GEB 3373 Exam #2

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Trade is _____ a zero sum game


Is trade voluntary?


What is the direct effect exports and imports have on nationl economies?

Direct effect: affects the GDP exports directly add to the GDP imports directly reduce GDP

GDP Formula

Y = C + I + G + NX NX = Exports – Imports Y = GDP C = Consumption I = Investment G = Government purchases

What is the indirect effect exports and imports have on nationl economies?

the Multiplier Effect- an increase in exports sparks other domestic economic activity Imports Increase competition

Developing economies acount for roughyl _____ of world exports and imports


The number one exporter is


The number one importer is

United States

What are three reasons one should care about international trade theories?

1. International trade is ubiquitous and pervasive 2. Government use these theories 3. You can use them in your career

What are the different groups of trade theories?

Classical Trade Theories Modern Trade Theories

Classical Trade Theories

theories that were developed to explain trade betwee countries

What are the Classical Trade Theories useful for analyzing?

the trade of Commodities- standarized goods such as wheat, suagr, lumber, or oil commodities are bought on the basis of price rather than brand name

What are the Classical Trade Theories?

1. Mercantilism 2. Absolute Advantage 3. Comparative Advantage 4. Heckscher-Ohlin Theory 5. Leontief Paradox

Modern Trade theories

theories that were developed to explain trade betwee firms useful for explaining trade patterns for differentiated goods demand for differentitated goods can be drivan by differecnes in uality, technology, custoemr loyalty, brand name

What are the Modern Trade theories

1. Product Life Cycle 2. Country Similarity Theory 3. New Trade Theory 4. Porter’s Theory of National Competitive Advantage

What are the Modern Trade Theories useful for analyzing?

the trade of differentiated goods- cars, personal care products consumer electronics etc. depend on brand name etc.

What are the pros and cons of Mercantilism

Pros: -Increase’s country’s exports -managed competition from foreign firms via tariffs and quotas Cons: -higher taxes needed to pay for subsidies -higher prices of goods and services due to decreased competition from foreigners

Adam Smith wrote what work?

Wealth of Nations

Adam Smith proposed what theory?

the theory of absolute advantage

What did Adam Smith argue?

that individuals who are acting for their own benefit will do what’s best for society when they are allowed to produce and exchange goods, services, and assets without government intervention

Who proposed the theory of comparative advantage?

David Ricardo

Country-based theoris expalin ______ trade but can not explain _______ trade

intraindustry trade

What are the three stages of the Product life cycle?

Stage 1: New Product Stage Stage 2: Maturing Product Stage Stage 3: Standardized Product Stage

New Product Stage

firms develop and introduce a new product to meet a need in the market profits are uncertain, so firms generally only sell to domestic markets the goal is to closely monitor consumer reaction and then fine-tune the product before making a significant investment in the global market

Maturing Product stage

demand picks up and the company expands its capacity to meet foreign and domestic demand the company ebgins to look to foreign markets as a lucratie source of deand for the product

Standardized product stage

demand for the product stablizes, and the product becoms more of a commodity manufactirers try to cut costs, often by moving production facilities to countries where wage rates are low televisions and apple products are in the standarized product stage

Why did Walmart purchase JEt and Moosejaw?

to gain valuable expertise in online retailing to compete with amazon walmar is hoping to offer a low-cost shipping option to attract custoemr from amazon

Firms can achieve a sustainable competitive advantage by:

1. Owning intellectual property rights 2. Investing in research and development 3. Taking advantage of economies of scope 4. Exploiting the experience curve

What is the experince curve?

Costs fall as a firm gains experince manufacturing a product

The four factors that determine global competitiveness of an industry are:

1. Factor Conditions 2. Domestic Demand Conditions 3. Related and supporting industries 4. Firm strategy, structure, and rivalry

Factor Conditions

some industries are globally competitive becasue countires are endowed with superior resources

Domestic Demand Conditions

an industry is globally competitive when domestic competitors have to meet the demands of a large, sophisticated domestic market which helps prepare firms to serve the needs of a global marketplace

Related and supporting industries

a high level of competition among suppliers will result in lower prices, higher quality, and more innovations

Firm strategy, structure, and rivalry

an industry is globally competitive when domestic competition is fierce

Which country in Africa attracts the msot FDI?


Which region attracts the msot FDI in Asia?

hong kong

Which country in South America attracts the msot FDI?


Which country out of the developed countries attracts the msot FDI?

United States

Foreign companies primarily employ workers in the US in the ________ and _______ industries

Manufacturing and Advanced (Innovation)

What is the EB-5 investor visa program?

allows foreign nationals to have permanet U.S. residency in exchnage for an investemtn of at least $500,000 that creates at least 10 full-time jobs

What are the three theories of international investment?

1. Ownership advatnage theory 2. Internalization theory 3. Dunning’s eclectic theory

What are the three categories of factors that affect a firm’s decision to undertake FDI?

1. Factors 2. Demand Factors 3. Political Factors

What comprises Supply Factors that influence FDI?

1. Production costs 2. Logistics 3. Availability of natural resourcwes 4. Access to key technology

What comprises Demand Factors that influence FDI?

1. Customer access 2. Marketing advantages 3. Exploitation of competitive advantage 4. Customer mobility

What comprises Political Factors that influence FDI?

1. Avoidance of trade barriers 2. Economic development incentives

Why is a barter economy very inefficent?

because it relies on a double coincindence of wants

Which country was the first to adopt the Gold Standard?

the United Kingdom in 1821

what is the formula for the fixed exchnage rate?

Par Value of Currency B / Par Value of Currency A

What were the three problems with the gold standard?

1. It was inefficent- countries had to physcially exchnage gold to manage trade imbalnces 2. The supply of gold is reatively infelxible 3. It prohibited the use of monetary policy- the money supply is fixed so the central bank can not change the money supply to either stimulate or dampen economic activity

Fiscal policy

Execericesed by Congress and the President- chnage taxes and spending polices

Monetary Policy

execrised by the central bank to contro lthe supply of moeny, and thus influence the interest rate

Is inflation still a possiblity under the gold standard?

Yes becausw the worth of currency compared to gold is determined by the government and an be changed- FDR changed the worth of a dollar durign the Great Depression

What event caused nations to abadon the gold standard?

World War 1 because the demand for currency to fund the war was greater than the supply of gold then great depression- nations unable to maintain currency’s par value

What does letting a currency float mean?

it means that the value of the currency is determined by supply and demand

Why was the Wordl Bank established?

To help Europena contres rebuild after World War 2 the World Bank’s mission evetually evolved into helping developing countires build their economies

How many members are there in the World Bank? Which member has the largest share of voting rights?

189. United States

What are the four organziations that comprise the World Bank Group?

1. The World Bank 2. The International Developemnt Association 3. The International Finance Corporations 4. The Multilateral Investment Gurantee Agency

Why was the International Monetary Fund created?

to oversee the world’s monetary system so that it would not break down as it diid in the 1930’s

How many memebrs are in the IMF? Which country has the largest quota of all IMF members?

189. The United States

IMF member countries can uncondtionalyl borrow ______ % of their quota from the IMF


The Dollar-Based Gold Standard is also known as the

Bretton Woods standard

The ______ will loan money to finance a debt, while the _______ will loan moneu to help a country or company finance a project

IMF ; World Bank

The value of a US Dollar under the Bretton Woods Standard was

$35 dollar = one ounce of gold countries had to maintain their currencies within 1% of a par value

Countries can try to control the price of their currency by manipulating the _________ on the international foreign exchange market

the supply of their currency

Triffin paradox

foreigners lost confidence in the value of the dollar as they bought more of them

The Exchange Rate Mechanism eventually led to the formation of the _______


What are some countries that have dollarized?

El Salvador and Ecuador

Which decade is referred to as the "lost decade"


What started the 1997 Asian Currency Crisis

Thailand had to abadon its currency peg after investors began t olack confidece that Thailand had the ability to pay the country’s debts Investors began t orelize other ocuntries had same problems as well, crreating and "Asian Contagion" The Asian contagion spread throughout Asia and to Latin America and Russia

Businesspeople pay attention to the BOP System becasue:

1. It may highlight streghtneing/emergig markets for goods and services 2. It may help businesspeople predict which policies the government may implement in the future 3. It may signal oncoming currency depreciation 4. It may indicate the level of risk associated with a countyr’s debt

Features of the BOP Accounting system:

1. It is time-dependent 2. It only records economic(monetary value) transactions 3. It records transaactions between the residents of one country and residnts of all other countires 4. It is a double-entry system -selling goods and services generates credits, while buying goods and services generates debits

What are the four components for the BOP Accounting System?

1. Current Account 2. Capital Account 3. Official Reserves Account 4. Errors and Omissions

What are the components of the Current Account in BOP Accounting System?

1. Exports and imports of goods 2. Export and Imports of services 3. Investment income 4. Unilateral Transfer

What are the components of the Capital Account in BOP Accounting System?

1. Foreign Direct Investment 2. Foreign Portfolio Investment

What are the components of the Official Reserves Account in BOP Accounting System?

1. National government reserve holdings(including gold) 2. Convertible currencies- the most freely traded and accepted currencies in the world- dollar, yen, euro 3. Special drawing rights 4. Reserve positions at the IMF- the difference between its quota and its IMF borrowings

What is the Errors and Omissions Account in BOP Accounting System?

the errors and omissions account corrects any errors and brings the BOP into balance

What are the three reasons why the Current Account, Capital Account, nad Official Reserves Account never balance in practice?

1. Underreporting of legal capital account transactions 2. Illegal flight capital 3. Inaccurate statistics in the current account

When newscasters report that the "United States is running a balance of payments deficit" they are really referring to ________________

the balance of trade in goods and services

The United States is running a Current Account ________

US balances on services and income are ____________, but our balances on goods and net unilateral current transfers are ___________

Deficit Positive, negative

China is experinceing a trade ________ right now, but overall trade activity has ___________

surplus, decreased

India’s trade _________ has gotten smaller


Japan recorded a trade _______ in 2011 which ended up __________

deficit, quadruplaing

Modern trade theories

focus on the firm, not the country, and use quality, techonology, brand names, customer loyalty to help explain trade flows

A large portion of the World’s FDI either made by or goes to the ___________ nations


What comprises the Dunning’s Eclectic Theory?

1. Ownership Advantage 2. Location Advantage 3. Internalization Advantage

According to the Product Life Cycle Theory, less advanced countries start producing most of the product in the _____ product stage.


The ______ Theory holds that a firm that has a valuable asset creates a competitive advantage domestically, which it can use to penetrate markets via FDI.

Ownership Advantage

In the Internalization Theory of foreign direct investment, what are "transaction costs"?

the costs of negotiating and enforcing contracts for exporting, licensing, franchising, or contract manufacturing

The Country Similarity Theory would be useful to explain international trade in

-petroleum products
-personal-care products

personal-care products

The country with the most FDI inflows is _____; the country with the most FDI outflows is ____.

United States; United States

Which African country received the largest amount of FDI in 2015?


The personal computer industry is in the ______________ stage

standardized product

The IMS (International Monetary System) does what?

1. Governs how nations value/exchange currency 2. Provides mechanism to correct payment/receipt imbalances 3. Can ensure smooth conversion of foreign money into home currency

The World Bank Group lends only for "__________ purposes"

productive -e.g. infrastructure not to finance a country’s deficit

What is a "hard loan"

only makes loans if there is a reasonable expectation it will be repaid

In the IMF, a country’s quota

1. Reflects the size of the country’s economy 2. determines its voting rights at the IMF 3. serves as part of the country’s official reserves

Which nations’ currencies float?

United States, UK, Switzerland, Australia, Canada, Japan

Why is the Current Account in the BOP Accounting System closely watched?

becasue the current account is a broad indication of nation’s competitiveness in global markets

Capital inflows are ________ in BOP accounting system


Capital outflows are ________ in BOP accounting system


The United States trade deficit __________ in 2008 and 2009 due to the ____________ which caused our imports to ___________

shrunk; financial crisis; shrink significanlty

How did the Marshall Plan assist the World​ Bank?

It established the IBRD IBRD- International Bank for Reconstruction and Development aka World Bank

Which of the following countries was forced to unpeg its currency in the mid-1990s after investors began to distrust the abilities of its borrowers to repay foreign​ loans?


Petrodollars are defined as

Money oil-rich nations earned from oil exports in the 1970s

The _____ records purchases of assets by the private and public sectors.

capital account

Does the Balance of Payments Accounting System provide any signals about the health of a nation’s economy?


Assume we are operating under the Bretton Woods System. If a currency’s value rises above the range required by the system, that country’s central bank will______ in the international foreign exchange market.

Buy gold/foreign currency

Due to the crisis in the Ukraine, global confidence in the Russian currency, the ruble, is decreasing. The Russian government has had to intervene to try and increase the value of its currency. To do this, Russian authorities have ______ on the international foreign exchange market.

sold gold

At the beginning of 1971, the U.S. dollar was valued at $35 per ounce of gold. By the end of the year, it was valued at $38 per ounce per ounce of gold. The value of the dollar had


Why does the Balance of Payments Accounting System always balance to 0 (zero) in theory?

because it is a double-entry system

Does the gold standard eliminate the possibility that inflation can occur?


Does the trade deficit equals the capital account surplus?


When a currency "floats," that means

its value is determined by supply and demand

Assume we are operating under the gold standard. If the fixed exchange rate between the dollar and the pound is 5 and the dollar’s par value is 10, what is the pound’s par value?


Assume we are operating under the Bretton Woods system. The Australian dollar is pegged at US$2.50. What would happen if the Australian dollar appreciated to US$3.50?

The Australian government would buy gold and foreign currency on the foreign exchange market

Exchnage rate

the price of foreign currency is determined by the market forces of supply and demand

Why is the demand for foreign exchnage downward sloping?

because firms and individuals will demand less foreign exchange at higher prices

The deman for foreign exchange is a ___________ demand becasue why?

derived becasue the demand for foreign exxcnae is based on the demand created by foreign consumers for a particular countyr’s goods and services -the greater the demand for a country’s goods and services, the greater the quantity of that country’s currency demanded in the foreign exchange market

Why is the supply of foreign exchange upward-sloping?

because firms and individuals will supply more foreign exchange at a higher price

The supply for foreign exchange is a ___________supply becasue why?

derived becasue the supply of foreign exchange is based o nthe demand of the pople of a particuar country whose currenc we are looking at to buy foreign goods and services

If there is an oversupply of currency, there will be an automatic tendency for the curency to ___________ to eliminate the surplus


If there is an undersupply of currency, there will be an automatic tendency for the curency to ___________ to eliminate the surplus


Demand and supply determine exchnage rates when a currency s allowed to _______- that is, under a ___________________

float; flexible exchnage rate system

The governemnt would detemin the exchnage rate and take action to maintain the exchange rate at the predetermiend rate uner a _____________________

fixed exchnage rate

Direct Exchange Rate

expresses the price of a foreign currency in terms of the home currency e.g. a direct exchange rate for a US cistizen would be 5.25 dollars/1 euro dollars per 1 unit of foreign currency

Indirect Exchange Rate

expresses the price of the home currency in terms of the foreign currency e.g. an indirect foreign exchange rate for a US citizen would be .19047 euros/1 dollar foreign currency per 1 dollar

Which currency is the primary transaction currency?

US Dollar- accounts for 87% of all foreign exchnage transaactions

The foreign exchange market can be split into the ___________ and the _____________

Wholesale Market; Retail Market

Wholesale Foreign Exchange Market

consists of organziations such as banks, hedge funds, insurance companies etc.

Retail Foreign Exchange Market

consists of individual customers who buy and sell small quantities of currency on the foreign exchnage market

Stabilizing Speculation

buying foreign currency at a ow price with the expectation that the price will rise in the future, or selling a foreign currency at a high price wit the expectation that the price will fall i nthe future

Destablizing Speculation

buying foreign currency when the exchange rate is high, with the expectation that it will rise even higher in the future, or selling currency when the excnage rate is low, with the expectation that it will fall even lower in the future -most common type of speculation

The main transaction currencies used in the foreign exchange market are _________________

US dollar, Euro, British pound, and Japanese yen

What is a Straddle?

a financial instrument that allows investors to bet on the size of a flunctuation and not the direction of the movement

Businesses can use _________________ to get a feel for how the exchange rate might change in the future

forward rates

If a curreency is selling at a forward discount, a busienss would want to _____________ its assets and ________________ its liabilties denominated in that currency

decrease; increase this is because the market expects the currency to depreciate in the future

If a curreency is selling at a forward premium, a busienss would want to _____________ its assets and ________________ its liabilties denominated in that currency

increase; decrease this is because the market expects the currency to appreciate in the future

Annualized Forward Premium or Discount equation

[(Forward Price – Spot Price) / Spot Price] * the number of periods in a year

The majority of growth in the middle class in the upcmign years will come from __________ and _____________

India and China

What are the two kinds of arbitrage?

1. Arbitrage of goods (purchasing power parity) 2. Arbitrage of money (internal rate parity)


simultanesously buy and sell currency to take advantage of small differnces in exchange rates in different rates


be on exchnange rate movements and buy or sell foreign exchage to make money -very risky

Spot transactions are aproximately ________% of all foreign excnage transactions


Currenyc future are aproximately ________% of all foreign excnage transactions


Options are aproximately ________% of all foreign excnage transactions


Can Purchasing Power Parity be used to compare standards of living between countries?


_____________ gives economists a starting point when predicting long-run exchange rate fluctuations

Purchasing Power Parity

Which is more important, Arbitrage of Money or Arbitrage of Goods?

Arbitrage of Moneybecasue the foreign currency trading volume dwarfs daily international trade

International Fisher Effect Equation

Nominal Interest Rates = Real Interest Rates + Expected Rate of Inflation

The Country’s inflation rate is expected to Rise
Expected Future Value of Country’s Money _________
Nominal Interest Rate _________
Forward Premium ________
Forward Discount ____________

Decreases Increases Shrinks Widens

The Country’s inflation rate is expected to Fall
Expected Future Value of Country’s Money _________
Nominal Interest Rate _________
Forward Premium ________
Forward Discount ____________

Increases Decreases Widens Shrinks

The world’s largest bank is the ____________________________

Industrial and Commercial Bank of China

Commercial Banking Services

exchnaging currency, providing advice, and facilitating short-term financing, electronic fund transfers

Investment Banking Services

locating debt and equity funding, and arranging mergers and acquisitions

Foreign Bond Example

A Swiss corporation might issue yen-denominated bonds to Japanese citizens


a US corporation might issue dollar-denominated Eurobonds to German residents

The six factors that influence exchnage rates:

1. Inflation rate differentials- a curency appreciates when a contry’s inflation rate is lower than other countries inflation rates 2. Interest rate differentials- a currency appreciates when a country’s real interest rates are higher than other countries’ real interest rates 3. Current account deficits- a currency spreciates when a country’s current accoutn deficit increases 4. Public debt- countries with alrge foreign debts have weak currencies 5. Terms of trade- a country’s currency appreciates when the price of the country’s exports increases more than the price of its imports 6. Political stability and economic performance- a currency appreciates when a country is politically stable and has strong economic performance

In US, British pounds are quoted on a ___________ basis


In US, Japanese yen quoted on ____________ basis


Type of Foreign-Exchange Clients

1. Commercial Customers 2. Speculators 3. Arbitrageurs 4. Central bank/treasury departments

In the past fice year after quantitite easing, have emerging markets reied more on global bond markets or on banks to help finance their growth?

Global Bond Markets

What is LIBOR?

the interest rate that London banks charge each other for short-term loans

Shondra works for an entity of a U.S. bank that is legally distinct from the​ bank’s domestic operations and offers international banking services only. They do not need to observe the numerous U.S. domestic banking regulations. What is this type of​ entity?

International banking facility

Suppose that ₤1 buys $2 in New York and $2.10 in Tokyo. Then

an opportunity for two point arbitrage exists

You work at a bank that performs services for a British bank in the United States. What is this​ called?

Correspondent relationship

Suppose your company is considering investing in a new market, and your boss asks you to determine how stable its currency is likely to be over the next few years. What would be the best metric to help you make that judgment?

the country’s official reserves account

Suppose your company imports hand-made leather handbags and shoes from Italy. You prefer

a strong dollar against the euro

According to the International Fisher Effect, if the forward premium on a country’s currency is shrinking, this must mean that

the country’s nominal interest rate is rising because the country’s inflation rate is expected to rise

Which of the following is a characteristic of the international Fisher​ effect?

The national differences in expected inflation rates yield differences in the nominal interest rates among countries

Assume we are comparing the​ ₤ and the​ $. Suppose the annualized forward discount on the​ ₤ is​ 40%. The forward price of the​ ₤ is​$1.00, and the spot price of the​ ₤ is​ $1.25. Then we know this AFD was calculated based on the

6-month forward price

Assume the ₤ spot price is $2 and the three-month forward price is $1.75. Then the annualized forward _____ will be ______.

Discount; 50%

The direct exchange rate is US$ 0.1553 / 1 yuan. Then the indirect exchange rate is

6.4392 yuan / US$ 1


€1 buys $1.10 in NY, Tokyo, and London

₤1 buys $1.05 in NY, Tokyo, and London

₤1 buys €0.90 in NY, Tokyo, and London

Which of the following statements is true?

The cross rate and direct quote differ, so there is an opportunity for three-point arbitrage

​₤1 buys​ $3 in​ NY, Tokyo, and London
​$1 buys​ ¥150 in​ NY, Tokyo, and London
​₤1 buys​ ¥175 in​ NY, Tokyo, and London

An opportunity for​ three-point arbitrage​ exists, but not for​ two-point arbitrage

Suppose your company has significant liabilities in ₤. You notice that the ₤ is selling at a forward premium. You advise your CFO to increase your firm’s holdings of liabilities in ₤. Is this sound advice?

No. As the ₤ appreciates, ₤-denominated liabilities become more costly

Your employer has significant liabilities in €. After analyzing the forex market, you conclude that the € is selling at a forward premium. As a result, you should recommend that your company

decrease its liabilities in €

Suppose that jeans sell in the United States for US$20 and in Canada for Can$25. The exchange rate is US$1=Can$1.25. Does Purchasing Power Parity exist?


National trade policies affect all of the following

1. The size of the investments made and the foreign markets pursued by MNCs 2. The profitablitity of an MNC’s investemnts in a foregin market 3. The impact and competitiveness of foreign imports on domestic markets 4. The price, availability, and quality of proucts avliable worldwide

Four arguements for trade intervention

1. The national defense argument 2. The infant industry argument 3. Maintenance of jobs 4. Strategic trade theories

1954 Wool Act protected which US industry?

mohair industry

In which countries was the Infant industry arguemnt a powerful developemnt strategy?

Japan and South Korea

What are two practical flas of the Infant industry argument?

1. The decison about which industries to protet is often politcal rather than economic 2. It is hard to wean an industry off of protection once an industry recieves protection

Why did the Obama Administration impose a 35% tariff on China?

to combat alleged dumping by china in the US tire manufacturing industry

The United States offered short-term protection to ______________ with a temporary tariff on Japanese imports in the 1980’s

Harley Davidson

What are the two developemnt strategieis used by countries

export promotion and import substitution

What are some problems with industrial policy?

1. The government planners cannot always predict which industries will be the most attractive industries in the future 2. Politca lconsiderations and not an industry’s true potential for comeptitivneess mitght dictate which indsutries are supported

What are three goups of import tariffs?

Ad valorem tariff; Specific tariff; Compound tariff

Which type of tariff is the msot common? Import, export, or transit?


The extent to whihc a tariff increases the price of the good being produced depands o nthe ________________

Elasticity of demand if the demand is very inelastic, most of the tariff will be passed on to the consumers in the form of higher prices

Which one causes more restriction of trade? Tariffs or Nontariff barriers?

Nontariff barriers

Product and testign standards (nontariff barrier)

governemnt smay cross the line and use product standards as an excuse to restric trade

Restricted access to distributuion networks (nontariff barrier)

countires may impose restrictions on the distribtuion of an imported good

Public-sector procurement policies (nontariff barrier)

for example, US federal employees must travel on US airlines

Local-purchase requiremnts (non tariff barrier)

host govenrment ma require foreign firms to purchase goods or services from local supliers

Regulatory controls (non tariff Barrier)

countries may requrie firms t oacquire licences or pass certain inspections before thy can operate within a country

Curency controls (non tariff barrier)

governments may give importers a less favorable schange rate than exporters to discourge imports of foreign goods

Three ways in which govenrments can promote international business

1. Subsidies 2. Foreign Trade Zones 3. Export Financing Programs


a factory in mexico foreign trade zone near the US border that receives raw materials and unfinsihed goods, process them, and reexport the mas finished goods -these goods get preferential treatment from the Mexican government

The two forms of dumping are:

International Price discrimination Predatory pricing

International price discrimination

when a firm sells goods in a foreing market at price below what it charges at home

Predatory pricing

when a firm sells a good below production cost in a foregin market

The country that has initiated the most antidumping compakints is

United States

US Trade act of 1974

exampel of a "safeguard clause" that permits the erection of temporary trade barriers when the ITC determined that a sudden icnrease in imports has seriously harmed us firms

Safeguard Clause

clauses in laws that allows a country to temporaliy protect an industry that ahs been seriously harmed by a sudden surge in imported goods

Which of the following uses the ITA to investigate complaints of unfair trade​ practices?

United States

Which argument for government intervention in international trade states that a country must be self-sufficient in critical raw materials, machinery, and technology?

national defense

Which of the following terms describes a policy for national governments that actively intervene to ensure that domestic​ firms’ exports receive an equitable share of foreign​ markets?

Fair trade

Suppose the U.S. imposes a very low tariff rate on the first 10,000 tons of bananas imported into the country, but that any bananas above that threshold are subject to a 300% ad valorem tariff. This is known as a

tariff rate quota

The National Bank of Ethiopia often makes it difficult for importers to obtain scarce foreign​ exchange, although​ state-owned enterprises or firms controlled by the ruling party normally have no such problems. This is an example of what type of​non-quantitative NTB?

Currency controls

Egypt gives​ state-owned enterprises a 15 percent bidding preference on public​ contracts, while Argentina grants domestically owned firms a 5 to 7 percent​ preference; Turkey, a 15 percent​ preference; Thailand, 7​ percent; and​ Paraguay, 20 percent. Russia grants local firms a 15 percent preference on pharmaceutical​ contracts, while​ Kenya’s Public Procurement and Disposal Act requires that certain government contracts be given only to Kenyan citizens. These are examples of what type of​ non-quantitative NTB?

Public-sector procurement policies

Suppose the U.S. imposes a tariff on an Indian imported good because Indian producers unfairly benefited from Indian government subsidies. This is known as a(n)

Countervailing duty

Why does China limit its exports of rare-earth minerals?

To support its domestic industries that use minerals

According to ______, in oligopolistic industries, governments can make companies profitable by intervening in the form of ______.

Strategic Trade Theory; subsidies

Which of the following is an example of a numerical export control?

China limits the amount of rare-earth minerals that can be sold abroad

A major international corporation has steadily bought up all of a certain resource so they control it. Because they have done​ this, they are the only corporation manufacturing and marketing the finished product. Which of the following is​ occurring?

Monopoly profit

The U.S. requires all prescription drugs to be approved by the FDA, even if they have been approved by other nations’ governments. This is a

product and testing standard

Which of the following would likely support a U.S. tariff on Colombian engines?

American engine producers

Suppose the U.S. lifts tariffs on tires imported from China. As a result, the equilibrium price for American-made tires will


Company A sells its computers for​ US$650 domestically, but for​ US$300 in foreign markets. This is an example​ of


According to the theory of mercantilism, a coutry should

strive to increase its holding of gold and silver

China has a large number of low-skilled workers, so it should ave a comparative advantgae in the production of labor-intensive goods. which theory?

Heckscher-Ohlin theory

Which trade theory explaisn trade in differentiated goods using the concept of econmies of scale?

New trade theory

China is currently running a trade ______________. If we were operating under a gold standard, this would result in a(n) ___________ in the money supply in China

surplus; increase

Under the Bretton Woods System, the value of an ounce of gold was set at ___________ and countries agreed to pg their currecnies t ogold by maintaining heir currencies within ________________ of par value

$35; +/-1%

Suppose that a US company buys a controlling stake in a Canadian comapny. This is an example of a cpital ___________ for Canada that would be recorded as a _____________ in Canada’s capital account

inflow; credit

For the urpose of the balances of payment accountign system, remittances are treated as ________________

unilateral transfers

According to the International Fisher Effect, if the forward discount on a country’s currency is widening,

the nominal interest rate is increasing and he country’s inflation rate is expected to increase

In class we discussed Mrs. Wantanabes, who enegaed i nthe "carry trade" whcih is a kind of

uncovered-interest arbitrage

Suppsoe tha tthe six-month forward price of the dollar is $1 = 120 yen and that the current spot price of the dollar is $1 = 115 yen. The annualized forward premium o nthe dollar is

8.7% indicating that the dolalr is expected to appreciate agaisnt the yen

If the price of dollars (the exchange rate) is lower than the equilirium price

there is an undersupply of dollars, and the dollar should appreciate in the future

A bond issued by toyota, a japanese comapny, that is denominated in dolars and sold to US residents is

a foreign bond

The majority of all tariffs are

ad valorem tariffs

A(n) _____________ is a geographic area in which preferential treatment is given to imported or exported goods

foreign trade zone

"Joyous africans take to the rails, with china’s help"

Chian has decided to invest alrge amounts of money i ninfrastructure projects in Africa as part of its $1 trillion "silk road inititvtie" The untied states has traditionally shied away from making major investments in Africa china is bulidng a railway that connects the capitals on djibouti and Ethiopia

"South korean fears over chinese economic retaliation"

China is steppign up economic retaliation after south korea decided to allow ths us to deploy a us missle shield China’s goal may be to get the next sout hkorean president to delay or scrap the implementation of the us missle shield

"The international monetary system: is it fit for purpose?"

Central banks should have a way to coordiante their actions in order t oprevent large differnces in interest rates that precipitate unintended consquences such as volitatlity in capital flows and exchnage rates the author beieves that the globa lmonetary system should be counter cyclical i nthat econmies recievecapital inflows dureing recessions and capita loutflows during exoansions Instead the curent gloa lmonetary system is procyclical We shluld address these areas: -Market failures -Policy failures -Institutional failures

"China is strugglign to keep its curency high, not low"

China has been struggling to keep its curency strong, in order t oprevent a financia lcrisis or devalution Two areas a key concerns: -Excessively fast credit growth -Increasing capital outflows The real threat to China is large capita lourflows that may challeneg its ability to prevent a disruptive depreciation of the yuan

"Fed raises interst rates for third time since fianncial crisis"

The US federal reserve raised its target federal funds for the seocn ditme in three months The fed remains cautious about the potential impacts of fiscal policy decisons by trump and will gradully raise rates as the economy coontineus to improve The target federal funds rate is still below 1% which is very low

"Trump’s historic shift in Approach to Trade"

Trump has decided to focus on bilatera ltrade deals and neogitate trade with countires one-by-one instead of large multilateral trade deals

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