economic integration will gain, resembling a zero-sum game.

Back 85

B)
an attempt to achieve additional gains from the free flow of trade and investment between countries.
Feedback:
Page: 279
Difficulty: Hard

Front 86

Great Britain's reluctance to adopt the euro is an example of _________ that occurs as a result of economic integration.
A)
increased control over monetary policy
B)
loss of national sovereignty
C)
the loosening of control over fiscal issues
D)
the trade creation

Back 86

B)
loss of national sovereignty
Feedback:
Page: 280
Difficulty: Medium

Front 87

If, prior to NAFTA, the U.S. produced its own textiles at a higher cost than Mexico, but after NAFTA imports them from Mexico
A)
trade has been diverted
B)
trade has been created
C)
Mexico is worse off
D)
the U.S. is worse off

Back 87

B)
trade has been created
Feedback:
Page: 280
Difficulty: Medium

Front 88

Three cornerstones of the current European Union are:
A)
the Geneva Convention, the Treaty of Rome and the London Accords
B)
the Treaty of Rome, the Maastricht Treaty and the Geneva Convention
C)
the Treaty of Rome, the Maastricht Treaty and the Single European Act
D)
the Olympic Movement, the Treaty of Rome and the Single European Act

Back 88

C)
the Treaty of Rome, the Maastricht Treaty and the Single European Act
Feedback:
Pages: 281, 284
Difficulty: Medium

Front 89

The European Commission
A)
is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states
B)
is the ultimate controlling authority within the EU
C)
is primarily a consultative rather than a legislative body
D)
is the supreme appeals court for EU laws

Back 89

A)
is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws by member states

Feedback:
Page: 282
Difficulty: Medium

Front 90

The introduction of the euro has resulted in all of the following except
A)
European investors should be able to better diversify their risk
B)
consumers should gain through lower prices
C)
European companies should become more efficient
D)
individual countries will be able to set their own interest rates

Back 90

D)
individual countries will be able to set their own interest rates
Feedback:
Page: 287
Difficulty: Medium

Front 91

Critics have suggested that the decision by the EU to adopt the euro was wrong because
the EU is not an optimal currency area
of the similarities in the underlying structure of economic activity that make it unnecessary
it should have occurred at the common market stage
its shifts responsibility for national monetary policies to the individual countries

Back 91

A)
the EU is not an optimal currency area
Feedback:
Page: 288
Difficulty: Medium

Front 92

Turkey's application to join the European Union has presented the EU with difficult issues. Which of the following is not one of those issues?
A)
Less than a quarter of Turkey's international trade is with the EU.
B)
The EU has concerns about human rights violations, especially with the Kurdish population.
C)
There are suspicions that the EU is concerned because Turkey is primarily a Muslim nation.
D)
There are concerns because Turkey straddles both Europe and Asia.

Back 92

A)
Less than a quarter of Turkey's international trade is with the EU.
Feedback:
Page: 290
Difficulty: Hard

Front 93

All of the following are true of the Andean Pact except
it is now known as the Andean Community
it includes Columbia, Bolivia, Peru, and Ecuador
it operates as a common market
it is in negotiation with MERCOSUR to create a free trade area between the two blocs

Back 93

C)
it operates as a common market
Feedback:
Page: 294
Difficulty: Medium

Front 94

MERCOSUR
A)
has a common currency
B)
was originally established to create a free trade area by the end of 1994
C)
has a combined population of 450 million people
D)
is proven to be a successful and unifying presence in Latin America

Back 94

B)
was originally established to create a free trade area by the end of 1994

Feedback:
Page: 294
Difficulty: Medium

Front 95

The Caribbean Single Market and Economy:
A)
is the modern successor to CAFTA.
B)
has the primary aim of lowering trade barriers between the US and the member countries.
C)
is a recent attempt by Hugo Chavez to unite Caribbean countries under the leadership of Venezuela and Cuba.
D)
is modeled on the European Union.

Back 95

B)
has the primary aim of lowering trade barriers between the US and the member countries.
Feedback:
Page 295
Difficulty: Medium

Front 96

Progress toward a Free Trade of the Americas has been slow because
A)
of debates over intellectual property rights and agricultural subsidies
B)
Brazil is firmly against the idea, yet is the largest economy in South America
C)
the U.S. wants Brazil and Argentina to remove their subsidies on agricultural products
D)
Latin American debt must be paid off in order for this type of agreement to be successful

Back 96

A)
of debates over intellectual property rights and agricultural subsidies
Feedback:
Page: 295-6
Difficulty: Medium

Front 97

Which of the following is not a member of the Association of Southeast Asian Nations (ASEAN) with a combined membership of half a billion people and combined GDP of more than $740 billion:
A)
Myanmar
B)
The Philippines
C)
Indonesia
D)
Taiwan

Back 97

D)
Taiwan

Feedback:
Page: 296
Difficulty: Easy

Front 98

Which of the following countries is not a member of APEC?
A)
China
B)
the U.S.
C)
India
D)
Japan

Back 98

C)
India
Feedback:
Page: 296
Difficulty: Easy

Front 99

African countries have been experimenting with regional trade blocks with the following result:
The key to effectiveness had been the enthusiastic support of the free trade movement.
There are nine trade blocks, often with countries members of more than one block.
The initiatives have been successful because of reduced traditional rivalries and suspicions.
Most countries are committed to reducing trade barriers to gain the benefits of freer trade.

Back 99

B)
There are nine trade blocks, often with countries members of more than one block.
Feedback:
Page: 299
Difficulty: Medium

Front 100

Regional economic integration, say in the EU, offers significant opportunities to US businesses including:
A)
Non-EU companies no longer need to set up subsidiaries in EU countries.
B)
Companies can realize significant cost economies by centralizing operations where factor costs and skills are optimal.
C)
It makes no difference where in the EU one locates an operation since the costs are the same throughout.
D)
Cultural differences and national consumer preferences are now irrelevant.

Back 100

B)
Companies can realize significant cost economies by centralizing operations where factor costs and skills are optimal.
Feedback:
Page: 299-300
Difficulty: Hard

Front 101

Regional economic integration presents potentially significant threats to business outside the area, including:
A)
long-term improvements in the competitive positions of firms inside the areas.
B)
the end of a "fortress" mentality means other firms outside the area will be able to enter the areas more easily to compete with existing area firms.
C)
the end to efforts to rationalize production and reduce costs.
D)
the imposition of US standards, recognized as a pioneer in regional economic integration, which means US firms will not be able to get around the legal barriers.

Back 101

A)
long-term improvements in the competitive positions of firms inside the areas.
Feedback:
Page: 300
Difficulty: Hard

Front 102

ch 9 1.
The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates is a currency swap.
A)
True
B)
False

Back 102

True

Feedback:
Page: 328
Difficulty: Easy

Front 103

Ch 9 2

Exchange rates are determined by the demand and supply of one currency relative to the demand and supply of another.
A)
True
B)
False

Back 103

A)
True

Feedback:
Page: 331
Difficulty: Medium

Front 104

ch 9 3

PPP theory predicts that changes in relative prices will result in a change in exchange rates.
A)
True
B)
False

Back 104

A)
True

Feedback:
Page: 332
Difficulty: Medium

Front 105

ch 9 4

PPP has proven to be a strong and accurate predictor of exchange rates.
A)
True
B)
False

Back 105

B)
False

Feedback:
Page: 331
Difficulty: Medium

Front 106

9-5

One way companies can deal with nonconvertible currencies is countertrade – accepting goods or services as payment.
A)
True
B)
False

Back 106

A)
True

Feedback:
Page: 343
Difficulty: Medium

Front 107

9-6

The ________ is the rate at which one currency is converted in another.
A)
exchange rate
B)
currency market
C)
foreign exchange market
D)
currency swap rate

Back 107

A)
exchange rate

Feedback:
Page: 324
Difficulty: Easy

Front 108

9-7

International businesses use the foreign exchange markets for all of the following reasons except
A)
to buy and sell goods in a foreign market
B)
to pay a foreign company for its products or services in the country's currency
C)
to capitalize on high interest rates offered in foreign markets when making short term investments of spare cash
D)
to exchange payments it receives in foreign currencies

Back 108

A)
to buy and sell goods in a foreign market
Feedback:
Page: 325
Difficulty: Medium

Front 109

9-8

Currency speculation:
A)
is not a common use of foreign exchange markets.
B)
is a quick, virtually risk free investment.
C)
typically involves the short-term movement of funds from one currency to another to profit from exchange rates.
D)
has little impact on foreign exchange rates, currencies and countries.

Back 109

C)
typically involves the short-term movement of funds from one currency to another to profit from exchange rates.

Feedback:
Page 326
Difficulty: Medium

Front 110

9-9

If a tourist buys local currency, the exchange rate used will be the
A)
tourist rate
B)
spot rate
C)
real rate
D)
forward rate

Back 110

B)
spot rate

Feedback:
Page: 326
Difficulty: Medium

Front 111

When foreign exchange dealers expect the dollar to appreciate against another currency, the dollar
the dollar is selling at a discount
the dollar is selling at a premium
the dealers expect the dollar to depreciate relative to the foreign currency
the dollar will buy les foreign exchange

Back 111

B)
the dollar is selling at a premium

Feedback:
Page: 328
Difficulty: Hard

Front 112

9-11
___________________ is buying a currency low and selling it high.
A)
Currency speculation
B)
Arbitrage
C)
Short-term investing
D)
Long-term investing

Back 112

B)
Arbitrage
Feedback:
Page: 330
Difficulty: Easy

Front 113

9-12
Demand for a currency relative to others
A)
causes the currency to depreciate
B)
causes the currency to appreciate
C)
causes the currency to go down in value
D)
creates a volatile currency situation

Back 113

B)
causes the currency to appreciate

Feedback:
Page: 331
Difficulty: Medium

Front 114

9-13
The law of one price
A)
was one of the first acts of the European Parliament, outlawing price discrimination.
B)
states that in competitive markets identical products must sell for the same price if the price is expressed in terms of the same currency, except for transportation costs and barriers to trade.
C)
affects currency transactions of MNE operating in different countries.
D)
was more significant before the introduction of the euro.

Back 114

B)
states that in competitive markets identical products must sell for the same price if the price is expressed in terms of the same currency, except for transportation costs and barriers to trade.
Feedback:
Page: 331
Difficulty: Medium

Front 115

9-14

Which of the following is NOT true about inflation:
A)
There is a connection between exchange rate movements and inflation.
B)
When the growth in a country's money supply is faster than the growth in output, price inflation is fueled.
C)
Governments would in general prefer to raise taxes than expand the money supply.
D)
It is government policy that determines whether the rate of growth in a country's money supply is greater than the rate of growth in output.

Back 115

C)
Governments would in general prefer to raise taxes than expand the money supply.

Feedback:
Pages: 334-6
Difficulty: Hard

Front 116

9-15

_____________________ is an explosive and seemingly uncontrollable price inflation in which money loses value very rapidly.
A)
A currency crisis
B)
PPP
C)
The International Fisher Effect
D)
Hyperinflation

Back 116

D)
Hyperinflation
Feedback:
Page 334
Difficulty: Easy

Front 117

9-16
The formula i = r + I is known as
A)
PPP
B)
the Efficient Market Theory
C)
the Inefficient Market Theory
D)
the Fisher Effect

Back 117

D)
the Fisher Effect

Feedback:
Page: 337
Difficulty: Medium

Front 118

9-17

Investor psychology can have a major impact on exchange rates. One such phenomenon is known as the ______________ , which becomes a self-fulfilling prophecy.
Soros effect
bandwagon effect
"greed is good" effect
spot exchange rate effect

Back 118

B)
bandwagon effect
Feedback:
Page: 338
Difficulty: Medium

Front 119

9-18

Relative monetary growth, relative inflation rates and nominal interest dare differentials are:
A)
moderately good predictors of short-run changes in exchange rates.
B)
poor predictors of short-term changes in exchange rates.
C)
moderately good predictors of long-run changes in exchange rates.
D)
poor predictors of long-term changes in exchange rates.

Back 119

C)
moderately good predictors of long-run changes in exchange rates.
Feedback:
Page: 339
Difficulty: Medium

Front 120

9-19

The _______ school of thought does not believe that forward exchange rates are the best possible predictors of future spot rates.
A)
efficient market
B)
inefficient market
C)
Fisher effect
D)
International Fisher effect

Back 120

B)
inefficient market

Feedback:
Page: 340
Difficulty: Medium

Front 121

9-20

Two schools of thought approach forecasting of future spot rates: ________________ analysis, which draws on economic theory to construct sophisticated econometric models and ________________ analysis, in which price and volume historic trends are expected to continue.
A)
theoretical; practical
B)
construct; time-line
C)
fundamental; technical
D)
scientific; speculative

Back 121

C)
fundamental; technical

Feedback:
Pages: 341-2
Difficulty: Medium

Front 122

9-21

A country's currency is said to be ______ when the country's government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it.
A)
externally convertible
B)
freely convertible
C)
internally convertible
D)
nonconvertible

Back 122

B)
freely convertible
Feedback:
Page: 342
Difficulty: Easy

Front 123

9-22

Capital flight
A)
is most likely to occur when the value of domestic currency is appreciating rapidly.
B)
occurs when residents and nonresidents rush to convert their holdings of domestic currency into foreign currency.
C)
affects tourists but has only a marginal impact on business transactions.
D)
is actively encouraged by governments in well-defined circumstances.

Back 123

B)
occurs when residents and nonresidents rush to convert their holdings of domestic currency into foreign currency.
Feedback:
Page 343
Difficulty: Medium

Front 124

9-23

The extent to which the income from individual transactions is affected by fluctuations in the foreign exchange values is known as
A)
translation exposure
B)
economic exposure
C)
transaction exposure
D)
geographic exposure

Back 124

C)
transaction exposure
Feedback:
Page: 344
Difficulty: Easy

Front 125

9-24
Translation exposure:
A)
occurs when exchange rates are erroneously posted in foreign exchange markets.
B)
are easily controlled by the management of a company.
C)
affects reported financial statements of a company.
D)
is concerned with the measurement of potential future events.

Back 125

C)
affects reported financial statements of a company.
Feedback:
Page 344
Difficulty: Medium

Front 126

9-25
Which of the following is not a common mechanism for ensuring a firm maintains an appropriate mix for minimizing its foreign exchange exposure?
A)
Central control of exposure to protect resources among sub-units' tactics and strategies
B)
Distinguishing among transaction, translation and economic exposure
C)
Forecasting future exchange rates
D)
Speculating in exchange rates to protect return on investment

Back 126

D)
Speculating in exchange rates to protect return on investment

Feedback:
Pages 345-6
Difficulty: Medium