Archive for May 2017

Ross Manufacturing wants to sell foreign exchange on a spot basis and contracts with an international bank to handle the transaction. What is the most likely reason that Ross uses an international bank in this case?

Ross Manufacturing wants to sell foreign exchange on a spot basis and contracts with an international bank to handle the transaction. What is the most likely reason that Ross uses an international bank in this case?






A. The bank can customize the spot to meet Ross' needs
B. Laws require that banks handle spot transactions
C. The bank will not charge Ross a service fee
D. Ross is a US organization

On the basis of which interest rate are Euroloans often quoted?

On the basis of which interest rate are Euroloans often quoted?




A. United States Prime Rate
B. European Central Bank Offer Rate
C. London Interbank Offer Rate
D. International Monetary Fund Interest Rate




Answer: C

Which of the following is the LEAST likely reason that the Euroloan market is the low-cost source of loans for large, credit worthy borrowers?

Which of the following is the LEAST likely reason that the Euroloan market is the low-cost source of loans for large, credit worthy borrowers?



A. Euroloans are free of government banking regulations
B. The average cost of making Euroloans is lower
C. Euroloans tend to involve only small transactions
D. The risk premium charged on Euroloans is lower






Answer: C

What is a Eurodollar?

What is a Eurodollar?




A. a euro held be an American
B. a US dollar deposited in a European bank
C. the euro deposited in a US bank
D. any currency deposited in a country other than the country of issue




Answer: B

According to the Big Mac Index, ________.

According to the Big Mac Index, ________.



A. the Euro is undervalued
B. Russia's ruble is overvalued
C. China's yuan is undervalued
D. the peso is undervalued






Answer: C

Two-point arbitrage is also known as ________.

Two-point arbitrage is also known as ________.



A. equilibrium arbitrage
B. forward arbitrage
C. discount arbitrage
D. geographic arbitrage





Answer: D

Suppose £1 is trading for $2.00 in New York City and $1.80 in London. A foreign exchange trader could take $1.80 and buy £1 in London's financial exchange market and then sell it for $2.00 in New York's financial exchange market. What is this an example of?

Suppose £1 is trading for $2.00 in New York City and $1.80 in London. A foreign exchange trader could take $1.80 and buy £1 in London's financial exchange market and then sell it for $2.00 in New York's financial exchange market. What is this an example of?



A. two-point arbitrage
B. three-point arbitrage
C. covered interest
D. arbitrage of goods





Answer: A

A swap transaction ________.

A swap transaction ________.



A. is a foreign exchange transaction that is consummated immediately
B. is a foreign exchange transaction that occurs sometime in the future
C. involves currencies that are not freely tradable
D. involves a transaction in which the same currency is bought and sold simultaneously






Answer: D

A forward transaction ________.

A forward transaction ________.




A. is a foreign exchange transaction that is consummated immediately
B. is a foreign exchange transaction that occurs sometime in the future
C. involves currencies that are not freely tradable
D. involves a transaction in which the same currency is bought and sold simultaneously





Answer: B

A spot transaction ________.

A spot transaction ________.




A. is a foreign exchange transaction that is consummated immediately
B. is a foreign exchange transaction that occurs sometime in the future
C. involves currencies that are not freely tradable
D. involves a transaction in which the same currency is bought and sold simultaneously




Answer: A

An inconvertible currency ________.

An inconvertible currency ________.





A. is a foreign exchange transaction that is consummated immediately
B. is a foreign exchange transaction that occurs sometime in the future
C. involves currencies that are not freely tradable
D. involves a transaction in which the same currency is bought and sold simultaneously




Answer: C

The price of foreign exchange is set by ________.

The price of foreign exchange is set by ________.




A. the international monetary fund
B. the gold standard
C. demand and supply in the marketplace
D. administrators of the world bank






Answer: C

A call option _____.

A call option _____.




A. is a privately traded currency vehicle available only through stockholders.
B. grants the right to buy a specified amount of foreign currency at a set price
C. allows the holder to buy foreign exchange at the wholesale rate
D. is another term for currency future





Answer: B

Which of the following is NOT an example of a participant in the foreign exchange market?

Which of the following is NOT an example of a participant in the foreign exchange market?



A. Pakistani tourists exchanging rupees for British pounds at a bank in London
B. British retailer Marks and Spenser purchasing appliances from a British supplier
C. The US government arranging a multimillion-dollar loan to Mexico
D. Toyota exporting cars to Canada from factories in Japan




Answer: B

What most likely happens when the price of yen falls?

What most likely happens when the price of yen falls?




A. The quantity of yen demanded goes down
B. The demand curve slopes downward
C. The demand curve slopes upward
D. The value of the yen fluctuates




Answer: C

The rising value of the Canadian dollar relative to the US dollar has all the following effects except that ____.

The rising value of the Canadian dollar relative to the US dollar has all the following effects except that ____.



A. Canadian exports to the US are down.
B. Canadian vacationers pay higher costs for trips to the US.
C. Canadian consumers pay lower prices for US-made goods.
D. Canadian retailers in border towns lose customers to US stores.





Answer: B

Dirty float is another term for ____.

Dirty float is another term for ____.



A. flexible float
B. managed float
C. illegal exchange
D. par value
E. convertible currency





Answer: B

Which balance listed below is the balance of payments?

Which balance listed below is the balance of payments?



A. official reserves balance
B. official settlements balance
C. current accounts balance
D. capital accounts balance
E. all are components of the balance of payments






Answer: E

What is the primary purpose of the International Finance Corporation?

What is the primary purpose of the International Finance Corporation?



A. To make soft loans.
B. To make hard loans.
C. To promote private sector development in developing countries.
D. To provide political risk insurance.
E. All of the above.





Answer: C

Which organization is authorized to make soft loans to countries?

Which organization is authorized to make soft loans to countries?



A. World Bank
B. International Bank for Reconstruction and Development
C. International Development Association
D. International Monetary Fund
E. Multilateral Investment Guarantee Agency





Answer: C

Loans from the World Bank may not be used to finance ____.

Loans from the World Bank may not be used to finance ____.





A. New railroads
B. Harbor facilities
C. National highways
D. Trade deficits
E. Loans from the World Bank could finance all of the above





Answer: D

What was the initial goal of the World Bank?

What was the initial goal of the World Bank?




A. To administer the gold standard
B. To hold financial reserves for all countries
C. To finance reconstruction of war-torn economies
D. To provide capital for corporate expansion activities
E. To promote international commerce





Answer: C

The Bretton Woods conference sought to do which of the following?

The Bretton Woods conference sought to do which of the following?





A. Create a postwar economic environment that would promote peace
B. Renew the gold standard
C. Create the International Monetary Fund
D. Creating the International Bank for Reconstruction and Development
E. All of the above





Answer: E

What did the Bretton Woods conferees agree to do in 1944?

What did the Bretton Woods conferees agree to do in 1944?





A. To end WWII
B. To renew the gold standard
C. to adhere to the sterling standard
D. to promote world peace
E. none of the above





Answer: B

Which political leader did not gain leadership advantage from the political instability following the breakdown of the international monetary system and international trade after World War I?

Which political leader did not gain leadership advantage from the political instability following the breakdown of the international monetary system and international trade after World War I?




A. Hitler
B. Mussolini
C. Stalin
D. Churchill
E. All of the above gained advantage




Answer: D

What caused some countries to switch from the gold standard to the "sterling area" in 1931?

What caused some countries to switch from the gold standard to the "sterling area" in 1931?



A. The British pound sterling had become more valuable than gold.
B. The Bank of England allowed the pound to float rather than be pegged to gold.
C. An economic conference in Genoa concluded that a sterling standard should be used.
D. Several countries increased the values of their currency in the international market.
E. None of the above





Answer: B

Why was the gold standard suspended during WWI?

Why was the gold standard suspended during WWI?



A. It was no longer safe to transport gold.
B. Economic pressures of war caused countries to suspend pledges to buy and sell gold at their currencies' par values.
C. Countries were angry at opposing countries and refused to trade with them.
D. The Bank of England could not maintain the pound's value.
E. All of the above





Answer: B

Why is the international monetary system necessary for international business?

Why is the international monetary system necessary for international business?



A. Because it is a historically significant institution
B. Because it controls interest rates on international business loans
C. Because it establishes the rules by which countries value and exchange currencies
D. Because it sets the price of a given currency
E. None of the above






Answer: C

What was created by the gold standard?

What was created by the gold standard?



A. A fixed exchange rate system
B. A floating exchange rate system
C. An accounting system
D. An export system
E. None of the above






Answer: A

What was the par value of the US dollar under Bretton Woods?

What was the par value of the US dollar under Bretton Woods?



A. $17 per ounce of gold
B. $35 per ounce of gold
C. $57 per ounce of gold
D. $400 per ounce of gold
E. $570 per ounce of gold






Answer: B

Under the gold standard ______.

Under the gold standard ______.




A. currency values were determined by supply and demand
B. countries agreed to buy and sell their paper currencies for gold
C. countries were free to adopt any nation's exchange rate system
D. the dollar's value was allowed to fall on currency markets





Answer: B

The _____ refers to an international monetary system in which countries agreed to buy or sell their paper currencies in exchange for gold on the request of any individual or firm and to allow the free export of gold.

The _____ refers to an international monetary system in which countries agreed to buy or sell their paper currencies in exchange for gold on the request of any individual or firm and to allow the free export of gold.




A. foreign market exchange
B. free market system
C. gold standard
D. mercantilism






Answer: C

Which of the following is not true of the balance of payments?

Which of the following is not true of the balance of payments?




A. It provides information about likely fiscal and monetary policy changes
B. It supplies vital information about the health of a national economy
C. It is the international monetary system's accounting system
D. It establishes exchange rates between fixed currencies






Answer: D

The ____ records international transactions.

The ____ records international transactions.




A. Balance of payments accounting system
B. International accounting standards
C. Gold standard procedure
D. ISO 9000 system





Answer: A

The international monetary system provides a mechanism for ____.

The international monetary system provides a mechanism for ____.




A. Establishing global account standards
B. Enforcing the payment of importing tariffs and fees
C. Correcting imbalances between a country's international payments and receipts
D. Increasing a country's paper currency value in comparison to the global gold standard





Answer: C

Why does the international monetary system exist?

Why does the international monetary system exist?



A. Because most countries have their own currencies
B. To control the interest rates on international business loans
C. To avoid monetary crises from becoming global
D. Because it sets the price of a given currency




Answer: A

Which of the following best accounts for the reason why Swiss pharmaceutical companies are choosing to invest in smaller US biogenetical companies?

Which of the following best accounts for the reason why Swiss pharmaceutical companies are choosing to invest in smaller US biogenetical companies?





A. To gain access to US 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 US market
E. to gain access to US natural resources




Answer: C

Why do US firms use places like the Bahamas as offshore financial centers?

Why do US firms use places like the Bahamas as offshore financial centers?



A. It is easier to set up transfers for foreign investors.
B. It is more secure than the US, and less embezzlement occurs
C. It is less heavily taxed, providing a greater profit.
D. It is more heavily regulated, allowing investors to feel safe.
E. It is easier to hide illegal money






Answer: C

Which of the following would occur in stage 3 in the international product life cycle in an innovating firm's country?

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. Exports and imports become equal.
C. Production facilities are moved to low labor cost markets.
D. Manufacturing costs are lowered by maintaining production country.
E. Production and sales are reduced.





Answer: C

Which of the following would be an example of the experience curve?

Which of the following would be an example of the experience curve?




A. An advantage that a company gets with factory workers who have experience with a certain product
B. An advantage that a company gets with years of marketing and distribution experience
C. An advantage that a company gets with years of experience in a given market
D. An advantage that a company gets with years of proven financial success
E. An advantage that a company gets with experience in trading and interacting in foreign markets




Answer: A

Which of the following is FALSE regarding the product life cycle theory?

Which of the following is FALSE regarding the product life cycle theory?



A. Domestic production begins in stage 1, peaks in stage 2, and slumps in stage 3.
B. The personal computer industry has entered the maturing product stage
C. Foreign competition begins to emerge toward the end of stage 1.
D. Exports by the innovating firm's country begin in stage 1 and peak in stage 2.
E. In stage 2, foreign competitors expand their productive capacity.




Answer: B

Which of the following is NOT a reason for the development of modern firm-based theories?

Which of the following is NOT a reason for the development of modern firm-based theories?



A. The failure of Leontief and other researchers to empirically validate the country-based Heckscher-Ohlin theory.
B. The recognition that countries, not firms, are the agents for international trade.
C. Recognition of the growing importance of MNCs in the postwar international economy.
D. The inability of the country based theories to explain and predict the existence and growth of intra industry trade.
E. Firm-based theories incorporate factors such as quality, technology, brand names, and customer loyalty into explanation of trade flows.





Answer: B

Which theory traces the roles of innovation, market expansion, comparative advantage, and strategic responses of global rivals in international production, trade, and investment decisions?

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. Absolute advantage
B. Country similarity
C. Relative factor endowments
D. Comparative advantage
E. Product life-cycle theory

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?

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. Opportunity cost
B. Theory of absolute advantage
C. Theory of comparative advantage
D. Theory of relative factor endowments
E. Country similarity theory





Answer: E

Which factors of production did Leontief focus on?

Which factors of production did Leontief focus on?




A. capital and labor
B. labor and technology
C. land and labor
D. capital and technology
E. land and technology






Answer: A

Which of the following does mercantilism not state?

Which of the following does mercantilism not state?




A. Exports should have more value than imports
B. Encourage imports and discourage exports
C. Sell more than you buy
D. Trade is a zero sum game
E. It states all of these.




Answer: B

Which group listed below is a modern supporter of mercantilist policies ?

Which group listed below is a modern supporter of mercantilist policies ?




A. American federation of Labor-Congress of Industrial Organizations
B. textile manufacturers
C. steel companies
D. peanut farmers
E. All are supporters of mercantilist policies








Answer: E

Differentiated goods might include:

Differentiated goods might include:



A. automobiles
B. sugar
C. lumber
D. oil
E. tobacco





Answer: A

Who is the father of free market economies?

Who is the father of free market economies?



A. David Ricardo
B. Michael Porter
C. Adam Smith
D. John Dunning
E. Paul Krugman





Answer: C

In what century did the MNC rise to power?

In what century did the MNC rise to power?




A. late 16th century
B. mid 17th century
C. early 18th century
D. late 19th century
E. mid 20th century




Answer: E

According to Adam Smith, what is the primary, basic problem with mercantilism?

According to Adam Smith, what is the primary, basic problem with mercantilism?




A. It believes gold is a treasure
B. It confuses the acquisition of treasure with the acquisition of wealth
C. It is old-fashioned
D. It cannot function in a global economy
E. It is too efficient






Answer: B

How did imperial governments use their colonies to support the goals of mercantilism?

How did imperial governments use their colonies to support the goals of mercantilism?



A. Shipping restrictions
B. Prohibition of exports that might compete with the imperial government's exports
C. Restrictions on sales to come countries
D. Export requirements of low cost supplies to the imperial government
E. All of the above




Answer: E

Who supported the economic policies of mercantilism?

Who supported the economic policies of mercantilism?



A. monarchs
B. export-oriented manufactures
C. domestic manufacturers
D. employees
E. all of the above




Answer: E

According to mercantilism, what should a country's primary goal be?

According to mercantilism, what should a country's primary goal be?





A. to protect its borders from illegal aliens
B. to encourage a high savings rate among its citizens
C. to promote the creation of new retail stores
D. To enlarge holdings of gold and silver by promoting exports and discouraging imports
E. To ensure sufficient labor for low-wage jobs





Answer: D

How might managers use international trade theories?

How might managers use international trade theories?



A. To lobby for governmental policy changes
B. To identify promising markets
C. To determine profitable internalization strategies
D. both A and B
E. both B and C




Answer: E

Who uses international trade theories?

Who uses international trade theories?



A. government policy makers
B. managers
C. economists
D. scholars of international business
E. all of the above





Answer: E
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