1) The currency of Venadia, a country, falls sharply in value against the currency of Lutetia, a neighboring country. Which of the following is a consequence of this exchange rate movement?
A. Lutetia's products will achieve a competitive pricing in Venadia.
B. Venadia's exports to Lutetia will increase because Venadian goods will become cheaper in Lutetia.
C. Venadia's products will cost more in Lutetia. ?
D. There will be no difference in the volume or direction of trade.?
E. Lutetia's exports to Venadia will increase because Lutetian goods will become cheaper in Venadia.
2) The euro/dollar exchange rate is €1 = $1.20. If a trader buys a camera that retails for $300 in New York ?and sells it for €200 in Berlin (ignoring transaction costs, transportation costs, or trade barriers), this represents a potential profit (arbitrage) of _____.
A. $60?
B. $80 ?
C. $20
D. $100
E. $40
3) The nominal interest rate is 9 percent in Brazil and 6 percent in Japan. Applying the international Fisher effect, the Brazilian real should:
A. appreciate by 3 percent against the Japanese yen.?
B. depreciate by 3 percent against the Japanese yen.
C. appreciate by 1.5 percent against the Japanese yen.
D. depreciate by 1.5 percent against the Japanese yen.
E. appreciate by 15 percent against the Japanese yen.
4) The government of Beryllia tightly controls the ability of its residents to convert its currency into other currencies. However, all foreign businesses with deposits in banks of Beryllia may, at any time, convert all their currency into foreign currency and take them out of the country. Beryllia's currency is said to be _____.
A. leading
B. nonconvertible
C. externally convertible
D. freely convertible
E. lagging
5) Certovia and Norkland are two neighboring countries that actively trade goods and services with each other. Under the gold standard, there will be a net flow of gold from Norkland to Certovia when:
A. Certovia is in trade deficit with Norkland.?
B. Norkland is in balance-of-trade equilibrium with Certovia.
C. Certovia is in trade surplus with Norkland.
D. Certovia imports more than it exports to Norkland.?
E. Norkland's balance of payment to Certovia is favorable.
6) Which of the following statements is true about the role of the International Monetary Fund? ?
A. It never interfered in the monetary and fiscal conditions of its member countries.?
B. It was authorized to approve currency devaluations of only up to 10 percent.?
C.It required member countries to adhere to specific agreements irrespective of the amount of funds the ?countries borrowed
D.It lent money under the International Bank for Reconstruction and Development (IBRD) scheme and a second scheme which is overseen by the International Development Association (IDA).?
E. It helped deficit-laden countries bring down inflation rates by providing short-term foreign currency ?loans.
7) Which of the following is an argument for a floating exchange rate system? ?
A. Each country should be allowed to choose its own inflation rate.?
B. Speculation in exchange rates dampens the growth of international trade and investment.?
C. Unpredictability of exchange rate movements makes business planning difficult.?
D. Removal of the obligation to maintain exchange rate parity destroys a government's monetary control.
E. Trade deficits can be determined by the balance between savings and investment in a country, not by? the external value of its currency.
8) All International Monetary Fund (IMF) loan packages come with conditions attached. Which of the following is prevented due to these policies of the IMF?
A. Trade liberalization?
B. Elimination of restrictive import licensing
C. Excessive government spending and debt
D. Privatization of state-owned assets
E. Deregulation of the economy to increase competition
9) Which of the following statements is true about the current monetary system?
A.Use of instruments such as the forward market and swaps has decreased since the breakdown of the
Bretton Woods system.?
B.The present monetary system lacks the volatile movements in exchange rates that existed in a fixed
exchange rate system.
C. The current foreign exchange market works exactly as depicted in the purchasing power parity theory.
D. Instruments such as the forward market and swaps increase the foreign exchange risk a company faces.?
E. A combination of government intervention and speculative activity drives the current foreign exchange market.
10) A company can increase its growth rate by taking goods or services developed at home and selling them internationally. The returns from such a strategy are likely to be greater if:
A. the product is already being offered by local companies in the nations that the company enters.
B. the product is a generic product that requires little differentiation. ?
C. indigenous competitors in the nations that the company enters lack comparable products.
D. there is a high inflation in the nations that the company enters.?
E. the product is perceived to be very costly in the home country of the company.
11) Why do companies find it strategically challenging to deal with high pressures for both, cost reductions and local responsiveness?
A. Cost reductions are inversely proportional to standardization.?
B. Being locally responsive tends to raise costs.
C. Cost reductions negatively impact maximization of single-plant utilization.?
D. As the quantity produced goes on increasing, it becomes more difficult for a company to achieve
economies of scale.?
E. Customer tastes are usually identical across global markets.
12) Which of the following conditions is most favorable to reap gains from global scale economies?
A. Low demand for local responsiveness?
B. High pressures for cost reduction?
C. Lack of universal needs
D. National differences in accepted business practices
E. High pressure to delegate production to domestic subsidiaries
13) Which of the following is a reason why a relatively poor country may be an attractive target for inward investment?
A. Rapid economic growth
B. Political instability?
C. Currency depreciation
D. High cost of living
E. Less developed infrastructure
14) Which of the following is an advantage of licensing as a mode of entry into foreign markets?
A. It helps a firm to realize substantial experience curve and location economies.?
B. It gives the firm tight control over manufacturing, marketing, and strategy.
C. The licensor does not have to bear the development costs and risks associated with opening a foreign ?market.
D. Firms can easily maintain control over how their technological know-how is used by a licensee.?
E. Licensing allows a foreign firm to use profits earned in one country to support competitive attacks in ?another.