The process whereby countries in a geographic region cooperate with one another to reduce or eliminate barriers to the international flow of products, people, or capital is called ________.
A) regional economic integration
B) region first policy
C) intra-
A) regional economic integration
A group of nations in a geographic region undergoing economic integration is called a ________.
A) regional domestic unit
B) regional collaborative
C) regional trading bloc
D) foreign direct investment region
C) regional trading bloc
Nations undergoing economic integration desire to accomplish each of the following EXCEPT ________.
A) increase cross-border investment
B) raise living standards for their people
C) increase cross-border trade
D) establish socialist government
D) establish socialist government
Which of the following is NOT a potential goal of regional economic integration?
A) Protection of intellectual property rights
B) Reduced environment degradation
C) Creation of a political union
D) Reduced cross-border investment
D) Reduced cross-border investment
35) Which of the following is the lowest level of regional integration?
A) Free trade area
B) Political union
C) Common market
D) Customs union
A) Free trade area
36) Economic integration whereby countries remove all barriers to trade among themselves, but each country determines its own barriers against nonmembers, is called a(n) ________.
A) economic union
B) customs union
C) common market
D) free trade area
D) free trade area
D) free trade area
B) customs union
38) The main difference between a free-trade area and a customs union is that the members of a customs union ________.
A) agree to treat trade with all nonmember nations in a similar manner
B) agree to the free movement of all factors of production
C) har
A) agree to treat trade with all nonmember nations in a similar manner
39) Economic integration whereby countries remove all barriers to trade and the movement of labor and capital between themselves and erect a common trade policy against nonmembers is called a(n) ________.
A) economic union
B) customs union
C) common marke
C) common market
40) A(n) ________ represents the greatest degree of regional integration.
A) economic union
B) common market
C) political union
D) customs union
C) political union
41) Which of the following is best classified as an economic union?
A) Southern Common Market (MERCOSUR)
B) European Union (EU)
C) North American Free Trade Agreement (NAFTA)
D) Andean Community
B) European Union (EU)
42) Economic integration whereby countries remove barriers to trade and the movement of labor and capital, erect a common trade policy against nonmembers, and coordinate their economic policies is called a(n) ________.
A) customs union
B) common market
C)
C) economic union
43) A(n) ________ requires member nations to harmonize their tax, monetary, and fiscal policies and create a common currency.
A) customs union
B) economic union
C) free trade area
D) common market
B) economic union
44) Integration whereby countries coordinate aspects of their economic and political systems is called a(n) ________.
A) free trade area
B) common market
C) political union
D) economic union
C) political union
45) Canada and the United States are early examples of ________.
A) customs unions
B) free-trade areas
C) economic unions
D) political unions
D) political unions
46) A group of nations currently taking steps toward political union is ________.
A) European Union (EU)
B) Southern Common Market (MERCOSUR)
C) Andean Community
D) North American Free Trade Agreement (NAFTA)
A) European Union (EU)
47) Higher levels of trade between nations result in all of the following EXCEPT ________.
A) greater standardization
B) increased efficiency
C) greater consumption
D) higher standards of living
Answer: A
A) greater standardization
48) The increase in the level of trade among nations that results from regional economic integration is called ________.
A) trade diversion
B) trade restriction
C) trade creation
D) trade embargo
C) trade creation
49) Which of the following is NOT a result of trade creation?
A) Lower costs tend to lead to higher demand for goods.
B) Buyers can acquire goods and services at lower cost.
C) Consumers are faced with a wider selection of goods.
D) Imported goods are ava
D) Imported goods are available at higher prices.
50) All of the following are potential drawbacks of regional integration EXCEPT ________.
A) loss of national sovereignty
B) shifts in employment
C) trade diversion
D) greater consensus
D) greater consensus
51) All of the following are true of trade diversion EXCEPT that it ________.
A) is the opposite of trade creation
B) can unintentionally reward a less-efficient producer within the trading bloc
C) can increase prices of products
D) guarantees consumers a
D) guarantees consumers a wider selection of goods
52) Studies of the Southern Common Market (MERCOSUR) found that the net effect of the agreement was ________.
A) trade diversion
B) trade creation
C) slower trade
D) regional inflation
B) trade creation
53) Which of the following requires nations to give up the least amount of sovereignty?
A) Economic union
B) Common market
C) Free trade area
D) Political union
C) Free trade area
54) The most sophisticated and advanced example of regional integration today is occurring in which of the following?
A) Asia
B) Europe
C) North America
D) Africa
B) Europe
55) In 1951, Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands created the ________.
A) European Union
B) European Economic Community
C) European Coal and Steel Community
D) European Free-Trade Area
C) European Coal and Steel Community
56) Which of the following created the European Economic Community?
A) The Treaty of Rome
B) The Maastricht Treaty
C) The Single European Act
D) Warsaw Pact
A) The Treaty of Rome
57) The Treaty of Rome aimed at establishing common policies among member nations for ________.
A) textiles and retail goods
B) transportation and agriculture
C) metal and cyclical products
D) meat products and telecommunications
B) transportation and agriculture
58) Today, the number of European Union (EU) members stands at ________.
A) 8
B) 13
C) 27
D) 18
59) The EU's goals of removing trade barriers, increasing harmonization, and enhancing the competitiveness of European companies were put forward in which of t
C) Single European Act
60) The ________ called for banking in a single common currency, setting up monetary and fiscal targets for countries taking part in monetary union, and political union of member nations.
A) Maastricht Treaty
B) European Monetary Union
C) Single European
A) Maastricht Treaty
61) The Maastricht Treaty did all of the following EXCEPT ________.
A) called for a common currency
B) established targets for monetary union
C) called for political union of member nations
D) called for a customs union of member nations
D) called for a customs union of member nations
62) Which of the following was NOT called for in the Maastricht Treaty?
A) Banking in a single, common currency
B) Monetary targets for countries wishing to take part in monetary union
C) Political union of the member nations
D) Government debt less than
D) Government debt less than 70 percent of GDP
59) The EU's goals of removing trade barriers, increasing harmonization, and enhancing the competitiveness of European companies were put forward in which of the following?
A) Maastricht Treaty
B) European Monetary Union
C) Single European Act
D) Copenhag
C) Single European Act
63) The European Union plan that established its own central bank and currency in January 1999 is known as the ________.
A) Single European Act
B) European monetary union
C) Copenhagen Criteria
D) European currency exchange
B) European monetary union
64) The common currency of the European Union is known as the ________.
A) European currency unit
B) eurodollar
C) euro
D) euromark
C) euro
65) Which of the following European Union countries opted out of transition to the euro?
A) Norway
B) Sweden
C) Switzerland
D) Finland
B) Sweden
66) All of the following are true of the euro EXCEPT that it ________.
A) eliminates exchange rate risk for business deals between members
B) reduces transaction costs by eliminating the cost of converting currencies
C) makes prices between markets more t
D) is not accepted among merchants in France, Germany, and Italy
67) Which of the following countries is expected to have difficult negotiations regarding its application for European Union membership?
D) Turkey
68) All of the following institutions play important roles in monitoring and enforcing economic and political integration in the European Union EXCEPT the ________.
A) European Parliament
B) Council of the European Union
C) European Supreme Court
D) Europ
C) European Supreme Court
69) The Court of Justice is the ________ of the European Union.
A) Supreme Court
B) court of appeals
C) small-claims court
D) capital crimes court
B) court of appeals
70) The Council of the European Union is the ________ body of the European Union.
A) legislative
B) executive
C) financial
D) monitoring
A) legislative
71) The European Commission is the ________ body of the European Union.
A) legislative
B) executive
C) financial
D) monitoring
B) executive
72) Which of the following is NOT a member of European Free Trade Association today?
A) Sweden
B) Liechtenstein
C) Norway
D) Switzerland
A) Sweden
73) Which of the following countries is NOT a member of the North American Free Trade Agreement (NAFTA)?
A) Mexico
B) United States
C) Venezuela
D) Canada
C) Venezuela
74) The North American Free Trade Agreement comprises a market of ________ consumers.
A) 120 million
B) 220 million
C) 320 million
D) 445 million
D) 445 million
75) Today, the United States exports more to ________ than it does to Britain, France, Germany, and Italy combined.
A) China
B) Japan
C) Mexico
D) South Korea
C) Mexico
76) According to the U.S. Trade Representative Office, exports to Mexico and Canada support some ________ million U.S. jobs.
A) 1.1
B) 2.9
C) 3.7
D) 5.8
B) 2.9
77) In 2006, the United States and six Central American nations established the CAFTA-DR, which stands for ________.
A) Coffee And Fruit Trade Agreement
B) Central Area For Trade Agreement
C) Central American Free Trade Agreement
D) Central Andes Fair Tra
C) Central American Free Trade Agreement
78) Main objectives of the Andean Community include all of the following EXCEPT ________.
A) tariff reduction
B) a common external tariff
C) common policies in transportation
D) a common currency
D) a common currency
79) Today, the Andean Community is best described as a somewhat incomplete ________.
A) free-trade area
B) customs union
C) common market
D) political union
B) customs union
80) ALADI refers to the ________.
A) Latin American Integration Association
B) Southern Common Market Association
C) Central Common Market Association
D) Latin American Free-Trade Area
A) Latin American Integration Association
81) Today, the Southern Common Market (MERCOSUR) is best described as a(n) ________.
A) economic union
B) political union
C) customs union
D) European Union
C) customs union
82) The main challenge facing the Caribbean Community and Common Market (CARICOM) is ________.
A) the bloc has not yet signed an agreement calling for a single market
B) military conflicts continue to hamper efforts to move toward political union
C) most
C) most members trade more with nonmembers than they do with each other
83) A common market between Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua is referred to as the ________.
A) Latin American Common Market (LACM)
B) Central American Common Market (CACM)
C) North American Common Market (NACM)
D) Southern Comm
B) Central American Common Market (CACM)
84) Which of the following has adopted the U.S. dollar as its official currency?
A) El Salvador
B) Honduras
C) Nicaragua
D) Costa Rica
84) Which of the following has adopted the U.S. dollar as its official currency?
A) El Salvador
B) Honduras
C) Nicaragua
A) El Salvador
85) The Free Trade Area of the Americas (FTAA) is a trade agreement ________.
A) between Mexico, Canada, and the United States
B) among the South American nations
C) that has been proposed to include all of North and South America
D) that includes Brazil,
C) that has been proposed to include all of North and South America
86) The only Western Hemisphere nation that would be excluded from participating in the Free Trade Area of the Americas (FTAA) is ________.
A) Argentina
B) Mexico
C) the United States
D) Cuba
D) Cuba
87) Each of the following is an objective of the Association of Southeast Asian Nations (ASEAN) EXCEPT ________.
A) promote economic, social, and cultural development in the region
B) safeguard the region's economic and political stability
C) serve as a f
D) halving members' tariff rates from an average of 15 percent to 7.5 percent
88) The stated aim of the organization for Asia Pacific Economic Cooperation (APEC) is to ________.
A) build another trading bloc
B) create a political union
C) strengthen the multilateral trading system
D) create a single unified economic union
C) strengthen the multilateral trading system
Which of the following refers to the purchase, sale, or exchange of goods and services across national borders?
A) Domestic trade
B) Foreign direct investment
C) International trade
D) Mercantilism
C) International trade
________ occurs between different states, regions, or cities within a country.
A) Domestic trade
B) Foreign direct investment
C) International trade
D) Mercantilism
A) Domestic trade
One way to measure the importance of trade to a nation is to examine ________.
A) its human development index relative to its CPI
B) the availability of natural resources and ease of extracting them
C) its comparative advantage relative to those of its ne
D) the volume of an economy's trade relative to its total output
Which of the following statements is NOT true about the services trade today?
A) Trade in services makes up about 20 percent of total world trade.
B) Trade in services tends to be more important for emerging markets.
C) The United States is a top exporter
B) Trade in services tends to be more important for emerging markets.
The U.S. Department of Commerce estimates that for every $1 billion increase in exports, ________ jobs are created in the United States.
A) 22,800
B) 35,000
C) 42,500
D) 63,000
A) 22,800
Most of the world merchandise trade is comprised of trade in ________.
A) natural resources
B) services
C) manufactured goods
D) knowledge-based goods
C) manufactured goods
When a country has a weak currency relative to other nations, imports are ________ relative to domestic products.
A) more expensive
B) equal in price
C) more attractive
D) less expensive
A) more expensive
The majority of total world merchandise trade occurs among ________.
A) high-income countries and low- and middle-income nations
B) high-income economies
C) low- and middle-income nations
D) emerging markets
B) high-income economies
Trade among the world's high-income economies accounts for roughly ________ percent of total world merchandise trade.
A) 20
B) 40
C) 60
D) 80
C) 60
Merchandise trade between low- and middle-income nations accounts for about ________ percent of total world trade.
A) 6
B) 23
C) 42
D) 61
A) 6
The smallest portion of total world trade takes place between ________.
A) high-income countries and low- and middle-income nations
B) high-income economies
C) low- and middle-income nations
D) emerging markets
C) low- and middle-income nations
Which of the following countries is the most important trading partner of the Central and Eastern European nations that recently joined the European Union?
A) Germany
B) Hungary
C) Japan
D) United States
A) Germany
When doing business in the Pacific Rim, ________.
A) carry business cards printed only in the home country language
B) be persistent and aggressive, because Asians often take a while before they agree to a meeting
C) don't accept invitations to dine at so
D) tone down the use of legal language
Companies are leaving Mexico for Asia and Europe because of differences in all of the following EXCEPT ________.
A) education
B) climate
C) red tape
D) taxes
B) climate
According to ________, measures of a nation's well-being are irrelevant.
A) mercantilism
B) absolute advantage theory
C) factor proportions theory
D) new trade theory
A) mercantilism
The most prominent mercantilist nations included all of the following EXCEPT ________.
A) the Netherlands
B) Spain
C) the United States
D) Portugal
C) the United States
The trade theory that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports is called ________.
A) absolute advantage
B) mercantilism
C) comparative advantage
D) factor proportions theory
B) mercantilism
The practice of mercantilism rested upon each of the following EXCEPT ________.
A) enhanced trade deficits
B) government intervention
C) colonialism
D) trade surpluses
A) enhanced trade deficits
The condition that results when the value of a nation's exports is greater than the value of its imports is called ________.
A) a trade deficit
B) mercantilism
C) a trade surplus
D) absolute advantage
C) a trade surplus
The condition that results when the value of a country's imports is greater than the value of its exports is called ________.
A) a trade deficit
B) mercantilism
C) a trade surplus
D) absolute advantage
A) a trade deficit
According to mercantilism, accumulation of national wealth depended on ________.
A) increasing a nation's trade surplus
B) expanding a nation's total value of trade
C) expanding a nation's total volume of trade
D) increasing a nation's trade deficit
A) increasing a nation's trade surplus
Colonies were important to mercantilist nations for all the following reasons EXCEPT ________.
A) to serve as sources of inexpensive raw materials
B) to serve as markets for higher-priced finished goods
C) to serve as a source of profits for mercantilist
D) to serve as a source of military protection
Nations following the theory of ________ believed that the world's wealth was limited and that a nation could increase its share of the pie only at the expense of its neighbors.
A) absolute advantage
B) comparative advantage
C) mercantilism
D) factor prop
C) mercantilism
Which of the following refers to the ability of a nation to produce a good more efficiently than any other nation?
A) Mercantilism
B) Comparative advantage
C) Absolute advantage
D) Zero-sum game
C) Absolute advantage
Who proposed the theory of absolute advantage?
A) David Ricardo
B) Adam Smith
C) Bertil Ohlin
D) Raymond Vernon
B) Adam Smith
Adam Smith believed which of the following?
A) International trade should be restricted by tariffs and quotas.
B) Governments should intervene to maintain a balance of exports and imports.
C) Market forces should determine trade flows.
D) Countries should
C) Market forces should determine trade flows.
The theory of absolute advantage measures a nation's wealth by determining the ________.
A) gold it has on reserve
B) silver it has on reserve
C) cash it has on reserve
D) living standards of its people
D) living standards of its people
The theory of absolute advantage destroys the mercantilist idea that international trade is a ________.
A) positive-sum game
B) zero-sum game
C) negative-sum game
D) no-win game
B) zero-sum game
The theory of ________ measures a nation's wealth by the living standards of its people.
A) mercantilism
B) factor proportions
C) absolute advantage
D) advanced factors
C) absolute advantage
When there are gains to be had by both countries that are party to an exchange, international trade is considered a(n) ________.
A) positive-sum game
B) zero-sum game
C) negative-sum game
D) equal-sum game
A) positive-sum game
When a country is not able to produce a good more efficiently than other nations, but produces the good more efficiently than it does any other good, it is said to have a(n) ________.
A) absolute advantage
B) resource advantage
C) first-mover advantage
D)
D) comparative advantage
Which of the following developed the theory of comparative advantage?
A) David Ricardo
B) Adam Smith
C) Bertil Ohlin
D) Raymond Vernon
A) David Ricardo
To complete his business bookkeeping each month, a small business owner spends about 20 hours and gives up $2,000 in income. If he hired a bookkeeper to do the work, the job would be completed in 15 hours and would cost $600. Should the owner hire the boo
A) He should hire the bookkeeper because the bookkeeper has an absolute advantage in completing the books.
Country A produces one ton of coffee using one unit of resources. Country B produces two tons of coffee using one unit of resources. Which of the following is true regarding Country A and Country B?
A) Country A has an absolute advantage in producing coff
C) Country B has an absolute advantage in producing coffee.
According to the theory of ________, trade is still beneficial even if one country is less efficient in the production of two goods, as long as it is less inefficient in the production of one of the goods.
A) absolute advantage
B) mercantilism
C) comparat
C) comparative advantage
Which of the following is NOT a limitation of the absolute and comparative advantage theories?
A) The theories assume that there are only two countries engaged in the production and consumption of just two goods.
B) The theories assume that there are no c
D) The theories assume that specialization in the production of one particular good results in gains in efficiency.
Comparative advantage theory focuses on which of the following?
A) Maximization of production and consumption
B) Logistics planning
C) Resource assessment
D) Creation of trade surpluses
A) Maximization of production and consumption
Both absolute and comparative advantage theories assume that ________ is the only resource used in the production process.
A) land
B) labor
C) capital
D) information
B) labor
The ________ theory states that countries produce and export goods that require resources that are abundant and import goods that require resources in short supply.
A) new trade
B) absolute advantage
C) international product life cycle
D) factor proportio
D) factor proportions
The focus of factor proportions theory is on the ________.
A) productivity of the production process
B) cost-effectiveness of the production process
C) use of abundant production factors
D) use of expensive production factors
A) productivity of the production process
Factor proportions theory was developed by ________.
A) Smith and Ricardo
B) Ricardo and Ohlin
C) Hecksher and Ohlin
D) Hecksher and Smith
C) Hecksher and Ohlin
Under factor proportions theory, a nation's resources include all of the following EXCEPT ________.
A) labor
B) land
C) information
D) capital equipment
C) information
Factor proportions theory argues that a country should produce and export goods ________.
A) that require factors of production that are most abundant
B) where it is most productive to do so
C) where it is most efficient to do so
D) that require factors o
A) that require factors of production that are most abundant
Country X is a small country with a large population. Most of its land is devoted to housing and commercial developments; agricultural land is in short supply. According to the factor proportions theory, which of the following would Country X most likely
B) Crops such as wheat and corn
The Leontief paradox describes evidence ________.
A) that U.S. exports require more labor-intensive production than its imports
B) in support of factor proportions theory
C) that U.S. exports require more capital-intensive production than its imports
D) t
A) that U.S. exports require more labor-intensive production than its imports
The international product life cycle theory was developed by ________.
A) Milton Friedman
B) Karl Marx
C) Michael Porter
D) Raymond Vernon
D) Raymond Vernon
The international product life cycle theory was put forth for which type of goods?
A) Service goods
B) Knowledge-based goods
C) Manufactured goods
D) Natural resources
C) Manufactured goods
During which stage of the international product life cycle theory does high purchasing power and buyer demand in an industrialized nation encourage a company to design and introduce a product concept?
A) Idiosyncratic stage
B) New product stage
C) Maturin
B) New product stage
During which stage of the international product life cycle theory does demand rise and remain sustained over a fairly lengthy period of time?
A) Idiosyncratic stage
B) New product stage
C) Maturing product stage
D) Standardized product stage
C) Maturing product stage
During which stage of the product life cycle are companies looking for low-cost production bases in developing nations to supply a growing worldwide market?
A) Idiosyncratic stage
B) New product stage
C) Maturing product stage
D) Standardized product stag
D) Standardized product stage
A product's components are made in a country that can produce them at a high level of productivity and assembled in another country where productivity in assembly is high. This process resembles the theory of ________.
A) comparative advantage
B) advantag
A) comparative advantage
Much production in the world today closely resembles what is predicted by the ________.
A) new trade theory
B) international product life cycle
C) theory of comparative advantage
D) theory of factor proportions
C) theory of comparative advantage
Which of the following is NOT an argument offered by the new trade theory?
A) Gains can arise from diversification and managed growth.
B) Gains can arise from specialization and increasing economies of scale.
C) Companies first to enter a market can creat
A) Gains can arise from diversification and managed growth.
New trade theory is in line with the theory of ________ but at odds with ________ theory.
A) international product life cycle; comparative advantage
B) comparative advantage; factor proportions
C) national competitive advantage; international product life
B) comparative advantage; factor proportions
National competitive advantage theory states that a nation's competitiveness in an industry depends on ________.
A) the capacity of the industry to innovate and upgrade
B) the level of government subsidy available
C) obtaining first-mover status
D) practi
A) the capacity of the industry to innovate and upgrade
The Porter diamond consists of all the following EXCEPT ________.
A) factor conditions
B) demand conditions
C) supply conditions
D) firm strategy, structure, and rivalry
C) supply conditions
Which element of national competitive advantage theory divides resources into two groups: basic and advanced?
A) Demand conditions
B) Factor conditions
C) Related and supporting industries
D) Firm, strategy, structure, and rivalry
B) Factor conditions
The international financial market is composed of two interrelated systems called the ________ and the ________.
A) international capital market; foreign exchange market
B) international capital market; foreign goods market
C) foreign goods market; intern
A) international capital market; foreign exchange market
Which of the following is a system that allocates financial resources in the form of debt and equity according to their most efficient uses?
A) International equity market
B) Foreign currency market
C) Capital market
D) Eurocurrency market
C) Capital market
Company debt normally takes the form of ________.
A) bonds
B) equity
C) stocks
D) bank loans
A) bonds
A loan in which the borrower promises to repay the borrowed amount plus a predetermined rate of interest is called ________.
A) equity
B) exchange rate
C) stock
D) debt
D) debt
Which of these is a debt instrument specifying the timing of principal and interest payments?
A) Stock
B) Bond
C) Eurocurrency
D) Equity
B) Bond
Shares of ownership in a company's assets that give shareholders a claim on the company's future cash flows are called ________.
A) stocks
B) bonds
C) debt
D) eurocurrencies
A) stocks
The ease with which bondholders and shareholders may convert their investments into cash is called ________.
A) barter
B) hedging
C) arbitrage
D) liquidity
D) liquidity
An expanded money supply ________.
A) reduces the cost of borrowing
B) makes it difficult for financial institutions to lend money
C) increases the cost of borrowing
D) diminishes the entrepreneurial initiatives of a country
A) reduces the cost of borrowing
Which of the following is NOT a purpose of the international capital market?
A) Reduces risk for lenders
B) Expands the money supply for borrowers
C) Reduces the cost of money to borrowers
D) Preserves hard currencies to finance trade deficits
D) Preserves hard currencies to finance trade deficits
Microcredit loans in developing countries typically average ________.
A) more than $100
B) about $350
C) more than $500
D) less than $500
B) about $350
The international capital market's rapid growth rate is traced to all these EXCEPT ________.
A) innovative financial instruments
B) information technology
C) foreign exchange rates
D) deregulation
C) foreign exchange rates
The unbundling and repackaging of hard-to-trade financial assets into more liquid, negotiable, and marketable financial instruments is called ________.
A) market liquidity
B) securitization
C) bartering
D) arbitrage
B) securitization
The world's three most important financial centers are ________.
A) Bonn, Zurich, and New York
B) London, Amsterdam, and Sydney
C) New York, Tokyo, and Bombay
D) Tokyo, London, and New York
D) Tokyo, London, and New York
Which of these is a country or territory whose financial sector features very few regulations and few, if any, taxes?
A) Offshore financial center
B) Currency market center
C) Capital market center
D) World trade center
A) Offshore financial center
An offshore financial center is usually characterized by each of the following EXCEPT ________.
A) very few regulations
B) economic and political stability
C) excellent telecommunications
D) high taxes
D) high taxes
________ is a prominent operational center.
A) Phoenix
B) London
C) Beijing
D) Frankfurt
B) London
Which of these is a prominent operational center?
A) The Cayman Islands
B) Gibraltar
C) Switzerland
D) Singapore
C) Switzerland
________ centers are usually located on small island nations or territories with favorable tax and/or secrecy laws.
A) Liquidity
B) Booking
C) Capital
D) Operational
B) Booking
Each of the following is an important booking center EXCEPT ________.
A) Bahrain
B) Singapore
C) Monaco
D) Iceland
D) Iceland
Which of these is NOT a component of the international capital market?
A) Foreign exchange market
B) International equity market
C) Eurocurrency market
D) International bond market
A) Foreign exchange market
The international bond market consists of all bonds sold by issuing companies, governments, or other organizations ________.
A) within their own countries
B) to London banks
C) outside their own countries
D) to developing nations only
C) outside their own countries
Typical buyers of bonds include all of the following EXCEPT ________.
A) medium- to large-sized banks
B) pension funds
C) mutual funds
D) governments in need of funds
D) governments in need of funds
Eurobonds account for ________ percent of all international bonds.
A) 20 to 25
B) 30 to 40
C) 50 to 65
D) 75 to 80
D) 75 to 80
A bond issued by a Venezuelan company, denominated in U.S. dollars, and sold in Britain, France, and Germany is an example of a ________.
A) Venobond
B) Forobond
C) Eurobond
D) Latinobond
C) Eurobond
Eurobonds are popular because ________.
A) they are less risky than traditional bonds
B) they are always denominated in euros
C) of the absence of government regulation
D) European companies are considered very stable
C) of the absence of government regulation
The absence of government regulation in the Eurobond market ________.
A) substantially reduces the cost of issuing a bond
B) lowers the risk level of the bond
C) makes Eurobonds less popular than foreign bonds
D) exists because of the difficulty of regula
A) substantially reduces the cost of issuing a bond
Bonds sold outside the borrower's country and denominated in the currency of the country in which they are sold are called ________.
A) international bonds
B) foreign bonds
C) Eurobonds
D) local bonds
B) foreign bonds
Foreign bonds account for about ________ percent of all international bonds.
A) 20 to 25
B) 25 to 40
C) 50 to 70
D) more than 90
A) 20 to 25
Foreign bonds issued in Japan are called ________.
A) bulldog bonds
B) yankee bonds
C) samurai bonds
D) dragon bonds
C) samurai bonds
Foreign bonds issued in the United States are called ________.
A) bulldog bonds
B) yankee bonds
C) samurai bonds
D) dragon bonds
B) yankee bonds
Foreign bonds issued in the United Kingdom are called ________.
A) bulldog bonds
B) yankee bonds
C) samurai bonds
D) dragon bonds
A) bulldog bonds
Foreign bonds issued and traded in Asia outside Japan are called ________.
A) bulldog bonds
B) yankee bonds
C) samurai bonds
D) dragon bonds
D) dragon bonds
Factors responsible for growth in the international equity market include all the following EXCEPT ________.
A) advent of cybermarkets
B) spread of countertrade
C) economic growth in developing countries
D) activities of investment banks
B) spread of countertrade
Which of the following denotes a stock market with no central geographic location?
A) Cybermarket
B) Foreign exchange market
C) Capital market
D) Bond market
A) Cybermarket
Deposits to the Eurocurrency market originate from all of these EXCEPT ________.
A) governments with excess funds generated by a prolonged trade surplus
B) commercial banks with large deposits of excess currency
C) international companies with large amoun
D) nongovernmental organizations seeking to avoid taxes
The market consisting of all the world's currencies that are banked outside their countries of origin is called the ________.
A) foreign exchange market
B) interbank trading market
C) Eurocurrency market
D) offshore financial center
C) Eurocurrency market
The British pounds of a British trading company that are deposited in a Japanese bank are called ________.
A) Poundyens
B) Euroyen
C) Europounds
D) Yen-pounds
C) Europounds
The most commonly quoted rate in the Eurocurrency market is the ________.
A) London Interbank Offer Rate (LIBOR)
B) London Interbank Bid Rate (LIBID)
C) spot rate
D) cross rate
A) London Interbank Offer Rate (LIBOR)
Rates that the world's largest banks charge one another for loans are called ________.
A) interbank interest rates
B) standardized interest rates
C) exchange rates
D) inflation hedge rates
A) interbank interest rates
The market in which currencies are bought and sold and their prices determined is called the ________.
A) Eurocurrency market
B) international capital market
C) international bond market
D) foreign exchange market
D) foreign exchange market
The rate at which one currency is exchanged for another is called the ________.
A) exchange rate
B) LIBOR
C) LICU rate
D) Federal funds rate
A) exchange rate
The bid-ask spread in the foreign exchange market is the ________.
A) price at which a bank will buy a currency
B) price of currency in the foreign exchange market
C) difference between the bid and ask quotes for a currency
D) price a bank will pay for a
C) difference between the bid and ask quotes for a currency
Investors use the foreign exchange market for each of the following EXCEPT ________.
A) currency hedging
B) currency speculation
C) currency arbitrage
D) currency prospecting
D) currency prospecting
Which of the following is LEAST likely to affect the exchange rate between two currencies?
A) The size of the transaction
B) The trader conducting the transaction
C) General economic conditions
D) The recipient of the converted currency
D) The recipient of the converted currency
The practice of insuring against potential losses that result from adverse changes in exchange rates is called currency ________.
A) hedging
B) arbitrage
C) speculation
D) conversion
A) hedging
________ is the instantaneous purchase and sale of a currency in different markets for profit.
A) Currency hedging
B) Currency arbitrage
C) Currency speculation
D) Currency conversion
B) Currency arbitrage
The profit-motivated purchase and sale of interest-paying securities denominated in different currencies is called ________.
A) currency arbitrage
B) currency hedging
C) interest arbitrage
D) interest hedging
C) interest arbitrage
The purchase or sale of a currency with the expectation that its value will change and generate a profit is called ________.
A) currency hedging
B) currency arbitrage
C) currency speculation
D) currency conversion
C) currency speculation
Currency arbitrage is ________.
A) the practice of insuring against potential losses that result from adverse changes in exchange rates
B) the profit-motivated purchase and sale of interest-paying securities denominated in different currencies
C) the purc
D) the instantaneous purchase and sale of a currency in different markets for profit
In a quoted exchange rate, the currency with which another currency is to be purchased is called the ________.
A) base currency
B) forward currency
C) cross currency
D) quoted currency
D) quoted currency
In a quoted exchange rate of $1.69/British pound, the British pound is called the ________.
A) base currency
B) forward currency
C) cross currency
D) quoted currency
A) base currency
An exchange rate of �117.87/$ indicates ________.
A) that 117.87 yen buys one dollar
B) that 117.87 dollars buys one yen
C) a direct quote on the dollar
D) an indirect quote on the yen
A) that 117.87 yen buys one dollar
In designating any exchange rate, the quoted currency is always the ________.
A) fraction
B) denominator
C) numerator
D) indirect quote
C) numerator
The exchange rate between the euro (�) and the dollar is �0.8461/$. Which of the following is the correct direct quote on the dollar?
A) $2.20/�
B) $1.1819/�
C) $5.50/�
D) $0.8461/�
B) $1.1819/�
An exchange rate calculated using two other exchange rates is called a(n) ________.
A) arbitrage rate
B) hedge rate
C) forward rate
D) cross rate
D) cross rate
Which of the following is an exchange rate that requires delivery of the traded currency within two business days?
A) Derivative rate
B) Spot rate
C) Discount rate
D) Forward rate
B) Spot rate
The exchange rate at which two parties agree to exchange currencies on a specified future date is called a(n) ________.
A) forward rate
B) bid-ask rate
C) spot rate
D) arbitrage rate
A) forward rate
If a currency's forward rate is higher than its spot rate, the currency is trading at a ________.
A) discount
B) swap rate
C) derivative rate
D) premium
D) premium
If the spot rate for the British pound (GBP) is $1.6950/GBP and the 30-day forward rate is $1.6921/GBP, then the pound is trading at a ________ in the 30-day market.
A) premium
B) discount
C) swap
D) spot
B) discount
Which of these is the simultaneous purchase and sale of foreign exchange for two different dates?
A) Forward swap
B) Bid-ask swap
C) Currency swap
D) Security swap
C) Currency swap
A currency used as an intermediary to convert funds between two other currencies is called a(n) ________.
A) spot currency
B) vehicle currency
C) forward currency
D) interbank currency
B) vehicle currency
The world's largest banks exchange currencies at spot and forward rates in the ________.
A) securities exchanges
B) Eurocurrency market
C) interbank market
D) over-the-counter market
C) interbank market
A ________ currency is traded freely in the foreign exchange market.
A) barter
B) convertible
C) vehicular
D) soft
B) convertible
When a country's currency is weak, the price of its ________.
A) exports and imports declines
B) exports on world markets declines and the price of imports increases
C) exports and imports increases
D) exports on world markets increases and the price of i
B) exports on world markets declines and the price of imports increases
A company selling in a country with a strong currency while sourcing from a country with a weak currency ________.
A) suggests unethical conduct
B) generally faces government penalties
C) ends up going bankrupt
D) improves its profits
D) improves its profits
Which of these is the intentional lowering of a currency's value by the nation's government?
A) Revaluation
B) Inefficient market view
C) Devaluation
D) Fundamental disequilibrium
C) Devaluation
Devaluation of a currency results in all of the following EXCEPT ________.
A) lowers profit margins for domestic companies
A nation's government intentionally raising its currency's value is called ________.
A) revaluation
B) fundamental disequilibrium
C) devaluation
D) convertible restriction
A) revaluation
Which of the following lowers the price of a country's exports on world markets and increases the price of imports?
A) Revaluation
B) Devaluation
C) Liquidity
D) Strong currency
B) Devaluation
Managers prefer that exchange rates be ________.
A) stable
B) freely floating
C) volatile
D) unpredictable
A) stable
Predictable exchange rates reduce the need for ________.
D) currency hedging
An exchange rate provides information regarding each of the following EXCEPT ________.
A) the buying power of a currency
B) whether a certain product will be more or less expensive in another country (as measured in the home currency)
C) how much of one c
C) how much of one currency must be paid to receive a certain amount of another
Which of these stipulates that an identical product must have an identical price in all countries when the price is expressed in a common currency?
A) Purchasing power parity
B) Law of one price
C) Fisher effect
D) Efficient market view
B) Law of one price
If a kilogram of coal costs �1.5 in Germany and $1 in the United States, the law of one price ________.
A) calculates the expected exchange rate between the euro and the dollar to be �1.5/$
B) calculates the expected exchange rate between the euro and the
A) calculates the expected exchange rate between the euro and the dollar to be �1.5/$
When the law of one price is violated, a(n) ________ opportunity arises.
A) hedging
B) speculation
C) arbitrage
D) power play
C) arbitrage
For the law of one price to apply, products must be all of the following EXCEPT ________.
D) identical in quantity in all countries
Which of these is the relative ability of two countries' currencies to buy the same "basket" of goods in those two countries?
A) Fisher effect
B) Law of one price
C) Purchasing power parity
D) Cross rates
C) Purchasing power parity
Inflation ________.
A) occurs when money is injected into an economy that is experiencing greater output
B) is the result of supply and demand for a currency
C) increases people's purchasing power
D) can be controlled through currency movements
B) is the result of supply and demand for a currency
Which of the following is NOT true about inflation?
A) It is the result of the supply and demand for a currency.
B) It erodes people's purchasing power.
C) It raises the prices of goods and services.
D) It is controlled by lowering interest rates.
D) It is controlled by lowering interest rates.
Which of these includes activities that directly affect a nation's interest rates or money supply?
A) Monetary policy
B) Government spending
C) Purchasing power parity
D) Fiscal policy
A) Monetary policy
________ is an example of monetary policy.
A) Increasing taxes
B) Lowering taxes
C) Increasing government spending
D) Selling government securities
D) Selling government securities
When the French government buys its own securities on the open market, this is an example of ________.
A) fiscal policy
B) monetary policy
C) global policy
D) the law of one price
B) monetary policy
When the U.S. government lowers taxes, this is an example of ________.
A) fiscal policy
B) monetary policy
C) domestic policy
D) the law of one price
A) fiscal policy
________ involves using taxes and government spending to influence the money supply indirectly.
A) Monetary policy
B) Domestic policy
C) The law of one price
D) Fiscal policy
D) Fiscal policy
When a government buys its own securities on the open market, ________.
A) tax rates decline
B) the money supply increases
C) the nation's productivity increases
D) it encourages FDI outflow
B) the money supply increases
To cool off an inflationary economy, a government might ________.
A) lower interest rates
B) raise interest rates
C) lower foreign exchange rates
D) raise foreign exchange rates
B) raise interest rates
Suppose the exchange rate at the beginning of the year between the Indian Rupee (R) and U.S. dollar is R43.125/$. The annual inflation rate in India is 19 percent whereas inflation in the United States is 3 percent. What would be the new exchange rate at
A) R49.8224/$
The rule that the nominal interest rate is the sum of the real interest rate and the expected rate of inflation over a specific period is called ________.
A) the law of one price
B) purchasing power parity
C) the cross rate rule
D) the Fisher effect
D) the Fisher effect
The Fisher effect can be written as follows: ________.
A) Nominal Interest Rate = Real Interest Rate + Government Floor Rate
B) Real Interest Rate = Nominal Interest Rate + Inflation Rate
C) Nominal Interest Rate = Real Interest Rate + Inflation Rate
D) R
C) Nominal Interest Rate = Real Interest Rate + Inflation Rate
If money were free from all controls when transferred internationally, the real rate of interest would ________.
A) be the same in all countries
B) be reflected in exchange rate conversions
C) create arbitrage opportunities across countries
D) be the same
A) be the same in all countries
Which of these is the principle that a difference in nominal interest rates supported by two countries' currencies will cause an equal but opposite change in their spot exchange rates?
A) Purchasing power parity
B) International Monetary Fund Rule
C) Inte
C) International Fisher effect
A country experiencing inflation higher than that of another country should see the value of its currency ________.
A) rise to match the real interest rate
B) rise to match the nominal interest rate
C) rise
D) fall
D) fall
60) Purchasing power parity is better at predicting ________ exchange rates.
A) European
B) short-term
C) spot
D) long-term
D) long-term
According to the efficient market view, the best predictor of exchange rates is ________.
A) forward exchange rates
B) fundamental analysis
C) technical analysis
D) statistical modeling
A) forward exchange rates
The efficient market view holds that prices of financial instruments ________.
A) do not reflect all publicly available information
B) are dependent on economic efficiency
C) are not dependent on economic efficiency
D) reflect all publicly available infor
D) reflect all publicly available information at any given time
The inefficient market view holds that prices of financial instruments ________.
A) do not reflect all publicly available information
B) are dependent on economic efficiency
C) are not dependent on economic efficiency
D) reflect all publicly available inf
A) do not reflect all publicly available information
Which of these employs statistical models based on fundamental economic indicators to forecast exchange rates?
A) Efficient market view
B) Fundamental analysis
C) Fisher effect
D) Technical analysis
B) Fundamental analysis
Which of these employs charts of past trends in currency prices and other factors to forecast exchange rates?
A) Efficient market view
B) Fundamental analysis
C) Fisher effect
D) Technical analysis
D) Technical analysis
The collection of agreements and institutions that govern exchange rates is the ________.
A) Bretton Woods Agreement
B) Plaza Accord
C) International monetary system
D) Floating-exchange rate system
C) International monetary system
Using gold as a medium of exchange in international trade was advantageous for all of the following reasons EXCEPT ________.
A) its limited supply made it a commodity in high demand
B) it was a good medium of exchange for both small and large purchases
C)
C) its weight made transporting it inexpensive
The international monetary system in which nations linked the value of their paper currencies to specific values of gold is referred to as the ________.
A) bartered system
B) floating exchange-rate system
C) gold standard
D) managed float system
C) gold standard
The gold standard is a ________ because it fixed nation's currencies to the value of gold.
A) managed float system
B) floating exchange-rate system
C) bartered system
D) fixed exchange-rate system
D) fixed exchange-rate system
________ was the first nation to implement the gold standard.
A) The United States
B) Britain
C) France
D) Japan
B) Britain
The value of a currency expressed in terms of gold is called its ________.
A) exchange rate
B) gold value
C) par value
D) gold currency value
C) par value
Under the gold standard, if the U.S. dollar was fixed at $30/oz of gold and Japan was fixed at �75/oz of gold, what would be the Yen/dollar exchange rate?
A) �2.50/$
B) $2.50/�
C) �0.40/$
D) �2250/$
A) �2.50/$
Under the gold standard, the calculation of each currency's par value was based on the concept of ________.
A) the international Fisher effect
B) nominal and real interest rates
C) purchasing power parity
D) the law of one price
C) purchasing power parity
An exchange rate system in which the exchange rate for converting one currency into another is fixed by international governmental agreement is called a ________.
A) floating exchange-rate system
B) fixed exchange-rate system
C) gold standard
D) currency
B) fixed exchange-rate system
By limiting the growth of a nation's money supply, the gold standard was also effective at controlling ________.
A) cross rates
B) inflation
C) currency reserves
D) economic development
B) inflation
Each of the following were advantages of the gold standard EXCEPT ________.
A) reducing exchange-rate risk
B) imposing strict monetary policies
C) correcting trade imbalances
D) increasing exchange-rate fluctuation
D) increasing exchange-rate fluctuation
Which of the following created a new international monetary system based on the value of the U.S. dollar?
A) Plaza Accord
B) Bretton Woods Agreement
C) Louvre Accord
D) Jamaica Agreement
B) Bretton Woods Agreement
The Bretton Woods Agreement incorporated all of these features EXCEPT ________.
A) funds for economic development
B) an enforcement mechanism
C) floating exchange rates
D) built-in flexibility
C) floating exchange rates
An economic condition in which a trade deficit causes a permanent negative shift in a country's balance of payments is called ________.
A) revaluation
B) managed float system
C) the Fisher effect
D) fundamental disequilibrium
D) fundamental disequilibrium
The World Bank was created by the ________.
A) Jamaica Agreement
B) Bretton Woods Agreement
C) Smithsonian Agreement
D) Plaza Accord
B) Bretton Woods Agreement
Which of the following was created by the Bretton Woods Agreement to enforce the rules of the international monetary system?
A) International Monetary Fund (IMF)
B) International Bank for Reconstruction and Development (IBRD)
C) Special Drawing Rights (SD
A) International Monetary Fund (IMF)
The ________ is an IMF asset whose value is based on a weighted basket of four currencies.
A) SDR
B) IMF
C) IBRD
D) G5
A) SDR
The goals of the International Monetary Fund (IMF) include each of the following EXCEPT ________.
A) facilitating expansion and balanced growth of international trade
B) promoting international monetary cooperation
C) making the resources of the fund avai
D) promoting regional economic union
The international monetary system based on fixed exchange rates ended in ________.
A) 1973
B) 1983
C) 1993
D) 2003
A) 1973
IMF members formalized the existing system of floating exchange rates as the new international monetary system by drafting the so-called ________.
A) Bretton Woods Agreement
B) Smithsonian Agreement
C) Plaza Accord
D) Jamaica Agreement
D) Jamaica Agreement
A system in which currencies float against one another, with governments intervening to stabilize their currencies at particular target exchange rates is called a ________.
A) managed float system
B) Bretton Woods system
C) free float system
D) fixed exch
A) managed float system
Today's international monetary system is considered a ________.
A) fixed system
B) managed float system
C) floating system
D) mixed system
B) managed float system
A monetary regime based on an explicit commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate is known as a ________.
A) fixed exchange rate system
B) Bretton Woods Agreement
C) currency board
D) pegged exchange
C) currency board
If Just-for-Kids is selling in a country with a strong currency while sourcing from a country with a weak currency, it will most likely ________.
A) improve its profits
B) face U.S. government penalties
C) generate losses
D) engage in unethical conduct
A) improve its profits
The government of the country that Just-for-Kids is considering doing business in just lowered the value of its currency, which is referred to as ________.
A) the Fisher effect
B) devaluation
C) fundamental disequilibrium
D) revaluation
B) devaluation
If the nation had raised and not lowered its currency's value, its actions would be called ________.
A) valuation
B) devaluation
C) fundamental disequilibrium
D) revaluation
D) revaluation
Which of the following would best explain to Tom what devaluation in a target market means?
A) Devaluation increases the price of a country's exports on world markets.
B) Devaluation reduces the price of imports like those of Just-For-Kids.
C) Devaluation
C) Devaluation increases the price of imports like those of Just-For-Kids.
If Country A is a subsidiary with a very high inflation rate, this situation would necessarily ________.
A) enhance import values, thereby helping Color-Me-Green's sales
B) lower the prices of goods and services in the country
C) diminish people's purchas
C) diminish people's purchasing power, thereby hurting Color-Me-Green's sales
Suppose Country A has a currency called the Pulse (P). At the beginning of the year, the exchange rate between the Pulse and U.S. dollar was P150/$. The inflation rate in Country A is running at an annual rate of 250 percent,whereas inflation in the U.S.
B) P514.70/$
In Country B, Color-Me-Green is faced with a tight labor market and a low unemployment rate. This low unemployment rate will most likely cause ________.
A) the government to cut interest rates
B) organizations to lower wages
C) the government to raise tar
D) inflation to occur
In an attempt to raise money in Country B, Color-Me-Green was quoted an interest rate of 14 percent by a local bank. This quoted rate is called the ________ rate.
A) real
B) artificial
C) nominal
D) foreign-company
C) nominal
Sam already knows that the ________ tells us how much of one currency we must pay to receive a certain amount of another.
A) exchange rate
B) par value
C) law of one price
D) purchasing power parity theory
A) exchange rate
Sam's mentor at the firm told him that the ________ stipulates that an identical product must have an identical price in all countries when the price is expressed in a common currency.
A) exchange rate
B) law of one price
C) purchasing power parity theory
B) law of one price
Sam has been studying the price of wheat across markets. If a kilogram of wheat costs �1.5 in France and $1 in the United States, the law of one price would tell us ________.
A) the expected exchange rate between the euro and the dollar is �1.5/$
B) wheat
A) the expected exchange rate between the euro and the dollar is �1.5/$
Suppose Sam then noticed that the actual euro/dollar exchange rate on currency markets is �1.2/$, and that a kilogram of wheat still costs $1 in the U.S. and �1.5 in France. Sam then knows ________.
A) the expected exchange rate between the euro and the d
B) wheat is priced higher in France
If the actual euro/dollar exchange rate on currency markets is �1.2/$, and a kilogram of wheat still costs $1 in the U.S. and �1.5 in France, Sam also knows that ________.
A) the price of a kilogram of wheat in France is $1.25
B) the price of a kilogram o
A) the price of a kilogram of wheat in France is $1.25
Sam's mentor is excited about the wheat prices in France and the United States because he sees an opportunity to buy wheat in the United States and sell it in France, which is known as a(n) ________.
A) exchange rate profit
B) violation of purchasing powe
C) arbitrage opportunity
All of the following factors of production are internationally mobile EXCEPT ________.
A) labor
B) financial capital
C) capital equipment
D) land
D) land
The purchase of physical assets or a significant amount of ownership (stock) of a company in another country to gain a measure of management control is called ________.
A) foreign direct investment
B) portfolio investment
C) mergers
D) vertical integratio
A) foreign direct investment
Which of the following refers to investments that do NOT involve obtaining a measure of control in a company?
A) Foreign direct investment
B) Portfolio investment
C) Mergers
D) Acquisitions
B) Portfolio investment
The U.S. Commerce Department sets the threshold at which it classifies an international capital flow as foreign direct investment at ________ percent.
A) 4
B) 10
C) 7
D) 1
B) 10
Which of the following are main drivers of foreign direct investment?
A) Diversity and telecommunications
B) Telecommunications and transportation
C) Globalization and mergers and acquisitions (M&A)
D) Diversity and globalization
C) Globalization and mergers and acquisitions (M&A)
Which of the following created renewed determination to further reduce barriers to trade?
A) Consumer demand
B) Advancements in telecommunications
C) Portfolio investment trends
D) Uruguay Round of trade negotiations
D) Uruguay Round of trade negotiations
When companies realized they could produce in the most efficient and productive locations in the world and simply export to markets worldwide, a new surge of foreign direct investment flowed into ________.
A) low-cost newly industrialized nations and emer
A) low-cost newly industrialized nations and emerging markets
Companies seek cross-border mergers and acquisitions for each of the following reasons EXCEPT to ________.
A) get a foothold in new geographic markets
B) increase a firm's global competitiveness
C) fill in gaps in companies' product lines in a global indu
D) free up company budgets for increased R & D
Which of the following statements is NOT true?
A) Entrepreneurs and small businesses play a minimal role in expanding foreign direct investment flows.
B) Increasing globalization is causing a growing number of international companies from emerging markets
A) Entrepreneurs and small businesses play a minimal role in expanding foreign direct investment flows.
Which of the following is NOT one of the four main theories that attempts to explain why companies engage in foreign direct investment?
A) International product life cycle theory
B) Market imperfections theory
C) Eclectic theory
D) Mercantilism
D) Mercantilism
Which of the following refers to the theory that a company will begin by exporting its products and later undertake foreign direct investment as a product moves through its life cycle?
A) Eclectic life cycle
B) Market imperfections life cycle
C) Internati
C) International product life cycle
According to the international product life cycle, in which of the following stages is a good produced in the home country because of uncertain domestic demand and to keep production close to the research department?
A) Standardized product stage
B) Matur
D) New product stage
According to the international product life cycle, in which stage of a product's life cycle does a company directly invest in production facilities in countries where demand is great enough to warrant production facilities?
A) New product stage
B) Maturin
B) Maturing product stage
In the ________ product stage of the international product life cycle theory, increased competition pressures a company to produce in low-cost developing nations.
A) new
B) maturing
C) standardized
D) declining
C) standardized
A market that is said to operate at peak efficiency and where goods are readily and easily available is said to be a(n) ________.
A) perfect market
B) eclectic market
C) imperfect market
D) greenfield market
A) perfect market
The ________ theory states that when an aspect of the market makes a transaction less efficient than it could be, a company will undertake foreign direct investment to internalize the transaction and thereby remove the efficiency reducing aspect.
A) marke
D) market imperfections
The requirement that a sufficient portion of a product's content originate within a certain market to escape tariff charges is an example of a ________.
A) trade marker
B) market imperfection
C) tariff quota
D) maturing product
B) market imperfection
The ________ theory states that firms undertake foreign direct investment when the features of a particular location combine with ownership and internalization advantages to make a location appealing for an investment.
A) rational production
B) internatio
D) eclectic
A(n) ________ is the advantage of conducting a particular economic activity in a specific area because of the characteristics of that place.
A) industry advantage
B) production advantage
C) comparative advantage
D) location advantage
D) location advantage
A(n) ________ is the advantage that arises from internalizing a business activity rather than leaving it to a relatively inefficient market.
A) ownership advantage
B) internalization advantage
C) location advantage
D) market power advantage
B) internalization advantage
According to the eclectic theory, each of the following advantages must be present for a company to undertake foreign direct investment EXCEPT ________.
A) location
B) ownership
C) internationalization
D) localization
D) localization
The ________ theory states that a firm tries to establish a dominant presence in an industry by undertaking foreign direct investment.
A) market power
B) eclectic
C) market imperfections
D) trade barriers
A) market power
One way a company can achieve market power is through ________.
A) ownership advantages
B) horizontal integration
C) vertical integration
D) balancing payments
C) vertical integration
Which of the following is the extension of company activities into stages of production that provide a firm's inputs or absorb its outputs?
A) Horizontal integration
B) Vertical integration
C) Market penetration
D) Collaborative diversification
B) Vertical integration
A company that integrates backward or forward can achieve market power through ________.
A) ownership advantages
B) horizontal integration
C) vertical integration
D) internalization
C) vertical integration
Which of the following statements is true regarding complete ownership of a business in another country?
A) It guarantees profits.
B) It does not guarantee decision-making responsibility.
C) It does not guarantee control.
D) It guarantees government suppo
C) It does not guarantee control.
Investment by multinational companies benefits developing and newly industrialized countries in all the following ways EXCEPT ________.
A) transfer of technology
B) decreased tax revenues
C) decreased unemployment
D) training to create a more highly skill
B) decreased tax revenues
A subsidiary built abroad from the ground up is called a(n) ________.
A) portfolio investment
B) distributive channel
C) acquisition
D) greenfield investment
D) greenfield investment
Which of the following is an example of a greenfield investment?
A) A business acquisition in Southeast Asia's former agricultural region
B) The construction of an entirely new manufacturing subsidiary overseas
C) A merger between a U.S. and non-U.S. comp
B) The construction of an entirely new manufacturing subsidiary overseas
The appeal of purchasing existing facilities is reduced by the potential for each of the following EXCEPT ________.
A) obsolete equipment
B) unsuitable location
C) poor relations with workers
D) low wages for local workers
D) low wages for local workers
All of the following are benefits of acquisitions EXCEPT the ________.
A) acquisition of goodwill the company has built up over the years
B) acquisition of the brand recognition of the existing company
C) ability to use alternate methods to finance the pu
D) acquisition of a plant or physical facility with obsolete equipment
A system of production in which each of a product's components is produced in the location where the cost of producing that component is lowest is called ________ production.
A) rationalized
B) greenfield
C) centralized
D) maquiladora
A) rationalized
A potential problem with rationalized production is that ________.
A) it is highly inefficient
B) a work stoppage in one country can bring the entire production process to a standstill
C) unionization in one country affects operations in other countries
D
B) a work stoppage in one country can bring the entire production process to a standstill
The automobile industry uses a ________ method of production.
A) fractional
B) rationalized
C) single-country
D) component
B) rationalized
Which of the following is LEAST likely to motivate foreign direct investment?
A) Customer knowledge
B) Following clients
C) Following rivals
D) Minimizing competition
D) Minimizing competition
To capitalize on buyer perceptions of high quality, a watchmaker might produce in which of the following countries?
A) China
B) Thailand
C) Mexico
D) Switzerland
D) Switzerland
The practice of "following clients" can be expected in industries having ________.
A) few suppliers
B) many suppliers
C) supply clusters
D) suppliers and manufacturers with close working relationships
D) suppliers and manufacturers with close working relationships
The ________ represents a country's national accounting system that records all payments to entities in other countries and all receipts coming into the nation.
A) balance of payments
B) credit account
C) capital account
D) current account
A) balance of payments
A nation's balance of payments consists of two components: the ________ account and the ________ account.
A) current; past-due
B) capital; fixed
C) current; capital
D) merchandise; services
C) current; capital
All of the following transactions are recorded in the current account of the United States EXCEPT ________.
A) import of goods
B) sale of U.S. assets
C) income payments on foreign assets in the United States
D) income receipts on U.S. assets abroad
B) sale of U.S. assets
Which of the following records transactions involving the export of services?
A) Income receipts account
B) Capital account
C) Income payments account
D) Current account
D) Current account
Which of the following is NOT recorded in the capital account?
A) U.S. private assets
B) U.S. official reserve assets
C) Foreign official assets
D) Unilateral transfers
D) Unilateral transfers
Exports and imports of tourism and business consulting are included in which of the following?
A) Services within the current account
B) Capital account
C) Merchandise within the current account
D) Corporate account
A) Services within the current account
Exports and imports of tangible goods are included in the ________ account within the current account.
A) exports
B) capital
C) merchandise
D) corporate
C) merchandise
Exports and imports of computer software, electronic components, and apparel would be reflected in the ________ account within the current account.
A) services
B) capital
C) merchandise
D) corporate
C) merchandise
Which of the following occurs when a country exports more goods and services and receives more income from abroad than it imports?
A) Current account deficit
B) Capital account surplus
C) Current account surplus
D) Capital account deficit
C) Current account surplus
Which of the following is a national account that records transactions involving the purchase or sale of assets?
A) Current account
B) Merchandise account
C) Service account
D) Capital account
D) Capital account
When a U.S. company buys 40 percent of the publicly traded stock of a French company on France's stock market, the U.S. balance of payments records the transaction as an ________.
A) inflow of capital recorded with a plus sign
B) inflow of capital recorde
D) outflow of capital recorded with a minus sign
If a Japanese citizen invests in the Australian stock market, the transaction would show up on the capital account of ________.
A) Japan
B) Australia
C) neither Japan nor Australia
D) both Japan and Australia
D) both Japan and Australia
When a U.S. subsidiary in another country remits profits back to its parent in the United States, the receipt of profits is recorded in the ________.
A) income receipts account and given a plus sign
B) income receipts account and given a minus sign
C) inc
A) income receipts account and given a plus sign
Which of the following is a reason for host country intervention in foreign direct investment (FDI) flows?
A) FDI sends resources out of the host country
B) To keep competitive local firms in business
C) To improve the nation's balance of payments
D) To p
C) To improve the nation's balance of payments
Reasons for home nations to discourage foreign direct investment outflows include all of the following EXCEPT that it may ________.
A) send resources out of the home country
B) cause loss of jobs at home
C) relocate "sunset" industry jobs abroad
D) damage
C) relocate "sunset" industry jobs abroad
A home country may encourage outflows of foreign direct investment because it ________.
A) may serve to replace jobs at home
B) can increase long-run competitiveness
C) sends resources out of the home country
D) may take the place of exports
B) can increase long-run competitiveness
When a country provides tax breaks and low-interest loans, it is using which of these to encourage inflows of foreign direct investment?
A) Financial incentives
B) Sanctions
C) Infrastructure improvements
D) Performance demands
A) Financial incentives
Which of the following would most likely be used by a host country to restrict incoming foreign direct investment?
A) Differential tax rates for earnings abroad
B) Insurance to cover the risk of overseas investments
C) Low-interest loans to investors
D) P
D) Performance demands
Which of the following is LEAST likely to be used by home-country governments to promote outbound foreign direct investment?
A) Offering tax breaks on profits earned abroad.
B) Granting loans to firms wishing to increase their investments abroad.
C) Elimi
C) Eliminating ownership restrictions on non-domestic investors.
Home governments may use which of the following to limit the effects of outbound foreign direct investment?
A) Insurance
B) Differential tax rates
C) Low-interest loans
D) Infrastructure improvements
B) Differential tax rates
Governments impose trade barriers for all of the following reasons EXCEPT ________.
A) to protect national security
B) to gain influence over other nations
C) to respond to other nation's fair trade practices
D) to protect jobs
C)to respond to other nation's fair trade practices
The pattern of imports and exports that occurs in the absence of trade barriers is called ________.
A) an embargo
B) protectionism
C) infant industry
D) free trade
D) free trade
Which of the following is an example of a political motive behind government intervention in trade?
A) Promote a strategic trade policy
B) Gain influence over other nations
C) Protect against unwanted cultural influence
D) Protect young industries from co
B)Gain influence over other nations
Which of the following is NOT an example of a political motive behind government intervention in trade?
A) Respond to other nation's unfair trade practices
B) Preserve national security
C) Protect jobs
D) Protect young industries from competition
D) Protect young industries from competition
Which of the following is NOT true?
A) Governments intervene in markets to ensure access to a domestic supply of certain items in the event that war could restrict their availability.
B) Industries considered essential to national security often receive g
D) It is difficult to make the case to protect industries for the purpose of preserving national security.
Which of the following industries is typically protected for national security reasons?
A) Agriculture
B) Textile
C) Cosmetics
D) Housing
A) Agriculture
Which of the following is causing farmers to increase their efficiencies in many developed nations?
A) Protection under national security guidelines
B) Exposing agribusiness to market forces
C) Providing extensive government subsidies
D) Labeling agricult
B) Exposing agribusiness to market forces
Products designated as dual use require ________ before export can take place.
A) multi-language translation documents
B) better consumer-use instructions
C) special government approval
D) World Trade Organization clearance
C) special government approval
When a product has both industrial and military applications, they are said to have ________.
A) cultural imperialism
B) a free trade designation
C) an unfair trade advantage
D) dual uses
D) dual uses
Which of the following is an example of an economic motive for nations' attempts to influence international trade?
A) Pursue strategic trade policy
B) Protect jobs
C) Respond to "unfair" trade
D) Preserve national security
A) Pursue strategic trade policy
The ________ argument says that a country's emerging industries need protection from international competition during their development.
A) national security
B) infant industry
C) strategic trade policy
D) GATT treaty
B) infant industry
The notion that as an industry grows and matures it gains the knowledge it needs to become more innovative, efficient, and competitive is known as the ________.
A) maturing industry argument
B) infant industry argument
C) entrant industry argument
D) exta
B) infant industry argument
Which of the following is NOT a problem associated with the infant industry argument?
A) It can cause domestic companies to become overly innovative.
B) Once protection of an industry is given, it can be politically difficult to eliminate.
C) Protection c
A) It can cause domestic companies to become overly innovative.
Each of the following can be the result of protection from international competition EXCEPT ________.
A) consumers often end up paying more for products
B) there are fewer incentives to cut production costs or improve quality
C) companies become more reli
D) strategic trade policy dictates trading patterns
________ believe that government intervention can help companies take advantage of economies of scale and be the first movers in their industries.
A) Opponents of globalization
B) New trade theorists
C) Critics of strategic trade policy
D) Cultural imperi
B) New trade theorists
The term chaebol refers to ________.
A) Japanese multinational powerhouses
B) South Korean global conglomerates
C) Vietnamese free trade policies
D) Chinese personal relationships
B) South Korean global conglomerates
Which of these is the main cultural motive behind government intervention in trade?
A) Promote a strategic trade policy
B) Protect jobs
C) Protect national identity
D) Protect young industries from competition
C) Protect national identity
Unwanted cultural influence in a nation is referred to as ________.
A) cultural protectionism
B) cultural imperialism
C) cultural capitalism
D) cultural dumping
B) cultural imperialism
Which of these countries are seen as a threat to national cultures around the world?
A) United States
B) India
C) Russia
D) France
A) United States
Which of the following is NOT an example of an instrument that government uses to promote trade?
A) Tariffs
B) Subsidies
C) Export financing
D) Foreign trade zones
A) Tariffs
Which of the following is an example of a common instrument used by government to promote trade?
A) Tariffs
B) Subsidies
C) Quotas
D) Local content requirements
B) Subsidies
All of the following are methods of restricting trade EXCEPT ________.
A) tariff
B) quota
C) local content requirement
D) subsidy
D) subsidy
Which of the following is a method of restricting trade?
A) Export financing
B) Local content requirements
C) Subsidy
D) Foreign trade zones
B) Local content requirements
Financial assistance to domestic producers in the form of cash payments is an example of a(n) ________.
A) ad valorem tariff
B) embargo
C) subsidy
D) export tariff
C) subsidy
Which of the following is NOT true of governments?
A) They often promote exports by helping companies finance their export activities.
B) They may promote imports through the use of subsidies.
C) They can promote exports by offering loans with below-marke
B) They may promote imports through the use of subsidies.
When a government guarantees it will repay the loan of a company if the company should default on repayment, this is an example of a(n) ________.
A) subsidy
B) loan guarantee
C) infant industry protection
D) loan repayment clause
B) loan guarantee
Which of the following government agencies provides insurance services to exporters and other companies investing abroad?
A) Overseas Private Investment Corporation
B) Federal Deposit Insurance Corporation
C) World Trade Organization
D) Organization of Pe
A) Overseas Private Investment Corporation
Which of the following finances the export activities of companies in the United States and offers insurance on foreign accounts receivable?
A) Ex-Ante Bank
B) Ex-CEO Bank
C) Export-Import Bank
D) In-Out Bank
C) Export-Import Bank
Taken together, small businesses account for ________ percent of all transactions handled by the Export-Import Bank.
A) less than 20
B) over 80
C) approximately 50
D) 100
B) over 80
A designated geographic region in which merchandise is allowed to pass through with lower custom duties and/or fewer customs procedures is called a(n) ________.
A) chaebol zone
B) special subsidy zone
C) international customs zone
D) foreign trade zone
D) foreign trade zone
Businesses can obtain financing from the Export-Import Bank through all the following EXCEPT the ________.
A) marketing assistance program
B) city/state program
C) working capital guarantee program
D) credit information services program
A) marketing assistance program
A common purpose of many companies' facilities in foreign trade zones is ________.
A) final product assembly
B) acquisition of raw materials
C) product design
D) to increase the total amount of a good's production cost
A) final product assembly
Which of the following is NOT true about maquiladoras?
A) They employ hundreds of thousands of people.
B) They are foreign trade zones along Mexico's northern border.
C) They import materials or parts from the United States without duties, perform some pr
D) They have shown little success because of the immense amount of paperwork involved.
Government trade promotion agencies do all of the following EXCEPT ________.
A) organize trips for trade officials and business people to visit other countries
B) open trade offices in other countries
C) advertise in other countries to promote the nation'
D) place voluntary export restraints on companies that fail to export adequately
Which of the following adds to the cost of an imported product by levying an additional tax upon it?
A) Tariffs
B) Quotas
C) Local content requirements
D) Embargoes
A) Tariffs
A tariff levied by the government of a country that is exporting a product is called a(n)________.
A) export tariff
B) ad valorem tariff
C) compound tariff
D) specific tariff
A) export tariff
Tariffs can be classified into all of the following categories EXCEPT ________.
A) transit
B) direct
C) export
D) import
B) direct
A tariff levied by the government of a country that a product is passing through on its way to a final destination is called a(n) ________ tariff.
A) transit
B) domestic
C) export
D) import
A) transit
The most common tariff used today is the ________ tariff.
A) import
B) transit
C) compound
D) export
A) import
A(n) ________ tariff is levied as a percentage of the stated price of an imported product.
A) specific
B) compound
C) ad valorem
D) specialized
C) ad valorem
A(n) ________ tariff is levied as a specific fee for each unit of an imported product.
A) specific
B) compound
C) ad valorem
D) specialized
A) specific
A(n) ________ tariff is levied on an imported product and calculated partly as a percentage of its stated price and partly as a specific fee for each unit.
A) specific
B) compound
C) ad valorem
D) specialized
B) compound
Which of the following statements is NOT true?
A) Tariffs are a source of government revenue.
B) Tariffs protect domestic producers.
C) Tariffs lower the effective prices of imports.
D) Tariffs can can keep producers from increasing efficiency.
C) Tariffs lower the effective prices of imports.
Using tariffs to generate government revenue is most common among ________.
A) developed countries
B) less-developed countries
C) advanced economies
D) communist nations
B) less-developed countries
A restriction on the amount of a good that can enter or leave a country during a certain period of time is called a(n) ________.
A) export subsidy
B) local content requirement
C) quota
D) tariff
C) quota
All of the following are true of quotas EXCEPT ________.
A) they may be used to protect domestic producers by placing a limit on the amount of goods allowed to enter the country
B) they help domestic producers maintain their market shares and prices
C) do
D) they cause the prices of intermediate goods to decrease
Country A imposes a tariff on its exports at the request of another nation. This is an example of a(n) ________.
A) embargo
B) tariff-quota restraint
C) independent tariff
D) voluntary export restraint
D) voluntary export restraint
Countries might impose a(n) ________ in response to the threat of an import quota or total ban on a product by an importing nation.
A) embargo
B) tariff-quota restraint
C) independent tariff
D) voluntary export restraint
D) voluntary export restraint
A lower tariff rate for a certain quantity of imports and a higher rate for quantities that exceed the quota is called a(n) ________.
A) embargo
B) tariff-quota
C) tariff
D) voluntary export restraint
B) tariff-quota
Tariff-quotas are used extensively in the trade of ________.
A) manufactured goods
B) services
C) textiles
D) agricultural products
D) agricultural products
Suppose imports entering a nation under a quota limit of 8,500 tons of rice are charged a tariff of 15 percent, but subsequent imports of rice that do not make it under this quota limit are charged a tariff of 68 percent. This is an example of a(n) ______
D) tariff-quota
Country A implements a ban on trade in two products with Country B. This is an example of a(n) ________.
A) embargo
B) tariff-quota
C) tariff
D) voluntary export restraint
A) embargo
Which of the following is NOT a true statement about embargoes?
A) An embargo may be placed on one or a few goods or may completely ban trade in all goods.
B) An embargo is the most restrictive nontariff barrier available.
C) An embargo is usually employe
D) Embargoes are used frequently today because they are easy to implement.
If a country stipulates that a specified amount of a good or service be supplied by producers in the domestic market, this restriction device is an example of a(n) ________.
A) administrative delay
B) currency control
C) local content requirement
D) volun
C) local content requirement
All of the following statements are true of local content requirements EXCEPT ________.
A) many developing countries use local content requirements as a strategy to boost industrialization
B) companies can circumvent local content requirements by locating
C) local content requirements hurt domestic producers through their effect on prices
Purposely understaffing customs offices to cause time delays, requiring special licenses that take a long time to obtain, and requiring air carriers to land at inconvenient airports are all examples of ________.
A) restructuring
B) local bureaucracy
C) ad
C) administrative delays
Restrictions on the convertibility of a currency into other currencies are referred to as ________.
A) administrative delays
B) local bureaucracy
C) currency controls
D) convertibility delays
C) currency controls
The ________ altered U.S. trade policy from a stance of free trade to one of protectionism.
A) General Agreement on Trade and Tariffs
B) Multi-Fibre Arrangement
C) Normalized Trade Relations Act
D) Smoot-Hawley Act
D) Smoot-Hawley Act
Which of the following is NOT a way in which the Uruguay Round of Negotiations modified the original General Agreement on Tariffs and Trade (GATT) treaty?
A) It clearly defined intellectual property rights.
B) It established the World Trade Organization t
C) It drastically reduced tariffs and nontariff barriers in telecommunications.
An additional tariff placed on an imported product that a nation believes is receiving an unfair subsidy is called a(n) ________.
A) countervailing duty
B) ad valorem duty
C) dumping duty
D) compounded tariff
A) countervailing duty
Scenario: Not-So-Free Freeland
Freeland is a semi-closed economy whose government believes in protecting national identity and becoming a self-sustaining country. The government's priority is to protect local jobs and provide opportunities to Freeland's e
D) systematic motives
Freeland's protection of its national identity is an example of which of the following?
A) Political motive
B) Economic motive
C) Cultural motive
D) Systematic motive
C) Cultural motive
The Freeland government's effort to protect local jobs is an example of which of the following motives?
A) Political
B) Economic
C) Cultural
D) Systematic
A) Political
Freeland's efforts to provide opportunities to its emerging industries is an example of which of the following motives?
A) Political
B) Economic
C) Cultural
D) Systematic
B) Economic
The belief that Freeland's emerging industries need protection from international competition during their development phase is an example of which of the following?
A) The national security argument
B) The emerging embargo argument
C) The infant industry
C) The infant industry argument
Scenario: Badland Joins the World
Badland, a former totalitarian economy and pariah state, is taking steps toward a free market economy. The government wants to encourage trade but also wants to find a balance where local businesses and industries are not
C) Reduce tariffs
If Badland chooses to levy tariffs as a percentage of the stated price of an imported product, this would be an example of a(n) ________.
A) compound tariff
B) specific tariff
C) ad valorem tariff
D) tariff-quota
C) ad valorem tariff
The government may want to impose an import quota for which of the following reasons?
A) Maintain adequate supplies of a product in the home market
B) Force the companies of other nations to compete against one another
C) Restrict the supply of a product
B) Force the companies of other nations to compete against one another
If Badland creates a hybrid form of trade restriction�a lower tariff rate for a certain quantity of imports and a higher rate for quantities that exceed the quota�this would be an example of which of the following?
A) Compound tariff
B) Specific tariff
C)
D) Tariff-quota
Scenario: Excelsior's Limited
Excelsior's Limited, a maker of health and beauty aids, is expanding its presence in several countries around the world. Excelsior's president has been surprised at some of the responses the company has received from other co
B) local content requirement
When Excelsior's Limited tried to convert its earnings from one country, the government stipulated that the company had to exchange its currency at a very unfavorable rate. This is an example of a(n) ________.
A) administrative delay
B) currency control
C
B) currency control
France gave Excelsior's Limited permission to export its product as long as the company obtained a special license first. Excelsior has been waiting six months for the license and is wondering if it will ever arrive. Excelsior's Limited is experiencing __
A) an administrative delay