International Business Exam 2

5. Assume that for Canada the opportunity cost of producing 1 television set is 2 bushels of wheat. Assume that for the United States the opportunity cost of producing 1 bushel of wheat is 2 television sets. All other things being equal:
A) Canada should export televisions and import wheat.
B) Canada should export wheat and import televisions.
C) the United States should export wheat and import televisions.
D) the United States should export televisions and import wheat.

B) Canada should export wheat and import televisions OR D) the United States should export televisions and import wheat.

11. Assume we are operating under the gold standard. If the fixed exchange rate between the dollar and the euro is 3.50, and the dollar’s par value is 10, what is the euro’s par value?
a) 28.57
b) 35
c) 2.86
d) .35

b) 35

12. Which of the following is the best example of a capital inflow to the United States?
a. IBM buys 15% of Taiwanese MNC Acer.
b. French Bank BNP Parisbas sells U.S. municipal bonds to a U.S. hedge fund.
c. South Korean MNC Samsung buys a Toyota factory outside Tokyo.
d. German solar company Solarworld buys Florida’s Pure Energy Solar company.

d. German solar company Solarworld buys Florida’s Pure Energy Solar company.

13. Which of the following is the best example of a capital outflow from the United States?
a. IBM sells its Bulgarian subsidiary to Taiwanese MNC Acer.
b. Japan’s Toyota takes over Ford Motor Company.
c. The Boston Beer Company buys a controlling stake in U.K.’s Diageo, owner of Guinness.
d. French Bank BNP Parisbas sells stock in French car company Peugeot Citroën to a German investment company.

c. The Boston Beer Company buys a controlling stake in U.K.’s Diageo, owner of Guinness.

14. The direct exchange rate is $0.75 / €1. Then the indirect exchange rate is
a. €1 / $0.75
b. €1.33 / $1
c. $1 / €0.75
d. $1.33 / €1

b. €1.33 / $1; The direct and indirect exchange rates are reciprocals of each other. Thus, to calculate the indirect rate, take the reciprocal of the direct rate, $0.75 / €1, which in this case is €1.33 / $1. Therefore, the indirect rate is €1.33 / $1.

15. Suppose your company has significant assets in ₤. You notice that the ₤ is selling at a forward premium. You advise your CFO to increase your firm’s holdings of assets in ₤. Is this sound advice?
a. No. As the ₤ appreciates, ₤-denominated assets become more costly.
b. No. As the ₤ appreciates, ₤-denominated assets lose value.
c. Yes. A premium means the value of the ₤ is falling, so assets become cheaper.
d. Yes. A premium means that assets will increase in value.
e. It doesn’t matter; the forward premium has no effect on your firm’s holdings of assets

d Yes. A premium means that assets will increase in value.; If the ₤ is selling at a forward premium, the forex market believes the ₤ will appreciate in value over time. In this case, firms may want to increase their holdings of assets in ₤ and decrease their liabilities in ₤. This is because if the ₤ appreciates, ₤-denominated assets will gain value, so you increase holdings of those assets to increase value. In addition, if the ₤ appreciates, ₤-denominated liabilities become more costly, so you decrease holdings of those liabilities to decrease costs.

16. Assume we are comparing the ¥ and the $. Suppose the annualized forward discount on the ¥ = -40%. The spot price of the ¥ = $0.025, and we are calculating the AFD based on the 6-month forward price. What is the forward price of the ¥? (Answer may or may not be approximate.)
a. 0.020
b. 0.023
c. 0.027
d. 0.03

a. 0.020; AFD = (Pf – Ps/Ps)n. You are given every variable except Pf, so insert the known variables into the equation and solve for Pf: -.40 = (Pf -0.025/0.025)2->-0.2 = (Pf -0.025/0.025)->-.005 = Pf – 0.025->Pf = 0.020. Keep in mind that n = 2 does not mean two months. n = the # of periods in a year. There are two six-month periods in a year, so this AFD was calculated based on the 6-month forward price.

17. Suppose: ₤1 buys €1.05 in NY, Tokyo, and London
€1 buys $1.50 in NY, Tokyo, and London
₤1 buys $1.25 in NY, Tokyo, and London
Which of the following statements is true?
a. The cross rate and direct quote differ, so there is no opportunity for three-point arbitrage
b. The cross rate and direct quote differ, so there is an opportunity for three-point arbitrage
c. The cross rate and direct quote are the same, so there is an opportunity for three-point arbitrage
d. The cross rate and direct quote are the same, so there is no opportunity for three-point arbitrage

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

18. Suppose: ₤1 buys €1.05 in NY, Tokyo, and London
€1 buys $1.50 in NY, Tokyo, and London
₤1 buys $1.25 in NY, Tokyo, and London
Is there an opportunity for two-point arbitrage?
a. No, because the direct rates are the same in all markets
b. No, because the direct rates differ in all markets
c. Yes, because the direct rates are the same in all markets
d. Yes, because the direct rates differ in all markets

a. No, because the direct rates are the same in all markets

19. In the U.S., a Big Mac costs on average $2. In Mexico, the Big Mac costs $1.00. The indirect exchange rate between the $ and the peso is 20 pesos. Then we know that the peso is _____ by approximately ______ percent compared with the dollar.
a. undervalued; 50
b. overvalued; 50
c. undervalued; 20 d. overvalued 20
e. None of the above

a. undervalued; 50; First, we need to calculate the cost of the Big Mac in pesos, which we do using the indirect exchange rate: $1(20) = 20 pesos. Next, we calculate the PPP (Big Mac) exchange rate: 20 pesos/$2 (cost of Big Mac in U.S.) = 10. Now, we can calculate the percentage difference between the PPP exchange rate and the actual indirect exchange rate to determine how much the currency is over- or undervalued: (10-20/20)100 = (-10/20)100 = -.5(100) = -50. This means that the peso is undervalued by approximately 50%.

20. Suppose we are examining the supply curve for the yen. As the price of the yen falls, the ______. This is because _____.
a. quantity supplied of yen falls; sellers want to sell less at lower prices
b. supply of yen falls; sellers want to sell less at lower prices
c. quantity supplied of yen rises; sellers want to sell more at lower prices
d. supply of yen rises; sellers want to sell more at lower prices

a. quantity supplied of yen falls; sellers want to sell less at lower prices

21. The direct exchange rate is $0.2409/1 peso. Then the indirect exchange rate is approximately
a. 4.15 peso / $1
b. 1 peso / $0.2409
c. $1 / 4.15 peso
d. $4.15 / 1 peso

a. 4.15 peso / $1

22. Assume we are comparing the ₤ and the $. Suppose the annualized forward premium on the ₤ = 24%. The forward price of the ₤ = $1.53, and the spot price of the ₤ = $1.50. Then we know this AFP was calculated based on the
a. 12-month forward price
b. 6-month forward price
c. 2-month forward price
d. 1-month forward pric

d. 1-month forward price

23. Suppose:
₤1 buys $1.25 in NY, Tokyo, and London
$1 buys ¥100 in NY, Tokyo, and London
₤1 buys ¥150 in NY, Tokyo, and London
Then
a. An opportunity for three-point arbitrage exists, but not for two-point arbitrage b. An opportunity for both two-point and three-point arbitrage exists
c. An opportunity for two-point arbitrage exists, but not three-point arbitrage
d. There are no opportunities for any kind of arbitrage

a. An opportunity for three-point arbitrage exists, but not for two-point arbitrage; Direct quote between ₤/¥= ₤1/¥150. Cross rate is calculated using the 3rd currency ($): (₤1/$1.25) x ($1/¥100) = ₤1/125. Since the cross rate differs from the direct rate (₤1/¥150, as mentioned above), we know that an opportunity for three-point arbitrage exists. No opportunity for two-point arbitrage exists because each of the three currencies cost the same in all three markets.

24. In the U.S., a Big Mac costs on average $4.20. In India, the Big Mac equivalent, known as the "Maharaja Mac," costs $1.75. The indirect exchange rate between the $ and the rupee is 44 rupees. Then we know that the rupee is _____ by approximately ______ percent compared with the dollar.
a. overvalued; 58
b. undervalued; 58
c. undervalued; 140
d. overvalued 140

b. undervalued; 58; First, we need to calculate the cost of the Big Mac in rupees, which we do using the indirect exchange rate: $1.75(44) = 77 rupees. Next, we calculate the PPP (Big Mac) exchange rate: 77 pesos/$4.20 (cost of Big Mac in U.S.) = 18.33. Now, we can calculate the percentage difference between the PPP exchange rate and the actual indirect exchange rate to determine how much the currency is over- or undervalued: (18.33-44/44)100 = (-25.67/44)100 = -.5834(100) = – .58. This means that the peso is undervalued by approximately 58%.

25. Gator, Inc., has significant assets denominated in €. Its international finance department has recommended to the CFO (chief financial officer) that the company reduce these assets. The most likely explanation for this recommendation is
a. The € is selling at a forward discount
b. The € is selling at a forward premium
c. The €’s spot price = its forward price
d. The € will not exist in 6 months

a. The € is selling at a forward discount

26. Assume we are comparing the € and the $. Suppose the annualized forward premium on the € = 50%. The forward price of the € = $1, and the spot price of the € = $0.80. Then we know this AFP was calculated based on the
a. 6-month forward price
b. 2-month forward price
c. 3-month forward price
d. 1-month forward price

a. 6-month forward price; a; AFP = (Pf – Ps/Ps)n. You are given every variable except n, so insert the known variables into the equation and solve for n. 0.5 = (1-0.8/0.8)n->0.5 = (0.2/0.8)n->0.5 = 0.25n->n = 0.5/0.25->n = 2. There are 2 6-month periods in a year, so the AFP was calculated based on the 6-month forward price

27. Suppose: The direct rate between ₤/€ = ₤1 / €1.10; the direct rate between ₤/$ = ₤1 / $2; and the direct rate between $/€ = $1 / €0.55. An opportunity for three-point arbitrage exists.
a. True
b. False

b. False; the direct rate between ₤/€ = ₤1 / €1.10; the direct rate between ₤/$ = ₤1 / $2; and the direct rate between $/€ = $1 / €0.55. Cross rate is calculated using the 3rd currency ($): (₤1 / $2) x ($1 / €0.55) = ₤1 / €1.10. The cross rate = the direct rate, so no opportunities for three-point arbitrage exist.

28. Gator, Inc., sends money to Japan to invest in projects there. As a result, interest rates in the U.S. ____ and the spot price of the ¥ _____
a. increase; increases
b. decrease; decreases
c. increase; decreases
d. decrease; increases
Slide 49

a. increase; increases; see Chapter 8 PowerPoint, slide 57, "Covered Interest Arbitrage Effects"

29. Suppose we expect the forward discount on the $ to widen. Due to the International Fisher Effect, we can surmise that the U.S. inflation rate is expected to _____.
a. Rise
b. Fall
c. Rise, then fall
d. Fall, then rise

a. Rise; Chapter 8 PowerPoint, slide 60

30. Suppose the nominal interest rate in Japan is 5%. If the real interest rate is 3%, what is the expected rate of inflation?
a. 2%
b. 8%
c. 0.6%
d. 1.67%

a. 2%; Chapter 8 PowerPoint, slide 59

34. The demand curve for the € is ______ and derived from ________.
a. downward sloping; foreigners’ desire to buy European goods, services, and assets
b. downward sloping; Europeans’ desire to buy European goods, services, and assets
c. upward sloping; foreigners’ desire to buy European goods, services, and assets
d. upward sloping; Europeans’ desire to buy European goods, services, and assets

a. downward sloping; foreigners’ desire to buy European goods, services, and assets

37. You imported 100 kilos of fruit into the U.S. worth $50,000 and paid a tariff of $1,000. Then you must have paid a(n) _____.
a. Ad valorem tariff of 2%
b. Specific tariff of 5 cents/kilo
c. A compound tariff of 5 cents/kilo + 2% ad valorem tariff
d. A specific tariff of 10%

a. Ad valorem tariff of 2%

38. Suppose you import products into the United States that weigh very little but that are extremely valuable (e.g., high-tech microchips). If you must pay a tariff, you would prefer the tariff to be
a. Import
b. Ad valorem
c. Compound
d. Transit
e. Specific

e. Specific; an import tariff is a general term for tariff, so regardless of the type of tariff, you will be paying an import tariff; therefore, a is incorrect. Ad valorem tariffs require importers to pay a percentage of the value of the imported good, so a high-value good would translate into a high tariff, therefore, b is incorrect. A compound tariff includes both a specific tariff and an ad valorem tariff, so the high-value good would still translate into a high rate for part of the tariff; therefore, c is incorrect. Transit tariffs occur when a good is passing through a country, not being imported into it as the question indicates, so d is incorrect. E, specific tariff, is correct because specific tariffs are assessed based on weight; therefore, if an import weighs very little, the tariff will be small.

39. Suppose the U.S. government eliminates all tariffs on foreign cars. As a result, the demand for American-made cars will
a. Increase
b. Decrease
c. Stay the same
d. Decrease, then increase

b. Decrease; Eliminating tariffs on foreign cars will cause the price of foreign cars to decrease relative to American cars. As foreign cars become cheaper, consumers will switch away from buying American cars toward buying foreign cars. Thus, demand for American cars will decrease, and b is correct. See also Chapter 9 PowerPoint slides 35-36

40) The U.S. imposes TRQs on sugar imports from Brazil. All of the following benefit from this policy EXCEPT
a. American bakers and candymakers
b. American sugar producers
c. Licensed foreign sugar exporters to the U.S.
d. Lobbyists for the U.S. sugar industry

a. American bakers and candymakers

Brazil:
20 hot dogs
10 bags of coffee
Colombia:
15 hot dogs
5 bags of coffee
1. According to the the table, Brazil has an absolute advantage in
A) coffee, while Colombia has an absolute advantage in hot dogs.
B) both coffee and hot dogs.
C) neither coffee nor hot dogs.
D) hot dogs, while Colombia has an absolute advantage in coffee.

B) both coffee and hot dogs.

Brazil:
20 hot dogs
10 bags of coffee
Colombia:
15 hot dogs
5 bags of coffee
2. The opportunity cost of producing one bag of coffee in Brazil is
A) 1/2 of a hot dog.
B) 20 hot dogs.
C) 2 hot dogs
D) 1/2 of a bushel of coffee in Colombia.

C) 2 hot dogs

Brazil:
20 hot dogs
10 bags of coffee
Colombia:
15 hot dogs
5 bags of coffee
3. Colombia has an absolute advantage in
A) coffee and a comparative advantage in hot dogs.
B) neither coffee nor hot dogs, but a comparative advantage in hot dogs.
C) neither coffee nor hot dogs, but a comparative advantage in coffee.
D) neither coffee nor hot dogs, but a comparative advantage in both hot dogs and
coffee.

B) neither coffee nor hot dogs, but a comparative advantage in hot dogs.

Brazil:
20 hot dogs
10 bags of coffee
Colombia:
15 hot dogs
5 bags of coffee
4. Brazil should
A) specialize in the production of coffee and import hot dogs from Colombia.
B) specialize in the production of hot dogs and import coffee from Colombia.
C) import both coffee and hot dogs from Colombia.
D) not engage in trade with Colombia, but produce both coffee and hot dogs
domestically.

A) specialize in the production of coffee and import hot dogs from Colombia.

Italy:
8 Bottles of wine
10 Pairs of shoes
Portugal:
15 Bottles of wine
10 Pairs of shoes
6. The opportunity cost of Italy producing 5 pairs of shoes is
a. 4 bottles of wine
b. 8 bottles of wine
c. 2 bottles of wine
d. 3 bottles of wine

a. 4 bottles of wine

Italy:
8 Bottles of wine
10 Pairs of shoes
Portugal:
15 Bottles of wine
10 Pairs of shoes
7. The opportunity cost of Portugal producing 3 bottles of wine is
a. 3 pairs of shoes
b. 5 pairs of shoes
c. 10 pairs of shoes
d. 2 pairs of shoes

d. 2 pairs of shoes

Italy:
8 Bottles of wine
10 Pairs of shoes
Portugal:
15 Bottles of wine
10 Pairs of shoes
8. Italy has a comparative advantage in the production of
a. shoes only
b. both shoes and wine
c. wine only
d. neither wine nor shoes

a. shoes only

Italy:
8 Bottles of wine
10 Pairs of shoes
Portugal:
15 Bottles of wine
10 Pairs of shoes
9. Portugal has a comparative advantage in the production of
a. shoes only
b. both shoes and wine
c. wine only
d. neither wine nor shoes

c. wine only

Italy:
8 Bottles of wine
10 Pairs of shoes
Portugal:
15 Bottles of wine
10 Pairs of shoes
10. Italy has an absolute advantage in the production of
a. shoes only
b. both shoes and wine
c. wine only
d. neither wine nor shoes

d. neither wine nor shoes

Boeing Enter Market //
Airbus Enter Market: Airbus: -5
Boeing: -5
Airbus Do Not Enter Market: Airbus: 0
Boeing: 15
Boeing Do Not Enter Market//
Airbus Enter Market: Airbus: 15
Boeing: 0
Airbus Do Not Enter Market: Airbus: 0
Boeing: 0
35. Which company/companies has/have a dominant strategy?
a. Neither
b. Both
c. Airbus
d. Boeing

35) a. Neither; In this situation, neither firm has a strategy that it should follow regardless of what its rival does, the definition of a dominant strategy. Thus, a is correct.

Boeing Enter Market //
Airbus Enter Market: Airbus: -5
Boeing: -5
Airbus Do Not Enter Market: Airbus: 0
Boeing: 15
Boeing Do Not Enter Market//
Airbus Enter Market: Airbus: 15
Boeing: 0
Airbus Do Not Enter Market: Airbus: 0
Boeing: 0
36. If the EU wants to ensure that Airbus will enter the market, what is the best policy for it to adopt?
a. A subsidy for Airbus of $5 billion
b. A tariff on Boeing of $6 billion
c. A subsidy for Airbus of $6 billion
d. A tariff Boeing of $5 billion

36) c. A subsidy for Airbus of $6 billion; see Chapter 9 PowerPoint, slides 20-23

1. A firm experiences economies of scale when
A. the average cost of producing a good decreases as the firm’s output of the good decreases.
B. the average cost of producing a good increases as the firm’s output of the good increases.
C. the average cost of producing a good increases as the firm’s output of the good decreases.
D. the average cost of producing a good decreases as the firm’s output of the good increases.

D. the average cost of producing a good decreases as the firm’s output of the good increases.

2. When the market for a product stabilizes and it becomes more of a commodity, the product is most likely in which stage of the product lifecycle?
A. Standardized Product Stage
B. Expanding Product Stage
C. Maturing Product Stage
D. Stabilized Product Stage

A. Standardized Product Stage

3. Which conclusion could NOT be drawn from the Balance of Payments regarding a particular country?
A. The Balance of Payments can indicate currency depreciation caused by a sharp increase in exports
B. The Balance of Payments can indicate whether or not the country will emerge into global markets in the near future
C. The Balance of Payments can warn of political policies that may have an effect on the business climate
D. None of the above; the Balance of Payments only shows debits and credits

A. The Balance of Payments can indicate currency depreciation caused by a sharp increase in exports

4. Which of the following is an example of capital outflow for Germany?
A. GM sells stock in Audi to German resident
B. Volkswagen exports the new 2014 VW Beatle to the United Kingdom
C. German company Haribo sells a production facility in Ireland to an Irish competitor
D. Kinder, another German company, acquires Haribo in a multimillion dollar transaction

A. GM sells stock in Audi to German resident

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

D. The British government could do nothing as long as the pound remains within 5% of the peg

6. Which of the following is a true statement about supply and demand?
A. The currency demand curve is upward sloping
B. As the price of a currency increases, demand increases
C. As the price of a currency decreases, the quantity demanded increases
D. As the price of a currency decreases, demand increases

C. As the price of a currency decreases, the quantity demanded increases

7. What is the difference between a currency futures contract and a swap?
A. A currency futures contract is an option not an obligation, while a swap is an obligation
B. A swap is an option not an obligation, while a currency futures contract is an obligation
C. The currency pair is exchanged on a future delivery date in a currency futures contract, while the currency pair is exchanged immediately or within a very short period with a swap
D. The price is determined on the delivery date in a currency futures contract, while the price is determined at signing with a swap

C. The currency pair is exchanged on a future delivery date in a currency futures contract, while the currency pair is exchanged immediately or within a very short period with a swap

8. Which of the following is true when the forward price is less than the spot price?
A. The currency is selling at a forward premium
B. The currency is selling at a forward discount
C. The nation with this currency is probably experiencing a trade surplus
D. The nation with this currency is probably experiencing low inflation

B. The currency is selling at a forward discount

9. An import tariff has been placed on foreign cars coming into the U.S. This will _______ the demand for U.S. cars and _______ the demand for foreign cars. With this change of demand, the price of U.S. cars will ________.
A. Increase, decrease, increase
B. Decrease, increase, decrease
C. Increase, decrease, decrease
D. Decrease, increase, increase

A. Increase, decrease, increase

10. According to Strategic Trade Theory, in global industries with _____ competitors, governments can make companies profitable by _______ them.
A. many; subsidizing
B. a few; subsidizing
C. many; regulating
D. a few; deregulating

B. a few; subsidizing

U.S.:
8 Pairs of jeans
16 Bottles of wine
France:
12 Pairs of jeans
8 Bottles of wine
11. The opportunity cost of the U.S. producing 1 pair of jeans is
a. 1/2 bottle of wine
b. 2 bottles of wine
c. 6 bottles of wine
d. 8 bottles of wine
e. 12 bottles of wine

b. 2 bottles of wine

U.S.:
8 Pairs of jeans
16 Bottles of wine
France:
12 Pairs of jeans
8 Bottles of wine
12. The opportunity cost of France producing 1 bottle of wine is
a. 2/3 pair of jeans
b. 1 pair of jeans
c. 1.5 pairs of jeans
d. 8 pairs of jeans
e. 12 pairs of jeans

c. 1.5 pairs of jeans

U.S.:
8 Pairs of jeans
16 Bottles of wine
France:
12 Pairs of jeans
8 Bottles of wine
13. The U.S. has a comparative advantage in the production of
a. jeans only
b. both jeans and wine
c. wine only
d. neither jeans nor wine

c. wine only

U.S.:
8 Pairs of jeans
16 Bottles of wine
France:
12 Pairs of jeans
8 Bottles of wine
14. France has a comparative advantage in the production of
a. jeans only
b. both jeans and wine
c. wine only
d. neither jeans nor wine

a. jeans only

U.S.:
8 Pairs of jeans
16 Bottles of wine
France:
12 Pairs of jeans
8 Bottles of wine
15. France has an absolute advantage in the production of
a. jeans only
b. both jeans and wine
c. wine only
d. neither jeans nor wine

a. jeans only

16. MAX Electronics produces tiny wireless speakers that can be used with computers and MP3 players. The firm has built new factories to expand capacity and meet increasing domestic and foreign demand. Over the last six months, foreign and domestic competitors have emerged with a similar product in an attempt to benefit from high consumer demand. MAX Electronics is most likely in the ________ product stage of the product life cycle.
a. globalized
b. standardized
c. maturing
d. new

c. maturing

17. Different countries receive different amounts of international investment only because interest rates differ country to country.
a. True
b. False

b. False

18. When a business is able to earn higher profits operating abroad than at home, the firm has ______.
a. Subsidies from its home government
b. a location advantage
c. an ownership advantage
d. met the requirements for WTO membership

b. a location advantage

19. Which theories suggest that intraindustry trade will be common?
a. Country Similarity and New Trade
b. Product Life Cycle and Comparative Advantage
c. Dunning’s Eclectic and Hecksher-Ohlin
d. National Competitive Advantage and Absolute Advantage

a. Country Similarity and New Trade

20. Which theory suggests that a country has a comparative advantage in producing products that intensively use resources it has in abundance?
a. Mercantilism
b. The Theory of Comparative Advantage
c. The Leontif Paradox
d. Heckscher-Ohlin Theory

d. Heckscher-Ohlin Theory

21. Assume we are operating under the gold standard. If the fixed exchange rate between the dollar and the yen is 120, and the dollar’s par value is 60, what is the yen’s par value?
a. 7,200
b. 720
c. 2
d. 0.5

a. 7,200

22. The United States currently has a trade ______. If we were operating under the gold standard, this would result in a(n) ________.
a. deficit; decrease in the money supply
b. deficit; increase in the money supply
c. surplus; decrease in the money supply
d. surplus; increase in the money supply

a. deficit; decrease in the money supply

23. Under the Bretton Woods System, countries pledged to maintain the value of their currencies within _____of the par value. If a currency’s value fell below that range, that country’s central bank would ____ gold/foreign currency on the international forex market.
a. ±2.25%; buy
b. ±2.25%; sell
c. ±1%; buy
d. ±1%; sell

d. ±1%; sell

24. Under the current international monetary system,
a. most countries have dollarized
b. governments are barred from intervening to affect exchange rates
c. supply and demand mainly determine currency values
d. the euro is currently pegged to the dollar

c. supply and demand mainly determine currency values

25. As a result of the 1973 OPEC oil embargo,
a. world oil prices tripled
b. inflation spiked in oil-importing nations
c. petrodollars were lent to developing countries
d. a and b but not c
e. b and c but not a

e. b and c but not a

26. The _____ records purchases of assets by the private and public sectors.
a. accounting system
b. capital account
c. capital fund
d. current account

b. capital account

27. Canadian aerospace company Bombardier buys a controlling stake in Brazilian aerospace company Embraer. This is an example of
a. a capital inflow to Brazil
b. a capital outflow from Brazil
c. a capital inflow to Canada
d. none of the above

a. a capital inflow to Brazil

28. If domestic ownership of foreign assets falls, this is considered a
a. capital inflow
b. capital outflow
c. current account debit
d. current account credit

a. capital inflow

29. The IMF uses _____ to determine voting power in the organization.
a. political clout
b. official reserve levels
c. quotas
d. negotiations

c. quotas

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

c. The U.S. supply of gold and dollars could no longer support it

31. The direct exchange rate is $1.65 / ₤1. Then the indirect exchange rate is
a. ₤0.61 / $1
b. $0.61 / ₤1
c. ₤1 / $1.65
d. ₤1.65 / $1

a. ₤0.61 / $1

32. Large international banks may profit from all of the following EXCEPT
a. speculation
b. the spread between the spot/ask price for currencies
c. arbitrage
d. interbank transactions conducted for large clients

b. the spread between the spot/ask price for currencies

33. According to the International Fisher Effect, if the forward premium on a country’s currency is shrinking, this must mean that
a. the country’s nominal interest rate is falling because the country’s inflation rate is expected to fall
b. the country’s nominal interest rate is rising because the country’s inflation rate is expected to fall
c. the country’s nominal interest rate is falling because the country’s inflation rate is expected to rise
d. the country’s nominal interest rate is rising because the country’s inflation rate is expected to rise

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

34. Assume we are comparing the ₤ and the $. Suppose the annualized forward premium on the ₤ = 25%. The forward price of the ₤ = $1.80, and we are calculating the AFD based on the 6-month forward price. What is the spot price of the ₤? (Answer may or may not be approximate.)
a. 1.60
b. 1.73
c. 1.88
d. 2.03

a. 1.60

Suppose: ₤1 buys €1.50 in NY, Tokyo, and London
€1 buys $1.50 in NY, Tokyo, and London
₤1 buys $1.50 in NY, Tokyo, and London
38. Which of the following statements is true?
a. The cross rate and direct quote are the same, so there is no opportunity for three-point arbitrage
b. The cross rate and direct quote are the same, so there is an opportunity for three-point arbitrage
c. The cross rate and direct quote differ, so there is an opportunity for three-point arbitrage
d. The cross rate and direct quote differ, so there is no opportunity for three-point arbitrage

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

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

c. No, because the direct rates are the same in all markets

40. Eurocurrency is
a. another name for the EU’s currency, the euro
b. money held outside its country of issue
c. exactly the same thing as Eurodollars
d. b and c, but not a

b. money held outside its country of issue

45. Assume that the majority of microchips in computers made and sold in the U.S. come from China. If the U.S. imposes a tariff on Chinese microchips, the equilibrium price of American-made computers will
a. stay the same
b. rise
c. fall
d. fall, then rise

b. rise

46. Which of the following would likely NOT support a U.S. tariff on microchips?
a. American computer consumers
b. American microchip manufacturers
c. American computer manufacturers
d. a and c but not b

d. a and c but not b

47. Gatorstan has provided subsidies to its football gear manufacturing sector. As a result, the domestic supply of football gear has _______, causing the price to ______. Gatorstan is using a(n) _________ policy.
a. decreased; increase; strategic trade
b. decreased; decrease; infant industries
c. increased; increase; strategic trade
d. increased; decrease; infant industries

d. increased; decrease; infant industries

48. You imported 10,000 kilos of fruit into the U.S. worth $500,000 and paid a tariff of $11,000. Then you must have paid a
a. specific tariff of 11 cents/kilo
b. specific tariff of 2.2%
c. compound tariff of 10 cents/kilo + 2% ad valorem
d. compound tariff of 20 cents/kilo + 10% ad valorem

b. specific tariff of 2.2%

49. Africans pay up to _____ extra for goods because of ______.
a. 10%; transportation costs
b. 40%; transportation costs
c. 10%; underdeveloped infrastructure
d. 40%; underdeveloped infrastructure

b. 40%; transportation costs

50. The cost of producing a football in Seminolia is $2. Seminolia exports footballs to Gatorstan, where Seminolia sells them for $1.90. This is an example of
a. dumping
b. price discrimination
c. predatory pricing
d. a and c but not b
e. a and b but not c

d. a and c but not b

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

b) False

U.S.:
5 kegs
10 pizzas
Italy:
8 kegs
12 pizzas
The U.S. has an absolute advantage in
a) both beer and pizza
b) beer
c) pizza
d) neither beer nor pizza

d) neither beer nor pizza

U.S.:
4 Pairs of jeans
3 Bottles of wine
France:
6 Pairs of jeans
2 Bottles of wine
According to the Theory of Comparative Advantage, France should produce _____, and the U.S. should produce ____.
a) jeans; wine
b) both wine and jeans; both wine and jeans
c) wine; jeans
d) neither wine nor jeans; neither wine nor jeans

a) jeans; wine

Which theory traces the roles of​ innovation, market​ expansion, comparative​ advantage, and strategic responses of global rivals in international​ production, trade, and investment​ decisions?
a) Theory of Competitive Advantage
b) Theory of relative factor endowments
c) Country similarity theory
d) Product life cycle theory

d) Product life cycle theory

The Heckscher-Ohlin Theory states that
a) A country will have a comparative advantage in producing products that intensively use resources it has in abundance
b) A country will have a comparative advantage in producing products that intensively use its scarce resources
c) A country will have an absolute advantage in producing products that intensively use its scarce resources
d) A country will have an absolute advantage in producing products that intensively use resources it has in abundance

a) A country will have a comparative advantage in producing products that intensively use resources it has in abundance

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

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

According to the Product Life Cycle Theory, less advanced countries start producing most of the product in the _____ product stage.
a) maturing
b) new
c) standardized
d) importing

c) standardized

All of the following are elements of Porter’s Theory of National Competitive Advantage EXCEPT
a) related and supporting industries
b) factor conditions
c) government regulation
d) firm strategy, structure, and rivalry

c) government regulation

All of the following are examples of intraindustry trade EXCEPT
a) China imports TVs from South Korea and South Korea imports TVs from China
b) Japan imports wine from France and France imports Toyotas from Japan
c) Chile imports wine from Australia and Australia imports wine from Chile
d) The U.S. imports Audis from Germany and Germany imports Fords from the U.S.

b) Japan imports wine from France and France imports Toyotas from Japan

An example of intraindustry trade is
a) Germany exporting Mercedes to the U.S. and the U.S. exporting Buicks to Germany
b) France exporting high-quality red wine to Japan and Japan exporting clock radios to France
c) Switzerland exporting Rolex watches to the U.S. and the U.S. exporting tractors to Switzerland
d) Saudi Arabia exporting oil to India and India exporting sugar to Saudi Arabia

a) Germany exporting Mercedes to the U.S. and the U.S. exporting Buicks to Germany

Which of the following is particularly useful in explaining trade in differentiated goods such as​ automobiles, expensive electronics​ equipment, and personal care​products, for which brand names and product reputations play an important role in consumer decision​ making?
a) Country similarity theory
b) Opportunity cost
c) Theory of relative factor endowments
d) New Trade Theory

a) Country similarity theory

Which of the following would occur in stage 3 in the international product life cycle in an innovating​ firm’s country?
a) Exports of the product parts will exceed imports
b) Manufacturing costs are lowered by maintaining production in country
c) Production facilities are moved to low labor cost markets.
d) Exports and imports equalize

c) Production facilities are moved to low labor cost markets.

All the following are examples of FDI EXCEPT
a) owning existing property in a foreign country
b) purchase of a foreign plant and equipment
c) holdings of foreign securities, such as bonds and stocks
d) participation in a joint venture with a foreign company

c) holdings of foreign securities, such as bonds and stocks

MAX Electronics produces tiny wireless speakers that can be used with computers and MP3 players. The firm has built new factories to expand capacity and meet increasing domestic and foreign demand. Over the last six months, foreign and domestic competitors have emerged with a similar product in an attempt to benefit from high consumer demand. MAX Electronics is most likely in the ________ product stage of the product life cycle.
a) maturing
b) standardized
c) new
d) globalized

a) maturing

The theory of absolute advantage suggests which of the​ following?
a) A country should produce and export those goods and services for which it is relatively more productive than other countries​ are, and import those goods and services for which other countries are relatively more productive than it is
b) A country should produce and import those goods and services for which it is relatively more productive than other countries​ are, and export those goods and services for which other countries are relatively more productive than it is
c) A country should export those goods and services for which it is more productive than other countries​ are, and import those goods and services for which other countries are more productive than it is
d) A country should import those goods and services for which it is more productive than other countries​ are, and import those goods and services for which other countries are more productive than it is

c) A country should export those goods and services for which it is more productive than other countries​ are, and import those goods and services for which other countries are more productive than it is

The country with the most FDI inflows is _____; the country with the most FDI outflows is ____.
a) China; United States
b) China; China
c) United States; China
d) United States; United States

d) United States; United States

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

d) Companies may choose to build a factory and produce inside a country to avoid tariffs that come with exports

According to the most recent UNCTAD World Investment Report, which country receives the most FDI in Africa?
a) Nigeria
b) Ethiopia
c) Egypt
d) South Africa

c) Egypt

All of the following be used to explain international investment between the U.S. and the U.K. EXCEPT
a) supply factors
b) differing rates of return
c) Ownership Advantage Theory
d) Dunning’s Eclectic Theory

b) differing rates of return

Which of the following best accounts for the reason why Swiss pharmaceutical companies are choosing to invest in smaller U.S. biogenetics​ companies?
a) To gain access to U.S. skilled labor
b) To gain access to a brand name
c) To gain access to research in this area
d) To gain access to the U.S. market

c) To gain access to research in this area

Which of the following is the best example of a capital outflow from the United​ States?
a) French Bank BNP Parisbas sells stock in French fashion company Chanel to a German investment company
b) The Tommy Hilfiger Company buys a controlling stake in the U.K. fashion label Temperley London
c) South​ Korea’s Kia Motors takes over General Motors
d) Ford sells its German subsidiary to French car company Peugeot​ Citroën

b) The Tommy Hilfiger Company buys a controlling stake in the U.K. fashion label Temperley London

Which of the following is an example of capital outflow for Germany?
a) German company Haribo sells a production facility in Ireland to an Irish competitor
b) GM sells stock in Audi to German resident
c) Volkswagen exports the new 2014 VW Beatle to the United Kingdom
d) Kinder, another German company, acquires Haribo in a multimillion dollar transaction

b) GM sells stock in Audi to German resident

The ______ was created to avoid the mistakes that preceded World War II and caused a collapse in international trade.
a)Bretton Woods System
b) international monetary system
c) gold standard
d) balance of payment accounting system

a)Bretton Woods System

The IMF uses _____ to determine voting power in the organization.
a) political clout
b) official reserve levels
c) quotas
d) negotiations

c) quotas

As a result of the 1973 oil embargo, all of the following occurred EXCEPT
a) the currency values of oil-importing nations decreased
b) inflation spiked in oil-exporting countries
c) oil-exporting countries deposited unspent petrodollars in international banks
d) international banks lent petrodollars to developing countries

b) inflation spiked in oil-exporting countries

During World War II, what was one of the main factors that caused a collapse of international trade?
a) The Lincoln Fallacy
b) Beggar Thy Neighbor policies
c) Failed negotiations between the United States and Germany
d) A widespread belief that war was good for the global economy

b) Beggar Thy Neighbor policies

When a currency "floats," that means
a) the government has intervened in markets to change its value
b) international markets no longer consider it a stable currency
c) its value is tied to gold
d) its value is determined by supply and demand

d) its value is determined by supply and demand

What is the best way to describe today’s exchange rate system?
a) It is analogous to the gold standard
b) It is mostly determined by supply and demand, with governments intervening from time to time
c) It is administered by a committee from the U.S., EU, U.K., and Japan
d) It is determined by votes of members of the International Monetary Fund

b) It is mostly determined by supply and demand, with governments intervening from time to time

Assume we are operating under the gold standard. If the fixed exchange rate between the dollar and the yen is 110, and the dollar’s par value is 5, what is the yen’s par value?
a) 22
b) 0.045
c) 55
d) 550

d) 550

Assume we are operating under the gold standard. If the fixed exchange rate between the dollar and the pound is 5 and the dollar’s par value is 10, what is the pound’s par value?
a) 50
b) 2
c) 0.5
d) 500

a) 50

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

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

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

a)The British government could do nothing as long as the pound remains within 5% of the peg

The current account records all of the following types of transactions EXCEPT
a)investment income
b)gifts/unilateral​ transfers
c)short-term foreign portfolio investments
d)exports and imports of services

c)short-term foreign portfolio investments

Which of the following is/are a signal/signals that the BOP accounting system provides about a country’s economy?
a) Identifies emerging markets for goods and services
b) Warns of policies that may change the business climate
c)Shows a decrease in foreign-exchange reserves
d)all of these

d)all of these

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

c)The U.S. supply of gold and dollars could no longer support it

Toward the end of the Bretton Woods System, foreigners needed and wanted U.S. dollars, but at the same time, they had little trust that the U.S. could back those dollars with gold. This is known as the
a)Bretton Woods Paradox
b)Triffin Paradox
c)Porter Theory
d)Balance of Payments Paradox

b)Triffin Paradox

All of the following helped cause the 1997 Asian financial crisis EXCEPT
a)significant capital outflows
b)bank and business debt
c)financial panic
d)increasing trade deficits

a)significant capital outflows

All of the following are likely causes of the 1997 Asian Currency Crisis EXCEPT
a)Thailand was unable to sufficiently reduce the value of its currency, the baht
b)Once it was clear Thailand could not control the value of its currency, financial panic set in
c)Thailand and other Asian nations had persistent and increasing trade deficits
d)Thailand was unable to sufficiently maintain the value of its currency, the baht

a)Thailand was unable to sufficiently reduce the value of its currency, the baht

All of the following are reasons why the Gold Standard should NOT be adopted EXCEPT
a) it cannot prevent inflation
b)it can restrict a country’s ability to conduct monetary policy
c)the world’s gold supply cannot always keep up with the demand for money
d)World Bank and IMF rules forbid it

d)World Bank and IMF rules forbid it

Using the gold standard eliminates the possibility that inflation can occur.
a)true
b)false

b)false

Currencies that are freely tradable are called​ ________.
a) non-convertible currencies
b) convertible currencies
c) soft currencies
d) usable currencies

b) convertible currencies

Large international banks may profit from all of the following EXCEPT
a) the spread between the spot/ask price for currencies
b) arbitrage
c) interbank transactions conducted for large clients
d) speculation

a) the spread between the spot/ask price for currencies

The forward market consists of all the following EXCEPT
a) currency future
b) swap transaction
c) arbitrage
d) currency option

c) arbitrage

Eurocurrency is
a) another name for the EU’s currency, the euro
b) none of these
c) exactly the same thing as Eurodollars
d) money held outside its country of issue

d) money held outside its country of issue

Suppose you were able to buy dollars cheaply in Tokyo and immediately re-sell them at a higher price in Paris. This is an example of
a) three-point arbitrage
b) purchasing power parity
c) covered interest arbitrage
d) two-point arbitrage

d) two-point arbitrage

Which of the following has been a result of the higher loonie​ value?
a) Canadian exporters are seeing higher profit margins
b) More U.S. consumers are shopping in Canada
c) Canada is exporting more goods to the United States
d) More Canadian consumers are shopping in the United States

d) More Canadian consumers are shopping in the United States

According to the Chapter 8 lecture, all of the following factors influence exchange rates EXCEPT
a) interest rates
b) inflation rate differentials
c) political stability
d) public debt

a) interest rates This is a tricky one. Notice that what matters for exchange rates–which are between two countries– is not the value of the interest rate itself, but the DIFFERENTIAL in the two countries’ rates.

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

b) the country’s official reserves account

According to the International Fisher Effect, if the forward premium on a country’s currency is shrinking, this must mean that
a)the country’s nominal interest rate is rising because the country’s inflation rate is expected to rise
b) the country’s nominal interest rate is falling because the country’s inflation rate is expected to fall
c) the country’s nominal interest rate is falling because the country’s inflation rate is expected to rise
d) the country’s nominal interest rate is rising because the country’s inflation rate is expected to fall

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

According to the International Fisher Effect, if the forward discount on a country’s currency is shrinking, this must mean that
a) the country’s nominal interest rate is falling because the country’s inflation rate is expected to rise
b) the country’s nominal interest rate is falling because the country’s inflation rate is expected to fall
c) the country’s nominal interest rate is rising because the country’s inflation rate is expected to fall
d) the country’s nominal interest rate is rising because the country’s inflation rate is expected to rise

b) the country’s nominal interest rate is falling because the country’s inflation rate is expected to fall

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

d)1.26

Suppose we are comparing the € and the $. Suppose the annualized forward premium on the € = 400%. The forward price of the € = 0.8, and we are calculating the AFP based on the three-month forward price. What is the spot price of the €? (Answer may or may not be approximate.)
a)0.16
b)0.34
c)1.87
d)0.40

d)0.40

The direct exchange rate is $1.65 / ₤1. Then the indirect exchange rate is
a)₤0.61 / $1
b)$0.61 / ₤1
c)₤1 / $1.65
d)₤1.65 / $1

a)₤0.61 / $1

Suppose:

₤1 buys €1.50 in New York

₤1 buys €1.50 in Tokyo

₤1 buys €1.49 in London

Which of the following is true?
a)The cross rates differ, so there is no opportunity for three-point arbitrage
b)The cross rates differ, so there is an opportunity for three-point arbitrage
c)The direct rates differ, so there is an opportunity for two-point arbitrage
d)The direct rates differ, so there is no opportunity for two-point arbitrage

c)The direct rates differ, so there is an opportunity for two-point arbitrage

Suppose:

₤1 buys $1.50 in NY, Tokyo, and London

$1 buys ¥100 in NY, Tokyo, and London

₤1 buys ¥150 in NY, Tokyo, and London

Is there an opportunity for two-point arbitrage?
a)No, because the direct rates differ in all markets
b)Yes, because the direct rates are the same in all markets
c) No, because the direct rates are the same in all markets
d)Yes, because the direct rates differ in all markets

c) No, because the direct rates are the same in all markets

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

b)decrease its liabilities in €

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?
a)No. As the ₤ appreciates, ₤-denominated liabilities become more costly
b)Yes. A premium means the value of the ₤ is falling, so liabilities become cheaper
c)Yes. A premium means that liabilities will increase in value
d)No. As the ₤ appreciates, ₤-denominated liabilities lose value

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

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?
a)yes
b)no

a)yes

A tariff is defined as a
a)Tax on a good traded domestically
b)Subsidy on a good traded internationally
c)Tax on a good traded internationally
d) Subsidy on a good traded domestically

c)Tax on a good traded internationally

Some policymakers argue that under certain circumstances, deviations from free trade are necessary. Which theory/theories might they use to support their argument?
a)National defense
b)Strategic trade theories
c)Infant industries
d)All of these

d)All of these

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?
a)Fair trade
b)National trade
c)Free trade
d)Balanced trade

a)Fair trade

Which of the following terms describes a policy for national governments that exert minimal influence over​ trade?
a)National trade
b)Managed trade
c)Fair trade
d)Free trade

d)Free trade

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

a)Public-sector procurement policies

A country may choose to limit its own exports for all of the following reasons EXCEPT
a)to keep good relations with an ally
b)the WTO requires it
c)to help another country
d)to promote competitiveness in related domestic industries

b)the WTO requires it

Which of the following is an example of a numerical export control?
a) The U.S. imposes a tariff-rate quota on sugar
b)The EU imposes tariffs on U.S. agricultural products
c)India requires the domestic purchase of solar products
d)China limits the amount of rare-earth minerals that can be sold abroad

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

When using tariff rate quotas, governments usually impose over-quota tariffs that are
a)extremely high
b) moderately high
c)moderately low
d)extremely low

a)extremely high

The U.S. government discouraged Sprint from contracting with Chinese telecommunications company Huawei because it has close ties to the Chinese military and intelligence services. Which of the following arguments against free trade would support that action?
a)The Maintenance of Jobs Argument
b)Strategic Trade Theory
c)The Infant Industries Argument
d)The National Defense Argument

d)The National Defense Argument

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

d)tariff rate quota

The U.S. Trade Representative is responsible for all of the following EXCEPT
a)coordinating trade policies with other U.S. agencies
b)gathering data on trade
c)acting as president’s spokesperson on trade issues
d)leading all U.N.-related negotiations

d)leading all U.N.-related negotiations

Firms sometimes believe that foreign competitors gain an unfair advantage due to which of the​ following?
a)Resources
b)Government policies
c)Economic status
d)Location

b)Government policies

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
a)regulatory control
b)local purchasing requirement
c)product and testing standard
d)local testing requirement

c)product and testing standard

Suppose you work for an American manufacturer of large-scale farming machinery, and your bosses want to sell the products abroad. Although potential foreign clients like your machinery, they hesitate to sign contracts with you because you are too small to be able to offer attractive financing options. What is the best course of action to recommend to your bosses?
a)Petition the U.S. government for protective tariffs
b)Apply for political risk insurance from MIGA
c)Seek a direct loan from Eximbank
d)Lower average total cost until it is just above marginal cost

c)Seek a direct loan from Eximbank

Use the following payoff matrix to answer this question. Numbers are in billions of dollars.
Airbus Enter Market:
Boeing Enter Market – Airbus: -10 Boeing: -10
Boeing Do Not Enter Market – Airbus: 20 Boeing: 0
Airbus Do Not Enter Market:
Boeing Enter Market – Airbus: 0 Boeing: 20
Boeing Do Not Enter Market – Airbus: 0 Boeing: 0
What is the MINIMUM subsidy needed to get Boeing to enter the market?
a)$10
b)$20
c)$11
d)$0

c)$11

Use the following payoff matrix to answer this question. Numbers are in billions of dollars.
Airbus Enter Market:
Boeing Enter Market – Airbus: -3 Boeing: -3
Boeing Do Not Enter Market – Airbus: 5 Boeing: 0
Airbus Do Not Enter Market:
Boeing Enter Market – Airbus: 0 Boeing: 5
Boeing Do Not Enter Market – Airbus: 0 Boeing: 0
Assume that the EU adopts the correct policy to induce Airbus to enter the market, then
you know that Airbus will now earn profits of ____, and overall EU welfare is increased by ____.
a)$8.01 billion; $5 billion
b)$10 billion; $5 billion
c)$8 billion; $3 billion
d)$10.01 billion; $5 billion

a)$8.01 billion; $5 billion

Which of the following deter(s) trade within Africa?
a)Investment in trade associations
b)Close ties to the EU
c)Unclear policies
d)Developed infrastructure

c)Unclear policies

Suppose the U.S. government eliminates subsidies for its commercial aircraft sector. As a result, the domestic supply of commercial aircraft will _____, causing the price to ______.
a)increase; decrease
b)increase; increase
c)decrease; decrease
d)decrease; increase

d)decrease; increase

Suppose the U.S. increases tariffs on tires imported from China. As a result, the equilibrium price for American-made tires will
a)rise, then fall
b)fall
c) rise
d)stay the same

c) rise

Company A sells its computers for​ US$650 domestically, but for​ US$300 in foreign markets. This is an example​ of
a)Countervailing duty
b)free trade
c)dumping
d)monopoly

c)dumping