Test 2 Flashcards by Dom Greco

Free trade is likely to increase a country’s stock of resources and the efficiency with which it utilizes those resources

True

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According to Michael Porter, government can influence each of the four components of Porter’s diamond—either positively or negatively.

True

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Although mercantilism is an old and largely discredited doctrine, its echoes remain in modern political debate and in the trade policies of many countries.

True

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Import tariffs protect domestic producers against foreign competitors

True

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According to Adam Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these for goods produced by other countries.

True

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New trade theory stresses that in some cases countries specialize in the production of particular products because of underlying differences in factor endowments.

False

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Governments can protect consumers from unsafe products by issuing a limit or a ban on
such products.

True

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As the only currency that could be converted into gold, the British pound occupied a central place in the fixed exchange rate system.

False

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In a free trade area, all barriers to the trade of goods and services among member countries are removed and a common external trade policy is adopted.

False

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Government intervention in international trade can take the form of reducing restrictions on imports and adopting policies that promote exports.

True

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Mercantilism, propagated in the sixteenth and seventeenth centuries, advocated that
countries should simultaneously encourage both imports and exports

False

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Spot exchange rates and the 30-day forward rates are the same.

False

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When a firm allows another enterprise to produce its products under license, the licensee bears the costs or risks.

True

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Factor endowments refer to the extent to which free trade impacts the wealth of a country.

False

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The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built the fixed exchange rate system to be highly inflexible

False

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The actions that managers take to attain the goals of the firm are referred to as a firm’s strategy.

True

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Economic theories suggest that free trade and investment is a positive-sum game, in which all participating countries stand to gain.

True

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Antidumping actions seem to be concentrated in certain sectors of the economy such as basic metal industries (e.g., aluminum and steel), chemicals, plastics, and machinery
and electrical equipment.

True

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Under a currency board system, the government has the absolute authority to set interest rates.

False

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In countries where inflation is expected to be high, interest rates also will be high.

True

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A pegged exchange rate means the value of the currency is fixed relative to a reference currency, and then the exchange rate between that currency and other currencies is
determined by the reference currency exchange rate

True

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Currency swaps are transacted between international businesses and their banks, between banks, and between governments when it is desirable to move out of one
currency into another for a limited period without incurring foreign exchange risk.

True

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A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a low-cost strategy.

False

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Historically, most FDI has been directed at the least developed nations of the world.

False

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25. Given a common gold standard, the value of any currency in units of any other currency (the exchange rate) was easy to determine.

True

26. When residents and nonresidents rush to convert their holdings of domestic currency into a foreign currency, the phenomenon is generally referred to as capital flight.

True

27. According to the theory of comparative advantage, potential world production is greater with unrestricted free trade than it is with restricted trade.

True

28. Since March 1973, currency exchange rates have become less volatile and more predictable than they were between 1945 and 1973.

False

29. The WTO embraces the promotion of international trade in services

True

30. The international monetary system refers to a system to regulate fixed exchange rates before the introduction of the euro

False

31. When a firm exports its products to a foreign country, foreign direct investment occurs

False

32. A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.

True

33. When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a pegged exchange rate regime.

False

34. Successful global expansion requires the transfer of core competencies to foreign markets where indigenous competitors lack them.

True

35. Subsidies are a trade policy instrument.

True

36. In terms of attaining a competitive advantage, support activities can be as important as the primary activities of the firm

True

37. Strategic alliances allow firms to share the fixed costs of developing new products or processes

True

38. What happens in the foreign exchange market does not directly impact the sales, profits, and strategy of a multinational enterprise

False

39. The indirect employment effects of FDI are often as large as, if not larger than, the direct effects.

True

40. A common market has no barriers to trade among member countries, includes a common external trade policy, and allows factors of production to move freely among members.

True

41. The stock of foreign direct investment refers to the total accumulated value of foreign-owned assets at a given time.

True

42. Dumping is variously defined as selling goods in a foreign market at below their costs of production, or as selling goods in a foreign market at below their "fair" market value.

True

43. The European Commission is the ultimate controlling authority within the European Union because draft legislation from the commission can become EU law only if the council agrees.

False

44. Maintaining the company infrastructure is a support activity.

True

45. The European Parliament is responsible for proposing European Union (EU) legislation, implementing it, and monitoring compliance with EU laws by member-states.

False

46. When the Bretton Woods participants established the World Bank, the need to lend money to developing nations was foremost in their minds.

False

47. By adopting the euro, the European Union has created the second most widely traded currency in the world after that of the U.S. dollar.

True

48. In terms of regional economic integration, linking neighboring economies and making them increasingly dependent on each other creates incentives for political cooperation between the neighboring states.

True

49. A firm may set up production activities in a foreign country, where trade barriers do not currently exist, to reduce the threat of trade barriers being imposed later

True

50. Licensing is not a good option if the competitive advantage of a firm is based upon managerial or marketing knowledge that is embedded in the routines of the firm or the skills of its managers, and that is difficult to codify in a "book of blueprints."

True

51) The committed European Community members to adopt a common currency by January 1, 1999. A) Treaty of Rome B) Maastricht Treaty C) Treaty of Paris D) Treaty of Lisbon E) Montreal Treaty

B) Maastricht Treaty

52) Which of the following is considered to be the ultimate controlling authority within the European Union? A) European Community B) European Commission C) European Council D) European Parliament E) Court of Justice

C) European Council

53) The rate of return that a firm makes on its invested capital is referred to as A) profitability. B) stakeholder return. C) strategic fit. D) profit growth. E) process value.

A) profitability.

54) Once it undertakes FDI, a firm becomes a(n) A) multinational enterprise. B) outsourcer. C) national corporation. D) offshore company. E) retail chain

A) multinational enterprise.

55) Which of the following terms best represents the norms and value systems that are shared among the employees of an organization? A) organizational culture B) business structure C) management structure D) process scenario E) organizational structure

A) organizational culture

56) The European Economic Community was established with the signing in 1957 of the Treaty of A) Switzerland. B) Rome. C) Lisbon. D) Brussels. E) Paris

B) Rome.

57) Which of the following is responsible for proposing European Union legislation, implementing it, and monitoring compliance with European Union laws by member-states? A) European Parliament B) European Community C) Court of Justice D) Council of the European Union E) European Commission

E) European Commission

58) Many of the world's developing nations peg their currencies, primarily to the 58) A) Chinese yuan. B) U.S. dollar. C) Saudi riyal. D) German deutsche mark. E) Japanese yen.

B) U.S. dollar.

59) Which of the following is one of the four factors included in Porter's diamond? 59) A) firm strategy, structure, and rivalry B) economies of scale C) gross national income D) purchasing power parity E) gross domestic product

A) firm strategy, structure, and rivalry

Which of the following is one of the limitations of exporting that leads companies to prefer FDI over exporting? A) possibility of diminishing returns B) presence or threat of trade barriers C) risk of giving away valuable technological know-how to a potential foreign competitor D) costs of establishing production facilities in a foreign country E) costs of acquiring a foreign enterprise

B) presence or threat of trade barriers

61) On which of the following observations was Raymond Vernon's product life-cycle theory based? A) The United States developed a very large proportion of the world's new products for most of the twentieth century and sold them first in the U.S. market. B) The high cost of U.S. labor gave U.S. firms an incentive to develop cost-saving process innovations. C) The wealth and size of the U.S. market gave U.S. firms a strong incentive to develop new consumer products. D) The United States has long been a substantial exporter of agricultural goods, reflecting in part its unusual abundance of arable land. E) The United States exports goods that heavily use skilled labor and imports heavy manufacturing products that use large amounts of capital.

A) The United States developed a very large proportion of the world's new products for most of the twentieth century and sold them first in the U.S. market

62) Which of the following are bureaucratic rules designed to make it difficult for imports to enter a country? A) voluntary export restraints B) public sector regulations C) administrative trade policies D) subsidies E) consumer regulations

C) administrative trade policies

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

A) World Bank.

64) A country's currency is referred to as when its government allows both residents and nonresidents to purchase unlimited amounts of a foreign currency with it. A) nonconvertible B) freely convertible C) leading D) externally convertible E) lagging

B) freely convertible

65) Which of the following functions creates a perception of superior value in the minds of consumers by solving consumer problems and by supporting them after they have purchased the product? A) logistics B) marketing and sales C) customer service D) production E) human resources

C) customer service

66) Which view argues that international production should be distributed among countries according to the theory of comparative advantage? A) free market B) Keynesian economic C) conservative D) pragmatic nationalism E) radical

A) free market

67) Which of the following are national accounts that track both payments to and receipts from other countries? A) balance-of-payments B) balance of trade C) asset D) dematerialized E) equity

A) balance-of-payments

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

E) Bretton Woods agreement

69) Which of the following is the most common political argument for government intervention in international trade? A) protecting jobs and industries from unfair foreign competition B) promoting strategic trade policy C) protecting human rights D) improving efficiency of domestic labor E) decreasing the prices of products in the domestic market

A) protecting jobs and industries from unfair foreign competition

70) Which of the following meets in Strasbourg, France, is primarily a consultative rather than a legislative body, and debates legislation proposed by the commission and forwarded to it by the council? A) European Free Trade Association B) Court of Justice C) European Parliament D) European Community E) European Central Bank

C) European Parliament

71) Which of the following foreign exchange trading centers has the highest percentage of activity? A) Paris B) Frankfurt C) Hong Kong D) Sydney E) London

E) London

72) Which of the following occurs when two parties agree to exchange currency and execute the deal at some specific date in the future? A) forward exchange B) arbitrage C) carry trade D) currency swap E) spot exchange

A) forward exchange

73) Which of the following countries has adopted the euro as its currency? A) Switzerland B) Sweden C) France D) Great Britain E) Denmark

C) France

74) The economic and strategic advantages that accrue to early entrants in an industry are called A) economies of scale. B) first-mover advantages. C) comparative advantages. D) absolute advantages. E) factor endowments.

B) first-mover advantages.

75) Which of the following refers to the institutional arrangements that govern exchange rates? A) financial management information system B) international monetary system C) generally accepted accounting principles D) general agreement on trade in services E) general agreement on tariffs and trade

B) international monetary system

76) When residents and nonresidents of a country rush to convert their holdings of domestic currency into a foreign currency it is an example of A) capital flight. B) liquidity rush. C) currency swap. D) arbitrage. E) deflation.

A) Capital Flight

77) According to the U.S. Department of Commerce, which of the following, occurs whenever a U.S. citizen, organization, or affiliated group takes an interest of 10 percent or more in a foreign business entity? A) reciprocal foreign investment B) multilateral investment C) asset divestment D) foreign direct investment E) international divestment

D) Foreign direct investment

78) Of all the value creation activities in a firm, which of the following creates value by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs? A) human resources B) logistics C) production D) information systems E) marketing and sales

E) marketing and sales

79) Which of the following is a trade policy instrument that the GATT and WTO have been most successful in limiting? A) local content requirements B) voluntary export restraints C) tariffs D) import quotas E) subsidies

C) Tariffs

80) Which of the following has 751 members as of 2016, and is directly elected by the populations of the member-states? A) European Parliament B) Court of Justice C) European Commission D) European Council E) European Community

A) European Parliament

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

A) balance-of-trade equilibrium

82) Which of the following multilateral agreements was established under U.S. leadership in 1947, with the objective to liberalize trade by eliminating tariffs, subsidies, import quotas, and the like?

A) General Agreement on Tariffs and Trade (GATT)

83) Which of the following is defined as a group of countries committed to removing all barriers to the free flow of goods and services between each other, but pursuing independent external trade policies?

A) free trade area

84) Where has the movement toward regional economic integration been most successful? 84) A) Asia B) Africa C) Europe D) North America E) South America

C) Europe

85) According to the Heckscher-Ohlin theory, the pattern of international trade is determined by differences in A) trade barriers. B) labor productivity. C) management practices. D) diminishing returns. E) factor endowments.

E) Factor Endowments

86) A(n) is used to move out of one currency and into another for a limited period without incurring foreign exchange risk. A) arbitrage B) carry trade C) currency swap D) spot exchange E) currency speculation

C) currency swap

87) Which of the following terms best represents a situation in which a government does not attempt to influence through quotas or duties what its citizens can buy from another country, or what they can produce and sell to another country? A) positive-sum game B) free trade C) zero-sum game D) absolute advantage E) socialism

B) free trade

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

E) most major currencies appreciated vis-à-vis the U.S. dollar

89) Host governments use a range of controls to restrict inward FDI. The two most common are A) voluntary export restrictions and employment restraints. B) employment restraints and tax deductions. C) tax concessions and government-backed insurance. D) ownership restraints and performance requirements. E) monetary restraints and prohibition on investing in certain countries.

D) ownership restraints and performance requirements.

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

C) gold standard system.

91) A zero-sum game is a situation in which 91) A) one country has an absolute advantage in the production of all goods. B) limits on imports are often in the interests of domestic producers, but not domestic consumers. C) the market mechanism determines what a country imports and what it exports. D) a country engages in international trade even for products it is able to produce for itself. E) an economic gain by one country results in an economic loss by another.

E) an economic gain by one country results in an economic loss by another.

92) Which of the following groups would benefit the most from receiving subsidies? A) international organizations such as the WTO B) foreign competitors C) governments D) domestic producers E) importers

D) domestic producers

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

A) Marshall Plan

94) Which of the following is considered to be the ultimate objective of antidumping policies? A) protecting consumers from substandard and hazardous products B) protecting domestic producers from unfair foreign competition C) preventing domestic firms from unloading their excess production in domestic markets D) preventing foreign products from entering domestic market E) protecting consumers from high prices

B) protecting domestic producers from unfair foreign competition

95) Which of the following shows all of the different positions that a firm can adopt with regard to value creation and low cost assuming that its internal operations are configured adequately to support a particular position? A) surplus curve B) optimal output model C) efficiency frontier D) experience curve E) demand-value model

C) efficiency frontier

96) According to Porter's diamond, what are factor endowments? A) conditions governing how companies are created, organized, and managed and the nature of domestic rivalry B) nature of home demand for the industry's product or service C) economic and strategic advantages that accrue to early entrants into an industry D) position of a nation regarding the components of production necessary to compete in a given industry E) presence or absence of related industries that are internationally competitive

D) position of a nation regarding the components of production necessary to compete in a given industry

97) Which of the following is a variable used in exchange rate forecasting models based on fundamental analysis? A) relative strength indicator B) moving average C) inflation rate D) business cycles E) regression

C) inflation rate

98) Which of the following is in a country's best interests, according to the main tenet of mercantilism? A) importing products from developing rather than developed countries B) importing products even if they are efficiently produced at home C) minimizing exports and maximizing imports D) importing less specialized goods rather than attempting to make them at home E) maintaining a trade surplus

E) maintaining a trade surplus

99) Which of the following asserts that countries should simultaneously encourage exports and discourage imports? A) socialism B) mercantilism C) ethnocentrism D) collectivism E) capitalism

B) mercantilism

100) Which of the following institutions has a monopoly in proposing European Union legislation? A) European Commission B) European Parliament C) Court of Justice D) Council of the European Union E) European Community

A) European Commission

Test 2 Flashcards

(100 cards)