Foreign Direct Investment (FDI) refers to:
a. the flow of funding provided by an investor or lender to establish or acquire a foreign
company or to expand or finance an existing foreign company that the investor owns
and controls.
b. the hot money that an investor needs to get registered in a foreign stock exchange to
make investments, and have the liberty to sell and take back the stocks purchased
earlier.
c. a method of funding business adopted by a foreign investor by participating directly
in the secondary markets of a country, through investments in the country’s stocks or
bonds.
d. the passive holding of securities such as foreign stocks, bonds, or other financial
assets, none of which entails active management or control of the securities issued by
the investor.
Answer:
Which of the following is an example of arbitrage?
a. A firm sells a box of cereal at $10 when the average cost of producing it is $6.
b. Thomas buys a new stock issued by a firm on the stock exchange.
c. A local salon charges 5 percent more for all its services than a competing salon in the
same locality.
d. Romi buys a DVD from Walmart at $10 and sells it on eBay for $20.
Answer:
Exchange rates are equalized in different locations due to:
a. arbitrage.
b. government intervention in foreign exchange markets.
c. free trade in goods and services.
d. the actions of importers and exporters.
Answer:
Beginning in about 1990, lending to and investing in developing countries began to
increase. One explanation for this is that:
a. interest rates in the United States began to rise.
b. the governments in the developing countries began to encourage import-substituting
manufacturing.
c. changes in IMF policies toward exchange rate risk.
d. deregulation and privatization in the developing countries opened up profitable new
investment opportunities.
Answer:
Multinational enterprises use transfer pricing to:
a. lower prices of their products and gain market share.
b. reduce their global tax burden.
c. move products to the markets where the demand for those goods is relatively
inelastic.
d. provide managers in a foreign affiliate with an incentive to maximize local profit.
Answer:
Suppose the domestic supply (QS) and demand (QD) for skateboards in the United
States are given by the following set of equations:
QS = ‘“60 + 3P
QD = 390 ‘“ 2P
If the United States can import skateboards from the rest of the world at a per unit price
of $75, what will be the total demand for skateboards in the United States?
a. 165
b. 240
c. 285
d. 245
Answer:
One way for a country to gain policy independence and provide some ability to reduce
exchange-rate variability is to use:
a. a managed floating exchange rate.
b. a gold standard.
c. a monetary union.
d. a currency board.
Answer:
According to the assignment rule, which of the following policy mixes is appropriate
for a country with high unemployment, a balance of payments deficit, and fixed
exchange rates?
a. Contractionary fiscal policy and contractionary monetary policy
b. Contractionary fiscal policy and expansionary monetary policy
c. Expansionary fiscal policy and expansionary monetary policy
d. Expansionary fiscal policy and contractionary monetary policy
Answer:
The table given below shows the number of umbrellas and bushels of corn produced in
the United Kingdom and the Rest of the World per labor hour. If the U.K. and the Rest
of the World begin to trade with each other, the international price of corn will lie
between _____ and _____.
a. 2/3 of an umbrella per bushel of corn; 3 umbrellas per bushel of corn
b. 2/3 of an umbrella per bushel of corn; 3/2 umbrellas per bushel of corn
c. 1/2 of an umbrella per bushel of corn; 3/2 of an umbrella per bushel of corn
d. 3/2 umbrellas per bushel of corn; 3 umbrellas per bushel of corn
Answer:
The figure below shows the foreign exchange market. D is the demand curve for
pounds. S(Spring-summer) and S(Autumn-winter) are the supply curves of pounds
during the spring-summer and autumn-winter seasons, respectively. In the
spring-summer period, what is the social gain if the British government maintains a
fixed exchange rate at $1.90 per pound?
a. 3 billion pounds
b. 3 billion dollars
c. 6 billion dollars
d. 10 billion pounds
Answer:
The sum of currency and bank deposits at the central bank is called:
a. the money supply.
b. domestic assets.
c. the monetary base.
d. fractional reserves.
Answer:
The net value of flows of financial assets and similar claims (excluding official
international reserve asset flows) is called the:
a. financial account balance.
b. current account balance.
c. trade balance.
d. official reserve balance.
Answer:
The gains from trade creation is likely to be larger for a country if:
a. its import demand curve is relatively elastic.
b. it mainly imports primary products.
c. the country’s government sufficiently subsidizes the production of its exportable
goods.
d. the supply of the imported good by the foreigners is relatively inelastic.
Answer:
A country which has a higher ratio of capital to other factors of production than does
the rest of the world is:
a. a. relatively capital-scarce.
b. b. relatively capital-abundant.
c. c. said to have a low capital-output ratio.
d. d. operating at a point inside its production-possibility curve.
Answer:
According to the relative version of purchasing power parity, when the inflation
differential between the foreign country and the home country is positive:
a. the domestic currency tends to depreciate.
b. the domestic currency tends to appreciate.
c. the inflation rate in the home country tends to decrease.
d. the inflation rate in the home country overshoots.
Answer:
Suppose the domestic supply (QS
U.S.) and demand (QD
U.S)for bicycles in the United
States are given by the following set of equations:
QS
U.S. = 2P
QD
U.S. = 200 ‘“ 2P.
Demand (QD) and supply (QS) in the Rest of the World are given by the equations:
QS = P
QD =160 ‘“ P.
Quantities are measured in thousands and price in U.S. dollars.
After the opening of free trade with the United States, if the world price of the bicycles
settles at $60, the Rest of the World will:
a. export 40,000 bicycles.
b. export 60,000 bicycles.
c. import 60,000 bicycles.
d. import 40,000 bicycles.
Answer:
The table given below shows the export and import values of automobiles,
pharmaceuticals, and clothing in country A and country B.
The IIT share is zero for _____ in country A and for _____ in country B.
a. pharmaceuticals; pharmaceuticals
b. clothing; pharmaceuticals
c. automobiles; pharmaceuticals
d. clothing; automobiles
Answer:
Which of the following is NOT an effect of intra-industry trade, if the concerned
industry is monopolistically competitive?
a. There are considerable national gains that arise from trade because there is an
increase in the number of varieties of products available in the country.
b. Domestic consumers gain because such trade results in lower prices of domestic
varieties of the good.
c. Total output of the domestic firms in the industry increases as a result of such trade.
d. There are few shifts in production between industries that put pressures on factor
prices.
Answer:
Multinationals typically operate in a market structure that would best be described as:
a. an oligopoly.
b. perfect competition.
c. inherently disadvantaged.
d. monopoly.
Answer:
A law in the U.S. prohibits the export of natural gas unless such exports are in the
‘public
interest.’ What does ‘public interest’ mean in the context of that law?
a. The amount received for the exported natural gas is enough to cover the production
and transportation costs plus a reasonable profit
b. The U.S. government is able to collect export taxes set by law on the exported natural
gas
c. The exports leave an adequate supply of natural gas for domestic users and
consumers of natural gas
d. The exported natural gas does not fall into the hands of groups or countries that the
U.S. government has designated as terrorists
Answer:
Which of the following is NOT true with fixed exchange rates and perfect capital
mobility?
a. Monetary policy is not effective in either the long-run or the short-run.
b. Sterilization is impossible.
c. Fiscal policy is very powerful.
d. Monetary policy is very powerful.
Answer:
As a result of the Uruguay Round, production of _____ goods increased in
industrialized countries and polluting emissions in these countries _____ as a result.
a. capital and skill-intensive; decreased
b. capital and skill-intensive; increased
c. unskilled-labor-intensive; decreased
d. unskilled-labor-intensive; increased
Answer: