GEB Problem Set 1

8/7/2019 GEB Problem Set 1

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1.1 The primary mission of the multinational

corporation is to:

a. Maximize world production.

b. Maximize earnings.

c. Minimize the cost of borrowing globally.

d. Maximize shareholder wealth.

e. Maximize dividends per share


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1.2 Which of the following is an example of a

foreign direct investment ?

a. Exporting to a country

b. Establishing licensing agreement in a country

c. Purchasing existing companies in a countryd. Purchasing foreign stocks

e. Purchasing foreign bonds


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2.1 Tourism shows up in the:

a. Trade balanceb. Current account balance

c. Capital account balance

d. Both a and b

e. None of the above


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2.2 The Purchase of U.S. Treasury Bond by a

French Investor shows up as a:

a. Credit on the trade account.b. Credit on the long term capital account.

c. Debit on the current account.

d. Debit on short term capital account.

e. Credit on short term performance balance


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2.3 If the U.S. ran a deficit of $150m on the currentaccount in a year when the country was a net

recipient of $250m in long term capital, then the

basic balance would be:

a. $250m

b. $200m

c. $l00m

d. $400m

e. $50m


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2.4 A Japanese investment in the U.S. represents

a foreign factor of production located in the

U.S. and the rent or income on such

investment adds to the:

a. GNP of the U.S.

b. GDP of Japan.

c. GNP of Japan.d. Transfer receipts of Japan.

e. Transfer payments of Japan


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2.5 A country's holding of gold, special

drawing rights, and internationally

acceptable currencies comprise its:

a. Bank reserves.

b. Official reserves.

c. Secondary reserves.

d. Liquid reserves.e. Loan reserves


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2.6 A measure of value of final production that

occurs within a country's borders without

regard to whether the production is doneby domestic or foreign factors of production

is commonly referred to as:

a. Gross national product (GNP).

b. Net national product (NNP).

c. Net material product (NMP).

d. Gross domestic product (GDP).e. Balance of payment (BOP)


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2.7 The two main categories in the balance of

payments are:

a. The current account and the capital account.

b. The merchandise trade account and the

services account.

c. The income receipts and payments on assets

account and the unilateral transfers account.

d. The merchandise trade account and the

capital account.

e. The long-term capital and short-term capital

account


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2.8 The debt/service ratio is:

a. The ratio of debt to services income.

b. The ratio of interest payments plus

principal amortization to exports.

c. Relatively low in the western hemisphere.

d. Inversely related to a country's rate of

inflatione. The ratio of debt to GDP


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2.9 Visible Exports and Imports are:

a. The sum total of goods and services traded

b. Transactions paid for in money rather

than barter.c. Merchandise imports and exports.

d. Legal imports and exports rather than

those involving smuggled goods.

e. Current account balances


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2.11. Analyze each of the following transactions. Indicate

whether it generates a credit/debit and the US BOP account

balance it affects (Trade /Current / Basic / Performance)

1. The Chinese bought $45m worth of US beef.

2. An American bought a hotel in Japan for $55m

3. British investors bought $30m of US bonds.4. Americans bought $60m worth of Iraqi oil.

5. Microsoft sold $32m worth of software to Mexico

6. Japanese visitors spent $5m at Orlando Theme Parks

7. The French invested $25m in US CDs

8. US residents gave $15m to their relatives in Mexico

9. SunTrust paid $5m in interest to Italian investors

10. US doctors received $10m in service fees from Brazil


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2.12.

a. Identify the theory that points to international business

engagement as a natural stage in the evolution of newproducts from introduction to growth, maturity andeventual decline

b. Name the theory that identifies non-transferability of

resources as an explanation for international businessc. Name a theory that identifies risk diversification as the

motivation for international business.

d. Which theory identifies specialization as a motivation

for international business.e. Firms engage in global exploitation of their proprietary

technologies while protecting them from third parties.This reflects the theory of --- ?


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3.1. Cost advantages from foreign direct

investment are most often due to:

a. The availability of low of cost labor in

the host country.

b. Higher productivity of workers in thehost country.

c. High transportation costs for exports.

d. Any of a number of different factors,

depending on the situation confronting

the investing firm.


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3.2 A synthesis of trade theories which explainswhy MNCs make FDI decisions based on

ownership advantages, location advantages,

and internalization advantages is known as:

a. Imperfect market theory.

b. Monopoly theory.

c. Eclectic theory.

d. Risk diversification theory.

e. Internalization theory


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3.4 Which of the following products would

most likely move through the changes ininternational production location as

predicted by the product life cycle theory?

a. An electronic product for which there israpid obsolescence.

b. A luxury product.

c. A consumer durable.

d. A differentiated product that doesn't

compete on the basis of price.


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3.5 Assume the following conditions:

In the United States, it takes 4 resources toproduce potatoes and 5 to produce coal.

In Canada it likes 6 resources to produce potatoes

and 10 to produce coal. According to the theory of

comparative advantage:

a. There would be no basis for trade.b. The United States should export both

potatoes and coal to Canada.

c. The United States should import potatoes from

Canada and export coal to Canada.

d. The United States should export potatoes to Canada

and import coal from Canada.


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3.6 Assume the following conditions:

In the United States, it takes 4 resources to produce

potatoes and 5 to produce coal. In Canada it takes 8

resources to produce potatoes and 10 to produce

coal. According to the theory of comparative

advantage:

a. The United States should export both

potatoes and coal to Canada.

b. The Unites States should export potatoes to

Canada and import coal from Canada.c. The United States should import potatoes

from Canada and export coal to Canada.

d. There would be no basis for trade.


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3.7 When a company's product is technologically

complex, it is most apt to handle the foreign

expansion of that product through:

a. Licensing.

b. Turnkey operations.

c. Its own facilities/subsidiaries

d. Joint ventures.e. Management contracts


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3.8 Which of the following theories identifies

specialization as the driving force for

international business activities:

a. Product life cycle theory.

b. Theory of diversification.

c. Theory of comparative advantage.

d. Theory of absolute advantage.e. Both c and d


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3.9 Under mercantilism, central governments

sought to influence trade by:

a. Setting bilateral trade agreements

with other countries.b. Limiting exports.

c. Encouraging the development of

manufacturing in colonies.

d. Limiting imports and subsidizingor encouraging exports.


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3.10. Adam Smith in The Wealth of Nations

stated that the real wealth of a country consists of:

a. The goods and services available to its citizens

b. Its reservesc. Its holdings of treasure - gold, silver, ..

d. The capacity as measured by its natural and

acquired advantages.

e. The number territories it owns


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3.11 The fact that most world trade today

consists of manufactured goods and services

is an indication that the production location

is due largely to:

a. Labor costs.

b. Natural advantages.

c. Acquired advantages.

d. Comparative advantage.e. Location advantages


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3.12 Rationalized production exists when

companies:

a. Produce different components or

different portions of their product line

in different parts of the world.

b. Are characterized by ethnocentricmanagement practices.

c. Incur very high costs of production for

their most profitable products.

d. Hire engineers to analyze the entireproduction process and institute a total

quality management (TQM) program.


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3.l3 Internalization theory suggests that a firmpossessing a proprietary technology would:

a. Earn income from the sale of the

technology.b. Earn income from the sale of the

products of the technology.

c. License it to others for profit.

d. Protect it from encroachment by other firms.e. Both b and d above


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3.14 Governments are often concerned about

foreign investments in their country because:

a. Of the negative effect on the balance of trade.

b. Foreign companies may make decisions

that conflict with the national interests

of the host country.

c. Unemployment usually rises as foreign

the economy

d. Foreign investment impairs governments'

ability to tax.


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3.15 The factor proportions analysis becomesmore complicated when the same product:

a. Has different demand intensities in differentcountries.

b. Has higher transport action costs in some

parts of the world than in others.

c. Might be produced by different methods.d. Is priced differently in different countries.


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3.16 _____ is commonly referred to as a product

or process technology.

a. a patent.b. an acquired advantage.

c. a natural advantage.

d. a comparative advantage.


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3.17. Comparative advantage theory holds that there is a

basis for trade between countries A and B when B:

a. Specializes in producing those goods and

services it can produce more efficiently

than country B.

b. Seeks to rectify its unfavorable balance of

trade with country B.

c. Specializes in producing those products that it

can produce more efficiently than other

products without regard to whether country B

can produce such product more efficiently.

d. Concentrates on products with a high labor

content in order to buy capital intensive

products from country B.


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3.18 All of the following are elements of Porters

Diamond except:

a. Demand conditions.b. Government subsidy.

c. Factor endowment.

d. Related and supporting industries.


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3.19 All of the following are publicly heldcompanies' motivations to engage in direct

investment except:

a. to expand markets.b. to obtain raw materials.

c. to project political power

d. to increase production efficiency.


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3.20 When firms move abroad to produce basicallythe same products that they produce at home,

their direct investments are known as:

a. internalization.b. vertical integration.

c. export substitution.

d. horizontal expansion.


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3.21 Foreign Direct Investment is:

a. ownership of a minimum of 51% in a

foreign firm.

b. when control follows investment.

c. ownership in private rather than

government bonds

d. the start-up of foreign operation rather

than the acquisition of a foreign firm


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3.22 When an investor has a non-controlling

interest in a company or ownership of a loanto another party, the arrangement is known

as a:

a. portfolio investment.

b. direct investment.

c. mixed venture.

d. management contract.


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4.1 Indirect exporting occurs when:

a. A company exports through a third country.

b. A company's products are used as

components in other products that aresubsequently exported.

c. Government restrictions prevent the direct

exporting of goods.

d. Customs agents inadvertently allow illegalgoods to enter a country.


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4.2 Construction, performed under contract

involving facilities that are transferred to the

owner when they are ready to begin

operating are known as:

a. Strategic alliances.

b. Joint ventures.

c. Locally responsive operations.

d. Turnkey operations.


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4.3. The probability of being an exporter ____

with company size as defined by _____

a. Increases; expenses

b. Decreases; revenues

c. Increases; revenuesd. Decreases; return on investment

e. Increases ; number of shares outstanding


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4.4. ______ now make up about 88% of U.S.

exporters, and account for a fifth of the

value of U.S. exports.

a. Large businesses

b. Government owned businesses

c. Small businesses

e. Foreign owned businesses

f. Non-profit organizations


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4.5 Which of the following is most likely to cause

a strain on a joint venture ?

a. The partners have similar corporate cultures.

b. The partners' contributions differ in relation to the

benefits they receive from the venture.

c. The partners have either complementary or the same

objectives for the joint venture.

d. Both partners agree that day-to-day operating controlwill be ceded to one of them.


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4.6. The most common reason joint ventures

dissolve is because:

a. Partner is dissatisfied with the venture.

b. Of government expropriation.

c. They become too big to manage.

d. Partners replace them with managements.


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4.7. Internationally, the turnkey operation is

the most common in:

a. Construction.

b. Industrial equipment manufacture.

c. Airline manufacture.

d. Security systems


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4.8. An international management contract is:

a. The granting of rights on intangible property inreturn for royalties.

b. An agreement for the use of a trademark andassistance with business operations.

c. A contract for the construction of operating facilitiesfor a fee.

d. An agreement to manage a business for a fee.


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4.9. ______are the means by which a companymay transfer talent by using part of its

management personnel to assist a foreigncompany for a specified period for a fee.

a. Management contracts

b. Turnkey operations.

c. Joint ventures.

d. Equity alliances.


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4.10. A turnkey operation is:

a. The granting of rights on intangible property inreturn for royalties.

b. An agreement to manage a business for a fee.c. An agreement for the use of trade mark and

assistance with business operations.

d. A contract for the construction of operating

facilities for a fee.


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4.11. Franchising can be defined as:

a. An agreement for the use of a trademark and

assistance with business operations.

b. A company owned by two other companies.

c. An agreement to manage a business for a fee.d. A contract for the construction of operating

facilities for a fee.


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4.12. A licensing agreement is a contract betweenthe licensor and the licensee, where the

licensee pays a royalty to the licensor inexchange for the granting of the:

a. Rights to sell intangible property in the licensor's

home country.b. Rights on intangible property for a specified period.

c. Rights on tangible property for a specified period.

d. Rights on tangible property for an indefinite period.


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4.13. All of the following are examples of intangible

property that is commonly licensed except:

a. Patents, inventions, and formulas

b. Trademarks, trade names, and brand names

c. Copyrights and literary and artistic compositions

d. Management contracts, turnkey operations, and

swap contracts.


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4.14. For companies that are short on resourcesfor expansion, international collaborative

arrangements may:a. Free up domestic resources that can then be

shifted abroad

b. Enable companies to produce with fewer resourcesbecause of hiring more efficient management

c. Allow a company to expand internationally whileusing most of its scare resources domestically

d. Allow a company to expand domestically whileusing most of its scare resources internationally


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4.15.The transfer of technology is usually cheaper

when transferred:

a. To an unrelated company

b. Within the existing corporate family (internalization)

c. From parent company to parent company

d. To a government entity


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4.16. The more a company depends oninternational collaborative arrangements:

a. The less likely it is to lose control over operations

b. The less likely it is to operate abroad

c. The more likely it is to lose control over operations

d. The more likely it is to use its headquarterspersonnel to manage operations abroad


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4.17. Which of the following best describes amotive for collaborative arrangements that

would usually apply only to internationaloperations?

a. Secure horizontal linkages

b. Conform with laws requiring ownership sharing

c. Specializing in ones own competencies

d. Secure vertical linkage


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4.18. A company may minimize its resource

commitments while still expanding abroad by

engaging in:

a. Internalization

b. Collaborative arrangement

c. Multidomestic practice

d. Foreign direct investment


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4.19. Which of the following basic methods of

payments is the least secure in term of security

to the exporter?

a. Letter of credit

b. Draft of bill of exchangec. Open account

d. Cash in advance


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4.20.The .., Japanese equivalent word fortrading company can trace its roots back to

the late nineteenth century, when Japanembarked on an aggressive modernizationprocess.

a. Chaebol

b. Sogo shosha

c. Cooperatives

d. Maquiladora


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4.21. Korean trading companies are part of the

large Korean business groups called:

a. Sogo Shosha

b. Cooperatives

c. Maquiladora

d. Chaebol


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4.22. A document that is a receipt for goodsdelivered to the common carrier for

transportation, a contract for the servicesrendered by the carriers, and a document oftitle is known as a /an:

a. Export license

b. Commercial invoice

c. Consular invoice

d. Bill of lading


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4.23. The document that indicates where products

originate so that the applicable specific tariff

schedule can be determined is called:

a. Commercial invoice

b. Shippers export declaration

c. Bill of lading

d. Certificate of origin


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4.24. Which of the following is typically true of an

Export Management Company (EMC) ?

a. Most EMCs the United States are large,

representing a wide range of products, and a large

number of companies.b. It is usually a division of a manufacturing company

c. It operates on a contractual basis for a manufacturer

by helping obtain orders for its clients product.

d. It usually takes title to products rather than acts as

agents


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4.25. Exporter use an export management

company as part of:

a. A direct selling strategy

b. Risk enhancement strategy

c. An indirect selling strategyd. Forwarding strategy


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4.26. As a company designs its export strategy,it must:

a. Avoid becoming entangled in government agenciesas they rarely provide help

b. Determine if it has the production capacity todeliver the product

c. Use U.S. custom to determine how to get productsto foreign market

d. Identify several markets in which to concentrate itsefforts so that it does not put all its eggs in a few baskets


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4.27. A U.S. government agency that provides

service assistance to companies interested in

export is:

a. The Department of Defense

b. U.S. Customs

c. The Export Trade Agency

d. The International Trade Administration

e. The Ministry ofTrade and Industry (MITI)


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4.28. ____ is the percentage of total revenues

coming from exports:

a. Import intensity

b. Export intensity

c. Manufacturing intensity

d. Alliance intensity


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4.29. The probability of being an exporter:

a. Depends on whether or not the companyestablishes a international division

b. Is usually higher for smaller companies, as theyare less preoccupied with the domestic market andmake decisions faster

c. Is independent of the size of the company

d. Increases with the size of the company


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4.30. A major pitfall in exporting is:

a. That managers tend to increase their foreign travel

experience and interest in foreign culture, leading

to an increase in costs

b. An over-commitment by top management toexporting, which tends to get too many people

involved.

c. An unwillingness to modify products to meet other

countries regulations or cultural preferences

d. An over-reliance on exports when the domestic

market booms


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4.31. All of the following are mistakes companies

new to exporting most frequently make except

a. Failure to obtain qualified export counseling and to

develop a master international marketing plan before

starting an export businessb. Insufficient commitment by top management to

overcome the initial difficulties and financial

requirements of exporting

c. Neglecting domestic business when export business booms

d. Failure to print service, sale, and warranty messages in

locally-understood language


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5.1 Based on the theory that exchange rates are

determined by current international flowsbetween countries, if the domestic income

level rises faster than foreign income levels,

the domestic currency will:

a. Appreciate against foreign currencies.

b. Depreciate against foreign currencies.

c. Fluctuate within narrower bands.

d. Become inconvertible.e. Be unaffected by national income differences


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5.2 Based on the theory that exchange rates are

determined by current international flows

between countries, if the domestic realinterest is higher than foreign real interest,

the domestic currency will:

a. appreciate against foreign currencies

b. depreciate against foreign currencies

c. be unaffected by real interest rate differences

d. fluctuate within wider bands

e. become inconvertible


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5.3 Assume that U.S. inflation rate is 6 percent

and U.K. inflation rate is 3 percent for theyear. If the exchange rate $/ = 1.5000 at

the start of the year, what will be the rate at

the end of the year if relative PPP holds?

a. $1.5437

b. $3.000

c. $1.4575

d. none of the above.


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5.4 Which of the following currencies is

currently tied to gold?

a. U.S. Dollar.

b. Japanese Yen.c. The British Pound

d. The SDR

e. The Euro

f. None of the above


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5.5 Assume that the consumer price index in the

United States rose from 100 to 105 and during

the same period the German consumer priceindex moved from 100 to 102. This occurred

during a period when the exchange rate at the

beginning of the period was 5 German marks to

the dollar, or $.20 per mark. At the end of thisperiod, according to the purchasing power

parity theory:

a. the mark is worth less dollars.

b. the mark is worth more dollars.c. the mark is worth the same in dollars.

d. the purchasing parity theory deals with

interest rates and not exchange rates.


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5.6 A theory that explains exchange ratechanges based on differences in price

levels in different countries is:

a. The International Fisher Equation

b. Purchasing Power Parity.

c. The Fisher Effect.

d. Interest Rate Parity.e. Inflation Theory


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5.7 According to the Smithsonian Agreement

of December 1971.

a. the U. S. dollar was allowed to float freely.

b. the U.S. dollar was revalued against goldand most major currencies.

c. exchange rate flexibility was widened.

d. countries resorted to trade restrictions to

reduce trade deficits rather than rely onchanges in currency values.


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5.8 Currencies in the IMF's more flexiblecategory are:

a. Pegged at a certain value and allowed to fluctuate

within a 2.25 percent band.

b. Not allowed to change value rapidly due to the

neutralizing action of governments.

c. Currencies that float more or less independently.

d. Not allowed to be influenced by government action.


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5.9 The Bretton Woods Agreement established a

system of:

a. fixed exchange rates whereby each IMF

member country established a par value

of is currency based on gold.

b. fixed exchange rates that were allowed tovary within 2.25 percent of a fixed par value.

c. variable exchange rates, determined by

market forces

d. fixed, but adjustable exchange rates that wereallowed to vary within +/-1 percent of par

values established in terms of the dollar which

was fixed in gold.


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5.10 As a result of the Bretton Woods Agreement:

a. the Special Drawing Right (SDR) became the

international unit of account

b. the dollar became the worlds benchmark fortrading currency.

c. the United States was forced to redeem dollars

for gold.

d. an international system of floating exchangerates was established.


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5.11 The Special Drawing Right is denominated:

a. in Gold.

b. by a basket of sixteen currencies.c. by a basket of five currencies and gold.

d. by a basket of five currencies.

e. by U.S. dollar and gold.

f. by a basket of four currencies.

5 12 If th Fi h E ti h ld d l i t t


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5.12 If the Fisher Equation holds and real interest

rates are equalized among countries by

arbitrage, then:

a. differences in domestic and foreign nominal interest

rates equal differences in exchange rates.

b. differences in domestic and foreign inflation rates

equal differences in domestic and foreign nominal

interest rates.

c. the International Fisher Equation holdsd. the Purchasing power Parity holds

e. the Law of One Price holds

5 13 Ass me that o can p rchase a Big Mac in the


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5.13 Assume that you can purchase a Big Mac in the

U.S. for $2.30 and a Big Mac in Hong Kong for

HK $9.20 and that the actual exchange rate isHK $7.73 per U.S. dollar. Which of the following

statements is true according to the PPP.

a. The Hong Kong dollar is undervalued

b. The Hong Kong dollar is overvalued

c. The Hong Kong dollar is correctly valued

d. You can buy a Big Mac for more U.S. dollars inHong Kong than you can in U.S.

e. Purchasing Power Parity holds true between

HK$ and US$.

5 14 A th t Bi M t $2 30 i th


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5.14 Assume that a Big Mac costs $2.30 in the

U.S. and 1.81 in the U.K. If the actual

exchange rate is $/ = 1.46, then according

to the absolute PPP, the British Pound is:

a. Undervalued relative to the dollar

b. Overvalued relative to the dollar

c. Correctly valued relative to the dollar

d. It costs more in dollars to buy Big Mac in the U.K.

e. Both b and d

ADDITIONAL SAMPLE QUESTIONS ISAMPLE QUESTIONS I


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ADDITIONAL SAMPLE QUESTIONS ISAMPLE QUESTIONS I

1. International business transactions include:

a. all commercial transactions between two or morecountries.

b. Private, but not governmental, commercialtransactions between two or more countries.

c. Governmental, but not private, commercialtransactions between two or more countries.

d. Only commercial transactions between two ormore countries that are entered for the purposeof making a profit.

2 I t ti l b i h tl t h


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2. International business has recently grown at such

a rapid pace because of:

a. Stricter government policies on cross-border movements.

b. Development of institutions to support / facilitate trade.

c. Decreasing global competition.d. Companies increased concerns with terrorism.

3 T h l h h d d i


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3. Technology has had a tremendous impact on

international business in all of the following

ways except:

a. the demand for new products and services has

increasedb. the number of international business transactions has

increased

c. the managers ability to control foreign operations

has been improved

d. it has raised the cost of doing business abroad.


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4. Which of the following best describes the mode of

international business used by most companies?

a. mixed ventures

b. foreign direct investmentc. joint ventures.

d. exporting and importing


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5. are tangible products shipped

out of a country.

a. Merchandise exports

b. Merchandise importsc. Service exports

d. Service imports

e. Current accounts


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6. Which of the following best describes the two

form of foreign investment?

a. Direct and portfolio

b. Indirect and commonc. Direct and common

d. Mixed and indirect

e. Direct and indirect


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7. A company that takes a global approach to

foreign markets and productions is called a:

a. Multinational enterprise.

b. Multiglobal company.

c. Crosstransnational company.

d. Mixed venture company.

e. Unilateral enterprise


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8. At an early stage of international involvement,

require (s) the least formal commitment

and pose the least risk to the companys resources.

a. foreign direct investment

b. joint venturesc. importing and exporting

d. wholly owned subsidiaries


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9. The records a countrys international

economic transactions within a given period oftime.

a.

balance of paymentsb. surplus of payments

c. deficit of payments

d. International reserves


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10.The sale of state owned enterprises to the

private domestic or foreign sector is:

a. internalization.

b. externalization.c. privatization

d. expropriation


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11. A favorable balance of trade indicates which of

the following?

a. A country is importing more than it is exporting.

b. The country is importing products and services itcannot produce itself.

c. A country is exporting more than it is importing

d. The country is growing economically.

12. According to the theory of absolute advantage,


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. cco d g to t e t eo y o abso ute adva tage,specialization enables countries to increase theirefficiency for all of the following reasons except:

a. labor can become more skilled by repeating the sametasks

b. developing countries reduce their dependence on

former colonizing countriesc. labor does not lose time by switching from the

production of one kind of product to another

d. long production runs provide incentives for thedevelopment of more effective working methods

13 An assumption that underlies theories of


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13. An assumption that underlies theories ofspecialization in international trade is that:

a. Countries without an absolute advantage in productshould specialize in transporting products.

b. Resources are domestically mobile from the

production of one product to anotherc. Resources are internationally mobile from the

production of one product to another

d. Producers and countries have objectives other than

economic efficiency.

14 If it costs more to transport goods internationally


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14. If it costs more to transport goods internationally

than is saved through specialization, then:

a. The advantages of trade are positively correlated.

b. Countries will import transportation services.

c. The advantages of trade are negated.d. Companies will divert resources to the development

of more efficient transportation.

15 Bigger countries as opposed to smaller


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15. Bigger countries, as opposed to smaller

countries, tend to:

a. Export a larger portion of their output and import

a larger part of their consumption.

b. Have lower transport costs for foreign trade.c. Have less variety of resources.

d. Export a smaller portion of output and import a

smaller part of consumption.

16 According to which of the following theories would


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16.According to which of the following theories wouldcountries with large land areas be more apt to have

varied climates and an assortment of naturalresources than smaller countries would, thus making

them more selfsufficient?

a. country size

b. mercantilism

c. absolute advantage

d. comparative advantage


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17. According to the ., factors in

relative abundance are cheaper than factorsin relative scarcity.

a. theory of mercantilism

b. theory of absolute advantage

c. factor proportions theory

d. theory of comparative advantage

e. internalization theory

18 Whi h f th f ll i th i i di t th t


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18.Which of the following theories indicates thatdifferences in countries endowments of labor

compared to their endowments of land or capitalexplain differences in the cost of production factors?

a. mercantilismb. absolute advantage

c. comparative advantage

d. factor proportions

e. internalization theory

19 Factorproportions theory holds that if labor


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19. Factorproportions theory holds that if labor

were abundant in comparison to land and

capital, then:

a. Labor costs would be low relative to land and

capitol costsb. Labor costs would be high relative to land and

capital costs.

c. Labor has immigrated from abroad.

d. It is the result of using labor saving technology.

20. The factorproportions analysis becomes more


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20.The factor proportions analysis becomes more

complicated when:

a. labor is homogeneous

b. the same products can be produced by different

methods.

c. product life cycles are short.

d. companies depend primarily on export markets.

21 M t d t d d i d


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21. Most new products are produced in and

exported from:

a. highincome industrial countries.

b. middleincome developing countries.

c. emerging economies

d. developing countries.

e. economies in transition

22 Almost all new technology that results in new


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22. Almost all new technology that results in new

products and production methods originates in

which of the following?

a. developing countries

b. industrial countriesc. emerging economies

d. large countries

23 According to the the production for


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23.According to the the production formany products moves from one country to another

as they go from introduction through decline.

a. factor proportions theory

b. theory of mercantilismc. theory of absolute advantage

d. product life cycle theory

24 According to the product life cycle theory


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24. According to the product life cycle theory,

developing countries have their best

production advantage in:

a. Highly standardized products

b. New products.c. Products in their growth stage.

d. Products with rapidly changing technologies.

25 The introduction stage of the international


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25.The introduction stage of the international

product life cycle is marked by all of the

following except:

a. Innovation in response to observed need

b. Innovating country becoming the net importerc. Exporting by the innovative country

d. Evolving product characteristics

26.The production of a product in the introduction


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p p

stage of the international product life cycle is

most likely to occur in:

a. developing countries.

b. emerging economies.c. industrial countries

d. large countries.

27. Most trade theories emphasize that differences


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27. Most trade theories emphasize that differences

among countries create a basis for trade.These

differences are base on all of the followingexcept:

a. climateb. factor endowment

c. innovative capability

d. country culture

28 The fact that so much trade takes place among


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28.The fact that so much trade takes place among

industrial countries is due to the growing

importance of .. as opposed to .. in worldtrade.

a. acquire advantage, natural advantageb. natural advantage, acquired advantage

c. absolute advantage, acquired advantage

d.

neo-mercantilism, mercantilism

29 The says that once a company has developed


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29.The .. says that once a company has developed

a new product in response to observed market

conditions in the home market, it will turn tomarkets it sees as most similar to those at home.

a. factor-proportions theoryb. theory of mercantilism

c. country-similarity theory

d.

theory of absolute advantage

30. In a situation of , a country would


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30. In a situation of , a country would

have no reliance on other countries for any

goods, services, or technologies.

a. independence

b. dependencec. interdependence

d. unilateralism

e. socialism

31 Which of the following was organized to


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31. Which of the following was organized to

promote exchange rate stability and facilitate the

international flow of currencies?

a. The International Monetary Fund

b. The World Bankc. The Federal Reserve Bank

d. The Bank for International Settlements

e. The International Finance Corporation

32. Which of the following is not a major objective


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g j j

of the International Monetary Fund?

a. to facilitate the expansion and balanced growth of

international trade

b. to regulate inflation rates among under developedcountries

c. to promote exchange-rate stability

d. to establish a multilateral system of payments

33 The lends money to countries to help


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33.The . lends money to countries to help

ease balance of payments difficulties.

a. United nations

b. World Bank

c. Federal Reserve Bankd. International Monetary Fund

e. Bank for International Settlements

34. Which of the following is likely to exist when


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g y

people are willing to pay more for dollars than

the official rate?

a. gray market

b. black marketc. gold market

d. exchange market

35. Which of the following is the central bank of


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g

the United States?

a. the Federal Reserve Bank

b. the Bank of America.

c. the Bank for International Settlementd. the Central Bank of Washington

36. The is the most widely used currency as a


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36.The is the most widely used currency as a

central bank reserve asset, with about 68% of

the total in 2001.

a. Euro

b. Japanese yenc. British pound

d. U.S. dollar

37. Which of the following best describes the type


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g yp

of currencies that respond to supply-and-

demand condition free from governmentintervention?

a. currencies that are pegged to stronger currenciesb. currencies that float freely

c. currencies that are fixed

d. currencies that are tied to treasury bills

38. A strengthening of Japanese yen would result in


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g g p ywhich of the following outcomes?

a. Higher unemployment in Japanese import industry

b. Greater competition in Japanese domestic market

c. Higher unemployment in Japanese export industry

d. Higher employment in Japanese export industry

e. Both b and c.

39. A strengthening of U.S. real interest rate


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relative to Japanese rate would result in a:

a. Strengthening of the dollar and a weakening of the yen

b. Strengthening of the yen and weakening of the dollar

c. Strengthening of the Mexican peso in comparison to

the Japanese yend. Strengthening of the Japanese yen in comparison to

the Mexican peso

40. A drop in U.S. real interest rate relative to


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p

European rate would result in a:

a. Strengthening of the dollar and weakening of the euro

b. A weakening of the dollar and a strengthening of the euro

c. No change in the dollar or the eurod. A weakening of both the dollar and the euro

41. Which of the following theories of exchange rate


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g g

determination is based on relative inflation rates

between countries?

a. The Fisher Effect

b. The International Fisher effectc. The Purchasing Power Parity

d. The Interest Rate Parity Theory

42.The .. is the real interest rate plus inflation:


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a. Compound interest rate

b. Prime interest rate

c. Global interest rate

d. Nominal interest rate

43. Because real interest rates are equalized amongt i b bit hi h f th f ll i i


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countries by arbitrage, which of the following istrue?

a. Country with higher interest rate should have higherinflation

b. The country with the higher interest rate should havelower inflation

c. The country with the higher interest rate should havelower taxes

d. The country with the higher interest rate should havehigher tax

45.The theory that the interest rate differential is an


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y

unbiased predictor of future changes in the spot

exchange rate is called the:

a. Interest Rate Parity

b. Purchasing Power Parityc. International Fisher Effect

d. Foreign Exchange Parity

46.... forecasting method uses trends/changes in


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g g

macro economic variables to predict future

exchange rates.

a. Technical

b. Fundamentalc. Exponential

d. Multidimensional

47. Which of the following types of forecasting


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g yp g

methods uses past trends in exchange rate

movement to predict future trends?

a. Fundamental

b. Exponentialc. Technical

d. Market-based

e. Random walk

48.The strengthening of a countrys currency value


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g g y y

could result in which of the following?

a. Create a problems for importers

b. Raise the inflation rate

c. Create problems for exportersd. Raise the tax rate

49. Exchange rates can affect financial decisions in


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all of the following areas except:

a. Increasing productivity among workers

b. Sourcing financial resources

c. Remittance of funds across national borders

d. Reporting of financial results

50. The purchase of U.S. Commercial Paper by a


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p p y

French investor shows up on the U.S. BOP as:

a. A credit on trade account.

b. A credit on long-term capital account.

c. A debit on current account.

d. A debit on short-term capital account.

e. A credit on short-term capital account.

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GEB Problem Set 1

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