International Economics
Exam Answer Key
Course Introduction
International Economics explores the economic interactions between countries, analyzing the flows of goods, services, capital, and labor across borders. The course covers fundamental theories of international trade and finance, such as comparative advantage, the Heckscher-Ohlin model, and exchange rate determination. Students examine the impact of trade policies, tariffs, and quotas on economic welfare, as well as the role of international organizations like the World Trade Organization (WTO) and the International Monetary Fund (IMF). By investigating contemporary issues such as globalization, trade disputes, and economic integration, the course provides students with analytical tools to understand and assess global economic relationships and their effects on domestic and international markets.
Recommended Textbook
Global Business Today 10th Edition by
Charles W. L. Hill Dr
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Page 2
Chapter 1: Globalization
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Q1) Foreign direct investment (FDI)occurs when a firm invests resources in business activities outside its home country.
A)True
B)False
Answer: True
Q2) The lowering of trade and investment barriers allows firms to base production at the optimal location for that activity.
A)True
B)False
Answer: True
Q3) For foreign direct investment (FDI)to occur,a firm should primarily
A)conduct cross-border bartering with neighboring countries.
B)invest resources in business activities outside its home country.
C)export goods or services to consumers in another country.
D)import goods or services from producers in another country.
E)erect formidable barriers to international trade.
Answer: B
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Chapter 2: National Differences in Political, Economic, and Legal Systems
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Q1) A common law system tends to be less adversarial than a civil law system.
A)True
B)False
Answer: False
Q2) Which of the following is true about the three broad types of economic systems?
A)For a pure market economy to function efficiently product supply must be restricted.
B)In a command economy,state-owned enterprises have little incentive to control costs and be efficient.
C)The sole role of government in a command economy is to encourage vigorous free and fair competition between private producers.
D)Mixed economies were once uncommon throughout much of the world,although they are becoming more popular now.
E)Production in command economies is determined by the interaction of supply and demand and signaled to producers through the price system.
Answer: B
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Chapter 3: National Differences in Economic Development
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Q1) Which of the following statements is true about privatization?
A)The privatization movement started in China in the early 1980s.
B)Privatization involves replacing a state-owned monopoly with a private monopoly.
C)For privatization to become successful,countries should adopt communism.
D)When newly privatized firms are extensively protected from foreign competition,they have little incentive to restructure their operations to become more efficient.
E)In today's context,a country runs the risk of experiencing a serious economic crisis if it liberalizes and privatizes state-owned enterprises.
Answer: D
Q2) People in the West tend to associate which of the following with a free market system,strong property rights protection,and economic progress?
A)anarchist state
B)representative democracy
C)planned economy
D)communist state
E)command economy
Answer: B
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Chapter 4: Differences in Culture
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Q1) In Brendan's home country,senior officers eat in the same cafeteria as the entry level workers.On a trip to a different country,he was surprised to find that the company he was visiting had different cafeterias for managers and workers as well as different parking lots.The difference that Brendan perceived is attributed to which of Hofstede's dimensions?
A)uncertainty avoidance
B)individualism.
C)power distance.
D)collectivism.
E)masculinity.
Q2) Max Weber argued that the ascetic principles embedded in _____ do not encourage entrepreneurial activity in pursuit of wealth creation because it is perceived that such activities make the attainment of nirvana more difficult.
A)Islam
B)Hinduism
C)Confucianism
D)Protestantism
E)Capitalism
Q3) What is class-consciousness? What is its impact on businesses?
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Page 6
Chapter 5: Ethics, Corporate Social Responsibility, and Sustainability
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Q1) Which of the following philosophies of ethics holds that people should be treated as ends and never purely as means to the ends of others?
A)Kantian ethics
B)Friedman doctrine
C)cultural relativism
D)righteous moralism
E)naive immoralism
Q2) Davis is the manager of a pharmaceutical manufacturing facility in a developing country.The manufacturing unit does not meet the acceptable standards of the manufacturing facility in the home nation.He knows that demanding a better manufacturing unit will raise the cost of the drugs mainly exported to other less developed countries,and hence its price.But he also realizes that by not demanding a better unit,the employees are prone to serious health issues.Davis is facing
A)a role conflict.
B)the tragedy of the commons.
C)a positivity offset.
D)an ethical dilemma.
E)a negativity effect.
Q3) What are grease payments?
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Chapter 6: International Trade Theory
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Q1) One of the suggestions of new trade theory is that
A)differences in technology leads to differences in productivity,which in turn,drives international trade patterns.
B)nations may benefit from trade irrespective of resource endowments or technology.
C)the demand for most new products tends to be based on nonprice factors.
D)globally dispersed production reduces the production costs of mature products.
E)comparative advantage does not arrive from a difference in factor endowments but from a difference in productivity.
Q2) Describe the shortcomings of the product life-cycle theory.
Q3) Which of the following factors is taken into consideration by David Ricardo's theory of comparative advantage in order to explain the pattern of international trade?
A)absolute advantage of a country with reference to natural resources
B)proportions in which the factors of production are available
C)international differences in labor productivity
D)ability of firms to cope with late-mover disadvantages
E)ability of firms to capture first-mover advantages
Q4) Discuss Adam Smith's concept of absolute advantage.
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Chapter 7: Government Policy and International Trade
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Q1) According to Alexander Hamilton,governments must temporarily support new industries until they have grown strong enough to meet international competition.
A)True
B)False
Q2) Many developing countries have a potential comparative advantage in manufacturing,but new manufacturing industries cannot initially compete with well-established industries in developed countries,according to
A)economic development argument.
B)comparative advantage theory.
C)national security argument.
D)infant industry argument.
E)mixed economy theory.
Q3) The strategic trade policy arguments of the new trade theorists suggest an economic justification for government intervention in international trade and this justification challenges the rationale for unrestricted free trade.
A)True
B)False
Q4) Define local content requirements.Explain how this helps domestic firms.
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Chapter 8: Foreign Direct Investment
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Q1) To encourage inward FDI,it is increasingly common for governments to
A)offer tax concessions to foreign firms that invest in their countries.
B)exclude foreign companies from specific industries.
C)require that local investors own a significant proportion of the equity in a joint venture.
D)impose high custom duties on foreign firms.
E)prohibit MNEs from joining a cartel.
Q2) Franchising is essentially the service-industry version of licensing,although it normally involves much longer-term commitments than licensing.
A)True
B)False
Q3) As an incentive to encourage domestic firms to undertake FDI,many countries have
A)eliminated double taxation of foreign income.
B)started imposing local content requirements.
C)imposed higher import tariffs.
D)abolished the use of custom duties.
E)eliminated subsidies.
Q4) Describe the role of the WTO in the liberalization of FDI.
Q5) What are the benefits of FDI to the home (source)country?
Q6) Describe Dunning's arguments regarding the location-specific advantages.
Page 10
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Chapter 9: Regional Economic Integration
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Q1) The member countries of BERPHO,a regional free trade area wanted to adopt a common currency,the "BERPH." The "BERPH" was modeled after and,in fact,was exactly similar to the euro.Establishment of the "BERPH" requires participating national governments to
A)have a sound fiscal situation.
B)have stable exchange rates.
C)be democratic in nature.
D)give up control over monetary policy.
E)have a high degree of price stability.
Q2) Economic theories suggest that free trade and investment is a positive-sum game,in which all participating countries stand to gain.
A)True
B)False
Q3) Which of the following are significant trade blocs in Europe?
A)European Union and the European Free Trade Association
B)European Federation and the European Trade Block
C)European Commission and the COMINTERN
D)European Federation and the European Trade Association
E)European Economic Community and the European Federation
Q4) Briefly describe the benefits of the euro.
Page 11
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Chapter 10: The Foreign Exchange Market
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Q1) When companies wish to convert currencies,they typically enter the foreign exchange market directly.
A)True
B)False
Q2) Tom boasts that he is often one of the first buyers of any new technology product.Tom saw a new Apple watch at the Amsterdam airport when he was hurrying to catch a flight back home to New York.Tom saw that the watch sold for 100 Euros.Tom did not have time to buy the watch in Amsterdam.Assume that the euro/dollar exchange rate is 1 = $1.20.According to the law of one price,at what price would it make sense to buy the watch in New York?
A)$150
B)$140
C)$120
D)$125
E)$150.
Q3) Explain how investor psychology and bandwagon effects impact the movement in exchange rates.
Q4) Describe the factors that explain the failure of the purchasing power parity theory to predict exchange rates accurately.
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Chapter 11: The International Monetary System
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Q1) Describe the three broad types of financial crises that have occurred in the post-Bretton Woods era.
Q2) Which of the following is a reason for the emergence of the gold standard?
A)expansion in the volume of international trade due to the Industrial Revolution
B)inability of governments to convert gold into paper currency on demand at a fixed rate
C)widening gap between the developed and the developing nations
D)failure of the Bretton Woods fixed exchange rate system
E)failure of the U.S.dollar to act as a reference currency
Q3) Which of the following is a reason why Great Britain and the United States could finance their deficits by borrowing private money since the early 1970s?
A)rapid development of global capital markets
B)shortage of International Monetary Fund grants available for disbursal
C)high interest rate charged by the International Monetary Fund
D)establishment of currency boards in these countries
E)decline of the Bretton Woods system
Q4) Elaborate on the main criticisms of the International Monetary Fund's approach to financial crises.
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Page 13
Chapter 12: The Strategy of International Business
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Sample Questions
Q1) The rate of return that a firm makes on its invested capital is referred to as A)stakeholder return.
B)profitability.
C)profit growth.
D)process value.
E)strategic fit.
Q2) Maintaining the company infrastructure is a support activity.
A)True
B)False
Q3) Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to locations where they are performed most efficiently and effectively.
A)True
B)False
Q4) The efficiency frontier has a convex shape because of A)a high-cost structure.
B)diminishing returns.
C)a significantly low product value.
D)low production costs.
E)high profit growth.
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Chapter 13: Entering Foreign Markets
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Q1) Under a cross-licensing agreement,a firm is not likely to license some valuable intangible property to a foreign partner.
A)True
B)False
Q2) Which of the following is a reason why firms often overpay for the assets of an acquired firm?
A)studies supporting the rise of failed companies post acquisitions
B)evidence of high management turnover post acquisitions
C)the success rate of acquisitions exceeding that of failures
D)interest of more than one party in acquiring a particular firm
E)inevitable clash between cultures of acquiring and acquired firms
Q3) In terms of the entry modes into a foreign market,a joint venture does not give an international firm the tight control over subsidiaries that might be required to realize experience curve or location economies.
A)True
B)False
Q4) Which types of firms do NOT risk the loss of management control? What entry modes should such firms employ? Give examples.
Q5) Describe the pros and cons of greenfield ventures.
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Chapter 14: Exporting, Importing, and Countertrade
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Q1) Countertrade occurs when the
A)exporter may not be paid in his or her home currency due to nonconvertibility.
B)exporter can convert the currency only in U.S.dollars.
C)exporter is dealing with a country that has huge foreign reserves.
D)exporter has easy access to export credit to fund its international trade.
E)importer defaults on payment.
Q2) The Foreign Credit Insurance Association (FCIA)is an association of private commercial institutions operating under the guidance of the A)Federal Mediation and Conciliation Service.
B)U.S.Department of Commerce.
C)Export-Import Bank.
D)International Trade Administration.
E)Ministry of International Trade and Industry.
Q3) Describe the Foreign Credit Insurance Association (FCIA).What types of risks does it cover?
Q4) Describe the role of the U.S.Department of Commerce in helping U.S.firms increase their knowledge of export opportunities.
Q5) What is the Ex-Im Bank? What is its mission and how does it pursue it?
Q6) What is the difference between a sight draft and a time draft?
Page 16
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Chapter 15: Global Production and Supply Chain Management
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Q1) W.Edward Deming believed that achieving better quality requires the commitment of everyone in a company.A.V.Feigenbaum.Deming argued that management has the responsibility to train employees in new skills to keep pace with changes in the workplace.In addition,he believed that achieving better quality requires the commitment of everyone in the company.
A)True
B)False
Q2) Which of the following is true of products with high value-to-weight ratios?
A)They are expensive to transport.
B)They tend to increase in weight after processing.
C)They tend to be restricted under trade barriers.
D)They are expensive and do not weigh very much.
E)They have a low inventory turnover.
Q3) In international business,production and supply chain functions accommodating demands for local responsiveness work independent of host-government demands.
A)True
B)False
Q4) Discuss the advantages and the disadvantages of just-in-time (JIT)inventory systems.
Page 17
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Chapter 16: Global Marketing and Research and Development
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Q1) Which of the following is true of price discrimination as a part of international pricing strategy?
A)The more competitors there are,the lesser consumers' bargaining power will be.
B)The more competitors there are,the less likely consumers will be to buy from the firm that charges the lowest price.
C)A firm may charge a higher price for its product in a country where competition is limited than in one where competition is intense.
D)Many competitors cause low elasticity of demand.
E)If a firm raises its prices above those of its competitors,consumers will refuse to switch to the competitors' products.
Q2) _____ refers to the use of price as a competitive weapon to drive weaker competitors out of a national market.
A)Multipoint pricing
B)Predatory pricing
C)Leader pricing
D)Price discrimination
E)Price skimming
Q3) Briefly describe predatory pricing and multipoint pricing strategy.
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Chapter 17: Global Human Resource Management
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Sample Questions
Q1) Which of the following functions of an international business is typically responsible for international labor relations?
A)public relations
B)human resource management
C)finance and accounting
D)legal
E)logistics
Q2) A principal concern of domestic unions about multinational firms is that a company can counter its bargaining power with
A)work schedules tied to global rather than domestic standards.
B)wage rates tied to global rather than domestic standards.
C)the power to import labor from abroad.
D)the power to move production to another country.
E)the retention of low-skilled tasks in home country.
Q3) According to a study by R.L.Tung,the most important reason for expatriate failure among U.S.multinationals was difficulty coping with a new environment.
A)True
B)False
Q4) Describe the disadvantages of a polycentric staffing policy.
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