International Business Class
Instructions: 1. All of the following factors of production are internationally mobile EXCEPT ________.
a. labor
b. financial capital
c. capital equipment
d. land
2. A system of production in which each of a product’s components is produced in the location where the cost of producing that component is lowest is called ________ production.
a. rationalized
b. greenfield
c. centralized
d. maquiladora
3. (T/F) A market that is said to operate at peak efficiency and where goods are readily and easily available is said to be a perfect market.
4. (T/F) The merchandise account includes exports and imports of tangible goods.
5. (T/F) If the cost of land and the tax rate on profits are lower in the local market, one can assume they will remain constant.
6. The ________ account records transactions involving the import and export of goods and services, income receipts on assets abroad,
and income payments on foreign assets inside the country.
a. income receipts account
b. capital account
c. income payments account
d. current account
7. The requirement that a sufficient portion of a product’s content originate within a certain market to escape tariff charges is an example of a(n) ________.
a. perfect market
b. market imperfection
c. tariff quota
d. maturing product
8. Exports and imports of computer software, electronic components, and apparel would be reflected in the ________ account within the current account.
a. services
b. capital
c. merchandise
d. corporate
9. (T/F) Any nation’s balance of payments consists of two
major components: the current account and the past-due account.
10. The automobile industry uses a ________ method of production.
a. maquiladora
b. rationalized
c. single-country
d. component
11. (T/F) Industrialized countries are the source for about 35 percent of worldwide foreign direct investment.
12. Home governments may use which of the following to limit the effects of outbound foreign direct investment?
a. Insurance
b. Differential tax rates
c. Low-interest loans
d. Infrastructure improvements
13. (T/F) Values, attitudes, and beliefs form the basis for much of a government’s position regarding foreign direct investment.
14. A(n) ________ requires member nations to harmonize their tax, monetary, and fiscal policies and create a common currency.
a. customs union
b. economic union
c. free-trade area
d. common market
15. (T/F) The primary purpose of the Gulf Cooperation Council (GCC) at its formation was to create a political union between Iraq and Iran.
16. (T/F) The Southern Common Market is also referred to as MERCOSUR.
17. All of the following are true of trade diversion EXCEPT that it ________.
a. is the opposite of trade creation
b. can unintentionally reward a less-efficient producer within the trading bloc
c. can increase prices of products
d. guarantees consumers a wider selection of goods
18. (T/F) The greatest benefit of regional integration is trade diversion.
19. (T/F) Economic integration can unintentionally reward a less efficient producer within a trading bloc.
20. (T/F) The benefits to individual nations in a common market are typically distributed fairly evenly.
21. (T/F) A benefit of regional economic integration is
that it always expands employment opportunities in all nations.
22. The common currency of the European Union is known as the ________.
a. European currency unit
b. eurodollar
c. euro
d. euromark
23. Economic integration whereby countries remove all barriers to trade among themselves, but erect a common trade policy against nonmembers is called a(n) ________.
a. economic union
b. customs union
c. common market
d. free-trade area
24. (T/F) Canada and the United States are examples of early formations of political unions.
25. (T/F) In regional economic integration, industries requiring mostly unskilled labor will tend to shift production to low-wage nations within a trading bloc.
26. (T/F) Because the formation of trading blocs significantly reduces or eliminates barriers to trade among members, the producer of a particular good or service is likely to be the least productive producer.
27. The international financial market is composed of two interrelated systems called the ________ and the ________.
a. international capital market; foreign exchange market
b. international capital market; foreign goods market
c. foreign goods market; international services market
d. foreign goods market; foreign exchange market
28. (T/F) The international capital market is a network of individuals, companies, financial institutions, and governments that invest and
borrow across national boundaries.
29. Foreign bonds issued in the U.K. are called ________.
a. bulldog bonds
b. yankee bonds
c. samurai bonds
d. dragon bonds
30. Deregulation of capital markets resulted in all of the following EXCEPT ________.
a. increased competition
b. lowered the cost of financial transactions
c. opened many national markets to global investing and borrowing
d. reduced the use of microcredit
31. (T/F) Offshore financial centers tend to be
characterized by economic and political instability and poor telecommunications
infrastructures.
32. (T/F) Increased regulation of national capital markets has been instrumental in the expansion of the international capital market.
33. (T/F) An excess money supply creates a borrower’s market, forcing down interest rates and the cost of borrowing.
34. The profit-motivated purchase and sale of interest-paying securities denominated in different currencies is called ________.
a. currency arbitrage
b. currency hedging
c. interest arbitrage
d. interest hedging
35. (T/F) If a currency’s forward rate is higher than its spot rate, the currency is trading at a discount.
36. The international capital market’s rapid growth rate is traced to all these EXCEPT ________.
a. innovative financial instruments
b. information technology
c. foreign exchange rates
d. deregulation
37. Which of these is the simultaneous purchase and sale of foreign exchange for two different dates?
a. Forward swap
b. Bid-ask swap
c. Currency swap
d. Security swap
38. (T/F) Investors increase risk by holding international securities whose prices move independently.
39. (T/F) Exchange rates affect the translation of earnings into the home country currencies.
40. (T/F) A market is efficient if prices of financial instruments quickly reflect new public information made available to traders.
41. A system in which currencies float against one another, with governments intervening to stabilize their currencies at particular target exchange rates is called a ________.
a. managed float system
b. Bretton Woods system
c. free float system
d. fixed exchange-rate system
42. ________ was the first nation to implement the gold standard.
a. The United States
b. Britain
c. France
d. Japan
43. The value of a currency expressed in terms of gold is called its ________.
a. exchange rate
b. gold value
c. par value
d. gold currency value
44. A country experiencing inflation higher than that of another country should see the value of its currency ________.
a. rise to match the real interest rate
b. rise to match the nominal interest rate
c. rise
d. fall
45. The system of exchange rates known as the gold standard lasted about ________.
a. 50 years
b. 200 years
c. 500 years
d. 1000 years
46. (T/F) To help resolve the developing nations’ debt crisis, the Brady Plan called for large-scale reduction of the debt owed by poorer nations, the exchange of old loans for new low-interest loans and the creation of debt instruments that would be tradable on world financial markets.
47. (T/F) Although the law of one price holds for single products, purchasing power parity is meaningful only when applied to a basket of goods.
48. For the law of one price to apply, products must be all of the following EXCEPT ________.
a. entirely produced within each particular country
b. identical in quality in all countries
c. identical in content in all countries
d. identical in quantity in all countries
49. (T/F) Purchasing power parity states that economic forces will push the actual market exchange rate toward that determined by purchasing power parity.
50. When the law of one price is violated, a(n) ________ opportunity arises.
a. hedging
b. speculation
c. arbitrage
d. power play
Solution.
Multiple Choice Quiz for International Business Class
Answers to the Multi Choice Questions
- All of the following factors of production are internationally mobile EXCEPT land. (D)
- A system of production in which each of a product’s components is produced in the location where the cost of producing that component is lowest is called rationalized production. (A)
- A market that is said to operate at peak efficiency and where goods are readily and easily available is said to be a perfect market. (True)
- The merchandise account includes exports and imports of tangible goods. (True)
- If the cost of land and the tax rate on profits are lower in the local market, one can assume they will remain constant. (False)
- The current account records transactions involving the import and export of goods and services, income receipts on assets abroad, and income payments on foreign assets inside the country. (D)
- . The requirement that a sufficient portion of a product’s content originate within a certain market to escape tariff charges is an example of a market imperfection. (B)
- Exports and imports of computer software, electronic components, and apparel would be reflected in the merchandise account within the current account. (C)
- Any nation’s balance of payments consists of two major components: the current account and the past-due account. (False)
- . The automobile industry uses a rationalized method of production. (B)
- Industrialized countries are the source for about 35 percent of worldwide foreign direct investment. (True)
- Home governments may use differential tax rates to limit the effects of outbound foreign direct investment. (B)
- Values, attitudes, and beliefs form the basis for much of a government’s position regarding foreign direct investment. (True)
- . An economic union requires member nations to harmonize their tax, monetary, and fiscal policies and create a common currency. (B)
- The primary purpose of the Gulf Cooperation Council (GCC) at its formation was to create a political union between Iraq and Iran. (False).
- The Southern Common Market is also referred to as MERCOSUR. (True)
- All of the following are true of trade diversion EXCEPT that it guarantees consumers a wider selection of goods.(D)
- The greatest benefit of regional integration is trade diversion. (False).
- Economic integration can unintentionally reward a less efficient producer within a trading bloc. (True)
- The benefits to individual nations in a common market are typically distributed fairly evenly. (False)
- A benefit of regional economic integration is that it always expands employment opportunities in all nations. (True)
- . The common currency of the European Union is known as the euro. ( (International Business))
- Economic integration whereby countries remove all barriers to trade among themselves, but erect a common trade policy against nonmembers is called an economic union. (A)
- Canada and the United States are examples of early formations of political unions. (False)
- In regional economic integration, industries requiring mostly unskilled labor will tend to shift production to low-wage nations within a trading bloc. (True)
- Because the formation of trading blocs significantly reduces or eliminates barriers to trade among members, the producer of a particular good or service is likely to be the least productive producer. (False)
- The international financial market is composed of two interrelated systems called the international capital market and the foreign exchange market (B)
- The international capital market is a network of individuals, companies, financial institutions, and governments that invest and borrow across national boundaries. (True)
- Foreign bonds issued in the U.K. are called bulldog bonds. (A)
- Deregulation of capital markets resulted in all of the following EXCEPT reduced the use of microcredit. (D)
- Offshore financial centers tend to be characterized by economic and political instability and poor telecommunications infrastructures. (False)
- Increased regulation of national capital markets has been instrumental in the expansion of the international capital market. (False)
- An excess money supply creates a borrower’s market, forcing down interest rates and the cost of borrowing. (True)
- The profit-motivated purchase and sale of interest-paying securities denominated in different currencies is called interest arbitrage. (C)
- If a currency’s forward rate is higher than its spot rate, the currency is trading at a discount. (False)
- The international capital market’s rapid growth rate is traced to all these EXCEPT foreign exchange rates. (C).
- Which of these is the simultaneous purchase and sale of foreign exchange for two different dates? Currency swap. (C)
- Investors increase risk by holding international securities whose prices move independently. (False)
- Exchange rates affect the translation of earnings into the home country currencies. (True)
- A market is efficient if prices of financial instruments quickly reflect new public information made available to traders. (True)
- A system in which currencies float against one another, with governments intervening to stabilize their currencies at particular target exchange rates is called a managed float system (A)
- Britain was the first nation to implement the gold standard. (B)
- The value of a currency expressed in terms of gold is called its par value. (C)
- A country experiencing inflation higher than that of another country should see the value of its currency rise to match the nominal interest rate. (B)
- The system of exchange rates known as the gold standard lasted about 50 years (A)
- To help resolve the developing nations’ debt crisis, the Brady Plan called for large-scale reduction of the debt owed by poorer nations, the exchange of old loans for new low-interest loans and the creation of debt instruments that would be tradable on world financial markets. (True).
- Although the law of one price holds for single products, purchasing power parity is meaningful only when applied to a basket of goods. (True)
- For the law of one price to apply, products must be all of the following EXCEPT identical in quality in all countries (B)
- Purchasing power parity states that economic forces will push the actual market exchange rate toward that determined by purchasing power parity. (False)
- When the law of one price is violated, an arbitrage opportunity arises.
References
Wild, J. J., Wild, K. L., & Jerry C. Han. (2008). International Business, the Challenges of Globalization (4th ed.). Pearson Education ©.