Chapter 2: International Trade Frameworks and Policy
TRUE/FALSE
1. Common coinage was developed in ancient Rome to ensure that business transactions could easily be
carried out throughout the empire.
2. The feudal system encouraged the development of an open-state economy.
3. The Smoot-Hawley Act reduced duties to increase the volume of imports into the United States.
4. The belief that international trade was a key to worldwide prosperity led the United States to create a
“Pax Americana.”
5. The MFN is the equal opportunity clause of international trade.
6. In the sugar and confectionery industries, tariffs tend to decrease with the degree of processing.
7. The WTO has ceased to exist as a separate institution and has become part of the GATT.
8. The original goal of the International Monetary Fund (IMF) was to provide for variable exchange rates
between member countries.
9. The World Bank was initially formed in 1944 to aid countries suffering from the destruction of war.
10. The Transatlantic Business Dialogue (TBD) is a nongovernmental organization composed of business
leaders from Europe and the United States.
11. Over the long term, the export activities of a nation are the key to the inflow of imports and therefore
to the provision of choice, competition, and new insights.
12. The availability of a large U.S. domestic market and the relative distance to foreign markets resulted in
U.S. manufacturers simply not feeling a compelling need to seek business beyond national borders.
13. One key way to reduce trade deficits is to decrease exports.
14. The competitive pressures exerted by imports work to keep quality high and prices low.
15. Foreign direct investments tend to be equally distributed across all industries.
16. A restriction of foreign direct investments will result in less domestic control over industries.
17. The United States often attempts to transfer its own trade laws abroad, resulting in bilateral conflicts.
18. Government support in the form of export promotion assistance is appropriate if it increases market
transparency.
19. The U.S. need is for reactive, ad hoc trade responses to specific situations.
20. In order to be successful in international trade, policymakers must be willing to trade off long-term
goals to achieve short-term objectives.
MULTIPLE CHOICE
1. Which of the following measures by the Roman Empire contributed to the functioning of the
international marketplace and to the reduction of business uncertainty?
a.
The marching of its legions and warfare
b.
An excellent communication system
c.
Provision of mixed aid credits by the empire
d.
Development of a closed-state economy in the empire
2. The evolution of European feudalism was due to a function of _____.
a.
finance and banking
b.
trade and marketing
c.
environmental and cultural differences
d.
public administration and governance
3. Which act raised duties to reduce the volume of imports into the United States, in the hopes that this
would restore domestic employment?
a.
The Export Trading Company Act
b.
The Gramm-Leach-Bliley Act
c.
The Sarbanes-Oxley Act
d.
The Smoot-Hawley Act
4. The Soviet Union, as the leader of the Eastern bloc, developed the _____, which focused on
developing strong linkages among the members of the Soviet bloc and discouraged relations with the
West.
a.
Gulf Cooperation Council
b.
Transatlantic Business Dialogue
c.
MERCOSUR
d.
Council for Mutual Economic Assistance
5. The _____ has its origins in the GATT, to which it became the successor organization in January of
1995.
a.
IMF
b.
WTO
c.
World Bank
d.
MERCOSUR
6. Which of the following began in 1947 as a set of rules for nondiscrimination, transparent procedures,
and settlement of disputes in international trade?
a.
The Free Trade Area of the Americas
b.
The General Agreement on Tariffs and Trade
c.
The North American Free Trade Agreement
d.
The General Agreement on Trade in Services
7. Which of the following statements about the GATT is true?
a.
Services and agriculture were the main areas covered by GATT.
b.
It began as a set of rules for settlement of disputes in domestic trade.
c.
It was designed to operate by consensus.
d.
Over time, it evolved into an institution that focused on increasing the prevailing low
tariffs.
8. The WTO is responsible for all of the following except _____.
a.
GATS
b.
TRIPS
c.
TRIMS
d.
IMF
9. Which of the following statements about the WTO is true?
a.
Provisions are made at the WTO for decisions to be made by majority vote if a consensus
cannot be achieved.
b.
A successful WTO may well endorse the sovereignty of nations.
c.
The original goal of the WTO was to provide for fixed exchange rates between countries.
d.
Outside groups such as nongovernmental organizations believe the WTO will assist their
causes.
10. What is the core mission of the WTO?
a.
To provide for general difficulties in the market entry of foreign products
b.
To provide preferential treatment to domestic bidders over foreign bidders
c.
To facilitate international trade and investment
d.
To deal with social causes and issues such as labor laws and competition
11. Which of the following statements about the IMF is true?
a.
The IMF contributed toward providing international liquidity and toward facilitating
international trade.
b.
In light of the worldwide slowdown of economies and the financial crisis, the IMF focused
on its traditional customers of the developed markets and economies.
c.
In order to ensure that a local stimulus would not be suffocated by global restrictions, the
IMF minimized simultaneous expansions in economies.
d.
The original goal of the IMF ensured variable exchange rates between countries.
12. How much funding was required from members during the creation of the International Monetary
Fund?
a.
Twenty-five percent in gold or dollars, the rest in the members’ local currency
b.
Twenty-five percent in commodities, the rest in American dollars
c.
Twenty-five percent in dollars, the rest in members’ local currency or gold
d.
Twenty-five percent in gold, the rest in American dollars or the members’ local currency
13. The International Bank for Reconstruction and Development is also known as the _____.
a.
Export-Import Bank
b.
UNDP
c.
World Bank
d.
IMF
14. The European Union is an example of a(n) _____.
a.
economic bloc
b.
export consortium
c.
multilateral negotiation
d.
nontariff barrier zone
15. Which of the following integrates the economic and political activities of nations?
a.
Political reforms
b.
Export consortia
c.
Economic blocs
d.
Born globals
16. Which currency is most accepted worldwide?
a.
The euro
b.
The U.S. dollar
c.
The Japanese yen
d.
The British Pound
17. What is the term used for a firm founded with a global scope in mind from the very beginning?
a.
Global
b.
Economic bloc
c.
Multinational
d.
Born global
18. _____ are special because they can affect currency values and the fiscal and monetary policies of
governments, shape public perception of competitiveness, and determine the level of imports a country
can afford.
a.
Protectionistic laws
b.
Mixed aid credits
c.
Exports
d.
Nontariffs
19. Which of the following statements is true about foreign direct investment?
a.
Foreign investments may result in growing concern among policymakers about
dependency on foreign owners.
b.
The United States is the sole foreign direct investor in the world.
c.
Foreign affiliates are not participants of trade.
d.
Foreign direct investment tends to be distributed equally across all industries.
20. When a company expands its market by offering its products to international customers, it can produce
more of its products efficiently, thus reducing the overall cost of each individual unit. This is known as
_____.
a.
product diversification
b.
product differentiation
c.
economies of scale
d.
monopolistic competition
21. Which of the following statements is true about exports?
a.
Exports are important in a microeconomic sense, in terms of balancing the trade account.
b.
Exporting ultimately leads to a firm achieving diseconomies of scale.
c.
Exporting results in a firm being overly dependent on a particular market.
d.
Exporting makes a firm sensitive to different demand structures and cultural dimensions.
22. Which of the following is the result of a country’s decision to impose restrictions on its foreign direct
investments?
a.
Free access to foreign capital
b.
Lower interest rates
c.
Tightened credit markets
d.
Decreased domestic market share
23. How has the U.S. Congress responded in light of persistent trade deficits, growing foreign direct
investment, and the tendency of some firms and industries to seek legislative redress for failures in
marketplace?
a.
It left all trade decisions to be made by the WTO.
b.
It organized a ban of imported products which compete with longstanding companies.
c.
It provided more powers to the president to restrict trade.
d.
It declared “war” on countries that restricted foreign direct investments.
24. “Voluntary” import restraints have been used mainly in areas such as textiles, automobiles, and steel,
and are intended to _____.
a.
help domestic companies regain their trade prominence of years past
b.
show good political citizenship by members
c.
penalize exporters of raw materials
d.
situate the imports as a political component as opposed to a trade embargo
25. Meat-eats, a business entity located in Miami has recently started promoting “Buying U.S.A.,” a
campaign that focuses on the purchase of meat products that are manufactured exclusively in the
United States. This campaign would be projected as _____.
a.
a nontariff barrier to trade
b.
poor public relations
c.
significantly helping the international global market
d.
increasing the levels of global competition
26. Providing preferential treatment to domestic bidders over foreign bidders, using national standards that
are not comparable to international standards, placing emphasis on design rather than performance,
and providing for general difficulties in the market entry of foreign products are all examples of
_____.
a.
import/export quotas
b.
protectionistic legislation
c.
mixed aid credits
d.
nontariff barriers
27. The Export-Import Bank of the United States gives loans known as _____ that are composed partially
of commercial interest rates and partially of highly subsidized developmental aid interest rates.
a.
untied aid credits
b.
mixed aid credits
c.
payday loans
d.
title loans
28. When U.S. firms work together to establish export promotion development, as allowed by the Export
Trading Company Act of 1982, the companies are in effect forming a(n) _____.
a.
trading treaty
b.
trade promotion authority
c.
export consortia
d.
export diversification
29. The disappointment with past trade negotiations is mainly the result of _____.
a.
lack of funds
b.
low global competitiveness
c.
excessive competitiveness
d.
overblown expectations
30. The authority to negotiate international agreements with a reasonable certainty that the negotiation
outcome will not be subject to minute amendments must be given by Congress to the _____.
a.
judiciary
b.
business leaders
c.
functional intermediaries
d.
executive branch
31. Trade negotiations that are conducted between two nations are known as _____.
a.
coalition pacts
b.
multilateral treaties
c.
bilateral negotiations
d.
negotiation frameworks
32. Which of the following gave Congress the right to accept or reject trade treaties and agreements, but
reduced the amendment procedures?
a.
Protectionistic legislation
b.
Trade promotion authority
c.
Judicial immunity
d.
Export consortia
33. What must policymakers do for trade and investment negotiations between countries to be
long-lasting?
a.
Appoint taxing authority from an outside third nonexclusive country.
b.
Total cost of policy measures affecting trade and investment should be ignored.
c.
Trade off short-term achievements for long-term goals.
d.
Implement profit booking in the short term.
34. When economic coordination between trading partners continues, leading trading nations will _____.
a.
propagate increased competitiveness
b.
exploit the dollar and devalue it in relation to the euro
c.
compromise the WTO charter
d.
lose their national sovereignty to some degree
35. Policymakers will be sufficiently responsive in setting international trade policy objectives that
increase opportunities for firms and choices for consumers when _____.
a.
the voices of retailers, consumers, wholesalers, and manufacturers are heard
b.
all nations adopt the IMF treaty
c.
the WTO imposes sanctions on nonresponsive countries
d.
a performance plan is developed to adhere to customer feedback
ESSAY
1. How did international trade affect the rise and fall of the Roman Empire?
2. Explain the significance of the World Bank.
ANS:
3. Describe the significance of export promotion efforts.
