International Economics
Final Exam
Course Introduction
International Economics explores the flow of goods, services, and capital across national borders, focusing on the theoretical frameworks and real-world applications that shape global trade and financial relationships. The course examines key principles such as comparative advantage, barriers to trade, exchange rate dynamics, international monetary systems, and policies affecting tariffs, trade agreements, and foreign direct investment. Through analysis of case studies and current events, students gain insight into the complexities of globalization, the impacts of economic integration, and the challenges faced by countries in an interconnected world.
Recommended Textbook
International Business Competing in the Global Marketplace 10th Edition by Charles
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Page 2
W. L. Hill
Chapter 1: Globalization
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Q1) A study published in 2011 by the OECD noted that:
A) the real household income of the unskilled workers in the U.S. increased more in comparison to that of the skilled workers.
B) in almost all countries real income levels declined over the 20-year period studied.
C) falling unemployment rates brought gains to low-wage workers and fairly broad-based wage growth.
D) the gap between the poorest and richest segments of society in some OECD countries had widened.
Answer: D
Q2) World Bank gives an aid of 100 million dollars to Kenya for creating rural health care facilities. This is an example of foreign direct investment.
A)True
B)False
Answer: False
Q3) The most global markets currently are markets for consumer products.
A)True
B)False
Answer: False
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3
Chapter 2: National Differences in Political Economy
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Q1) _____ refers to a state where political power is monopolized by a party, group, or individual that governs according to religious principles.
A) Representative democracy
B) Theocratic totalitarianism
C) Tribal anarchism
D) Monotheistic communism
Answer: B
Q2) Safety standards to which a product must adhere are set by:
A) safety certifications.
B) contract laws.
C) product safety laws.
D) product liability laws.
Answer: C
Q3) Most modern democratic states practice representative democracy.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Political Economy and Economic Development
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Q1) Which of the following is a characteristic of a command economy?
A) Promotion of foreign direct investment
B) Allowing prices to be set by the interplay between demand and supply
C) Limited international trade
D) Restricted state-ownership of means of production
Answer: C
Q2) _____ is required for a business environment to be conducive to innovation and entrepreneurial activity.
A) State ownership of means of production
B) Strong legal protection of property rights
C) Barriers to foreign trade and investment
D) Government regulation of the market
Answer: B
Q3) How does the ownership structure of newly privatized firms affect its functioning?
Answer: Many former command economies lack the legal regulations regarding corporate governance that are found in advanced Western economies. In such cases, managers with a small ownership stake can often gain control over the newly privatized entity and run it for their own benefit, while ignoring the interests of other shareholders.
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Chapter 4: Differences in Culture
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Q1) A society's social structure refers to its:
A) system of values and norms.
B) basic social organization.
C) religious practices.
D) educational infrastructure.
Q2) Which of the following statements is true about a class system?
A) A class system is a more rigid form of social stratification, compared to a caste system.
B) A class system is a closed form of stratification.
C) Social mobility within a class system varies from society to society.
D) In a class system, social position is determined at birth and cannot be changed during an individual's lifetime.
Q3) The protection of the right to private property is embedded within Islam.
A)True
B)False
Q4) Confucianism is a religion.
A)True
B)False
Q5) Consider the influence of Confucian ethics on the economies of China, Japan, South Korea, and Taiwan.
6
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Chapter 5: Ethics in International Business
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Q1) In a business setting, noblesse oblige is taken to mean benevolent behavior that is the responsibility of successful enterprises.
A)True
B)False
Q2) Ethical strategies are the accepted principles of right or wrong governing the conduct of businesspeople.
A)True
B)False
Q3) Social responsibility refers to the idea that businesspeople should favor decisions that have both good economic and social consequences.
A)True
B)False
Q4) Noblesse oblige refers to payments that ensure receiving the standard treatment that a business ought to receive from a foreign government.
A)True
B)False
Q5) Discuss the notion of social responsibility. What does it mean for corporations?
Q6) Should a multinational feel free to pollute in a developing nation?
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Chapter 6: International Trade Theory
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Sample Questions
Q1) Which of the following is one of the four attributes present in Porter's diamond?
A) Economies of scale
B) Factor endowments
C) Structural innovation
D) Procedural innovation
Q2) Which of the following observations is consistent with Michael Porter's theory of national competitive advantage?
A) Factors such as domestic demand and domestic rivalry determine nations' dominance on production.
B) Countries should produce only those goods for which they have a comparative advantage.
C) Interplay between the factors of production cause international marketing decisions.
D) International differences in labor productivity determine nations' supremacy in production.
Q3) What are the sources of economies of scale?
Q4) Briefly differentiate between constant returns to specialization and diminishing returns to specialization.
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8
Chapter 7: The Political Economy of International Trade
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Q1) Discuss the Buy America Act and its connection with local content requirements.
Q2) What is the TRIPS agreement? Why was it established?
Q3) The Great Depression had roots in the failure of the world economy to mount a sustained economic recovery after the end of World War I in 1918.
A)True
B)False
Q4) According to the _____ policy, subsidies can help a firm achieve a first-mover advantage in an emerging industry.
A) strategic trade
B) antidumping
C) tariff quota
D) free trade
Q5) What are the political reasons for governments to intervene in markets?
Q6) _____ is a direct restriction on the quantity of some good that may be imported into a country.
A) Import tariff
B) Import quota
C) Import subsidy
D) Ad valorem tariff
Page 9
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Chapter 8: Foreign Direct Investment
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Q1) If the FDI is a substitute for imports of goods or services, the effect can be to improve the current account of the host country's balance of payments.
A)True
B)False
Q2) What are the major drawbacks of licensing according to the internalization theory?
Q3) Discuss the benefits and costs of FDI from the perspective of a host country and from the perspective of the home country.
Q4) What is the term that describes when two or more enterprises encounter each other in different regional markets, national markets, or industries?
A) Multipoint competition
B) Monopoly
C) Location-specific competition
D) Oligopoly
Q5) Licensing is usually a good option for firms in high-tech industries where protecting firm-specific expertise is of paramount importance.
A)True
B)False
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Page 10
Chapter 9: Regional Economic Integration
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Sample Questions
Q1) Compare and contrast a free trade area and a common market. Provide examples.
Q2) Which treaty, signed in December 1991, committed EC members to adopting a common currency by January 1, 1999?
A) The Maastricht Treaty
B) The Treaty of Rome
C) The Single European Act
D) The Treaty of Lisbon
Q3) Discuss why NAFTA's most significant impact has been a political one, not an economic one.
Q4) Which feature of a customs union differentiates it from a free trade area?
A) Harmonization of members' tax rates
B) A common currency
C) A common external trade policy toward nonmembers
D) Ability of factors of production to move freely between members
Q5) What has been the most significant impact of NAFTA?
A) Its economic effects
B) Its political effects
C) Its psychological effects
D) Its social effects
Q6) Discuss the trend toward increased regional economic integration.
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Chapter 10: The Foreign Exchange Market
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Q1) If a country has an externally convertible currency, neither residents nor nonresidents are allowed to convert it into a foreign currency.
A)True
B)False
Q2) What is a currency swap?
Q3) _____ uses price and volume data to determine past trends, which are expected to continue into the future.
A) Technical analysis
B) Fundamental analysis
C) Efficient market theory
D) Value investing
Q4) Assume that an American company today invests some of its spare cash in a Hungarian money market account that will earn 8 percent for a period of two months. Which of the following, if it happens during the next two months, would imply that the company will earn less than 8 percent on its investment?
A) The Hungarian forint rises in value against the dollar.
B) Interest rates in the United States move down.
C) Short-term interest rates in Hungarian money markets shoot up.
D) The dollar appreciates against the Hungarian forint.
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Chapter 11: The International Monetary System
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Q1) Which of the following is an exchange rate policy where the exchange rate is determined completely by market forces?
A) Managed float
B) Fixed peg
C) Free float
D) Currency board
Q2) Adopting a pegged exchange rate regime increases the inflationary pressures in a country.
A)True
B)False
Q3) In the face of unpredictable movements in exchange rates, businesses should pursue strategies that will reduce their economic exposure.
A)True
B)False
Q4) A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate.
A)True
B)False
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Page 13
Chapter 12: The Global Capital Market
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Q1) ABB Bank is a financial corporation located in England and uses euro as its official currency. The company borrows 1 million U.S. dollars from a bank based in United States. ABB will be at a disadvantage if ____.
A) Euro appreciates against all currencies
B) U.S. dollar appreciates against Euro
C) U.S. dollar depreciates against Euro
D) fixed exchange rates are used for the transaction
Q2) Investors who purchase a fixed-rate bond receive cash payoffs only at maturity.
A)True
B)False
Q3) Domestic currency deposits are regulated in most industrialized countries.
A)True
B)False
Q4) Which of the following is true of fixed-rate bonds?
A) Returns from fixed-rate bonds are dependent on the profitability of the issuing company.
B) Investors get back the face value of the bond at maturity of fixed-rate bonds.
C) Fixed-rate bonds issue cash payoffs only at maturity of fixed-rate bonds.
D) Investors get a share of the company's profit when using fixed-rate bonds.
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Chapter 13: The Strategy of International Business
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Sample Questions
Q1) Discuss the creation of a global web of value creation activities.
Q2) Cost savings that come from learning by doing are known as economies of scale. A)True
B)False
Q3) Consider the firm in terms of a value chain. What is the difference between primary activities and support activities? Provide examples of each.
Q4) Systematic increases in sales that have been observed to occur over the life of the product are referred to as the experience curve.
A)True
B)False
Q5) The value of a product to an average consumer is V; and the average price that the firm can charge a consumer for that product is P. Here, V - P can be termed as:
A) consumer surplus per unit.
B) producer surplus per unit.
C) profit growth.
D) profit per unit sold.
Q6) Discuss the evolution of strategy. How does cost become important in the long term?
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Chapter 14: The Organization of International Business
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Q1) Consider the use of personal controls in international firms. In which type of firm is this control most common?
Q2) In firms pursuing a transnational strategy, some operating decisions are relatively centralized, while others are relatively decentralized.
A)True
B)False
Q3) Which of the following statements is true about a product divisional structure?
A) In a product divisional structure, the responsibility for the financial control of the firm is typically decentralized.
B) A product divisional structure tends to be organized on geography.
C) In a product divisional structure, each product division is set up as a self-contained, largely autonomous entity with its own functions.
D) In a product divisional structure, the responsibility for operating decisions is typically centralized.
Q4) Organizational structure refers to the totality of a firm's organization.
A)True
B)False
Q5) What are output controls?
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Chapter 15: Entry Strategy and Strategic Alliances
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Q1) Which of the following is true of acquisitions?
A) It is a time-consuming process and takes a lot of time to execute.
B) They are less risky than greenfield ventures in the sense that there is less potential for unpleasant surprises.
C) They give the firm a much greater ability to build the kind of subsidiary company that it wants.
D) In many cases, firms make acquisitions to preempt their competitors.
Q2) Licensing limits the firm's ability to realize experience curve and location economies by producing its product in a centralized location.
A)True
B)False
Q3) Explain the relationship between first-mover disadvantages and pioneering costs.
Q4) If a firm is trying to enter a market where there are already well-established companies, and where global competitors are also interested in establishing a presence, the firm should choose a greenfield investment.
A)True
B)False
Q5) Compare and contrast licensing agreements and franchising agreements.
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Chapter 16: Exporting, Importing, and Countertrade
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Q1) Which of the following statements is true of countertrade?
A) Countertrade reduces the profitability of competing firms and is considered an unethical practice.
B) Countertrade is a conventional means to pay exporters.
C) Smaller organizations commonly use countertrade in international transactions.
D) Countertrade occurs when goods and services are traded for other goods and services.
Q2) Which of the following statements is true about Small Business Administration (SBA)?
A) It is the most comprehensive source of export opportunities information.
B) SBA is a private organization managed by leaders of large corporate.
C) The SBA employs trade officers throughout the United States.
D) SBA offers help exclusively to small businesses that sell products within U.S.
Q3) A buyback occurs when a direct exchange of goods or services occur between two parties without a cash transaction.
A)True
B)False
Q4) Explain the problem of trust that persists in international business.
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Page 18
Chapter 17: Global Production, Outsourcing, and Logistics
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Q1) Which of the following statements is true of the country factors that govern international business?
A) Relative factor costs should be considered when selecting a country for production.
B) Centralized production is the most suitable method of doing international business.
C) Exchange rates are not a significant factor that determines the selection of a country.
D) Decentralized manufacturing is the most suitable method of doing international business.
Q2) Concentration of production is appropriate when _____.
A) the product serves universal needs
B) the product does not serve universal needs
C) the product's value-to-weight ratio is low
D) volatility in important exchange rates is expected
Q3) Other things being equal, a firm should locate its various manufacturing activities where the relative factor costs are conducive to the performance of those activities.
A)True
B)False
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Chapter 18: Global Marketing and RD
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Q1) The goal of market segmentation is to optimize the fit between the purchasing behavior of consumers in a given segment and the marketing mix, thereby maximizing sales to that segment.
A)True
B)False
Q2) Differences in technical standards constrain the globalization of markets.
A)True
B)False
Q3) A measure of the responsiveness of demand for a product to change in price is referred to as:
A) arbitrage demand.
B) predatory pricing.
C) price elasticity of demand.
D) experience curve pricing.
Q4) The best way for a firm to overcome cultural barriers is to develop cross-cultural literacy.
A)True
B)False
Q5) What are the four main differences between distribution systems across countries?
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Chapter 19: Global Human Resource Management
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Q1) The ability to understand why people of other countries behave the way they do is perceptual ability.
A)True
B)False
Q2) Firms may choose an ethnocentric approach to staffing as opposed to a polycentric approach because of the cost savings it promotes.
A)True
B)False
Q3) Which of the following is a concern of organized labor regarding multinational firms?
A) A company can counter a union's bargaining power with the power to move production to another country.
B) An international business will keep low-skilled tasks in its home country and farm out only highly skilled tasks to foreign plants.
C) An international business can attempt to import employment practices and contractual agreements from its host-country.
D) A multinational company is more likely to receive government support in the case of hostile labor relations.
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Chapter 20: Accounting and Finance in the International Business
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Q1) Most subsidiaries of an international business operate in uniform environments. A)True
B)False
Q2) Which of the following statements is true of tax havens?
A) Firms that export to tax havens get special tax concessions from home governments.
B) Firms would require huge capital investments to start business in tax havens.
C) Nations such as United States are widely regarded as tax havens.
D) Firms can save tax by establishing a non-operating subsidiary in the tax haven.
Q3) Funds can be moved out of a particular country in which a parent country has set up a subsidiary by _____.
A) setting high transfer prices for the goods supplied
B) removing royalties imposed on the subsidies
C) charging a discounted fee on the subsidiary
D) issuing loans to the subsidiary at discounted rate
Q4) The initial rate, in the Lessard-Lorange Model, refers to the spot exchange rate when the budget is adopted.
A)True
B)False
Page 22
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