The least risky method through which companies can conduct their business internationally is:
A) Franchising
B) International Trade
C) The acquisitions of existing businesses overseas
D) Licensing
E) The establishment of new subsidiaries
ANSWER: B
Which of the following statement is correct concerning MNCs?
A) MNCs usually have a larger opportunity set than entirely domestic businesses because of potential cost advantages and/or returns opportunities.
B) MNCs usually have a smaller opportunity set than entirely domestic businesses since it is more expensive to establish subsidiaries overseas.
C) MNCs generally are more capable of acquiring financing at a lower cost than purely domestic companies.
D) a and c only
E) b and c only
ANSWER: D
Over time, exports plus imports (international trade) as a percentage of GDP has:
A) stayed about steady for most major countries.
B) shrank for most major countries.
C) risen for most major countries
D) risen for about half the major countries and shrunk for the others.
ANSWER: C
As a result of the 1992 Single European Act and the, restrictions on exports between _______ were reduced or eliminated.
A) member countries and the U.S.
B) member Asian countries
C) European member countries and European non-members
D) none of these
ANSWER: C
The goal of a multinational corporation (MNC) is
A) The minimization of taxes remitted from foreign subsidiaries.
B) The maximization of shareholder wealth.
C) The establishment of subsidiaries in any country where operations would provide a return over and above the cost of capital, even if better projects are available domestically.
D) The maximization of social benefits resulting from actions such as the employment of foreign managers.
ANSWER: B
Which of the following cases is an example of the Comparative Advantage Theory?
A) Apple imports the needed components for iPhone from Taiwan.
B) Apple builds a factory in Mexico to reduce labor costs.
C) Apple establishes a plant in China to reduce transportation costs and to retain its advantage over its Chinese competitors.
D) All of the above
E) None of the above
ANSWER: A
Also seen as the “central banks’ central bank,” the _______ tries to facilitate cooperation among countries about international transactions and aids countries experiencing a financial crisis.
A) World Bank
B) International Financial Corporation (IFC)
C) World Trade Organization
D) International Development Association (IDA)
E) Bank for International Settlements (BIS)
ANSWER: E
A devalued domestic currency might not be a good solution to correct a balance of trade deficit because:
A) it decreases the prices of imports paid by domestic firms.
B) it increases the prices of exports by domestic firms.
C) it prevents international trade transactions from being arranged.
D) foreign companies may reduce the prices of their products to stay competitive. ANSWER: D
A balance of trade deficit occurs when a country
A) exports more goods than it imports.
B) buys more goods from the rest of the world than it sells.
C) buys more stocks and bonds from the rest of the world than it sells.
D) None of the above
ANSWER: B
Which of the following transactions is a debit in the current account?
A) export of merchandise
B) export of services
C) gift to foreigners
D) foreign bond purchase
ANSWER: C
Merchandise exports minus imports equal the
A) basic balance.
B) liquidity balance.
C) official settlements balance.
D) balance of trade.
ANSWER: D
A high home inflation rate relative to other countries would _______ the home country’s current account balance, other things equal. A high growth in the home income level relative to other countries would _______ the home country’s current account balance, other things equal.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
ANSWER: C
Which of the following would likely have the least direct influence on a country’s current account?
A) inflation.
B) national income.
C) exchange rates.
D) tariffs.
E) a tax on income earned from foreign stocks.
ANSWER: E
The “J curve” effect describes:
A) the continuous long-term inverse relationship between a country’s current account balanceand the country’s growth in gross national product.
B) he short-run tendency for a country’s balance of trade to deteriorate even while its currencyis depreciating.
C) the tendency for exporters to initially reduce the price of goods when their own currencyappreciates.
D) the reaction of a country’s currency to initially depreciate after the country’s inflation ratedeclines.
ANSWER: B
The North American Free Trade Agreement (NAFTA) increased restrictions on:
A) trade between Canada and Mexico.
B) trade between Canada and the U.S.
C) direct foreign investment in Mexico by U.S. firms.
D) none of these.
ANSWER: D