20 terms

INB300 QUIZ 3

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1. 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
C. A common external trade policy toward nonmembers
2. Which political view allows FDI so long as the benefits outweigh the costs?

A. The traditional view
B. The pragmatic nationalist view
C. The radical view
D. The free market view
B. The pragmatic nationalist view
3. Tariffs do not benefit:

A. consumers.
B. domestic producers.
C. governments.
D. domestic firms.
A. consumers.
4. A(n) _____ involves the free flow of products and factors of production between member countries, the adoption of a common external trade policy, a common currency, harmonization of members' tax rates, and a common monetary and fiscal policy.

A. economic union
B. common market
C. customs union
D. free trade area
A. economic union
5. Which of the following is an example of a greenfield investment?

A. A Chinese sugar maker setting up a sugar crushing facility in Cuba.
B. A Serbian automobile company purchasing a Croatian component manufacturer.
C. A Finnish mobile phone manufacturer expanding its production facility in Finland.
D. An Indian oil exploration company acquiring an oil refining company.
A. A Chinese sugar maker setting up a sugar crushing facility in Cuba.
6. When contemplating FDI, why do firms apparently prefer to acquire existing assets rather than undertake greenfield investments?

A. Greenfield investments are characterized by reduced management control
B. Mergers and acquisitions are preferred because most greenfield investments fail.
C. It is easier and less risky for a firm to build strategic assets than acquire similar assets.
D. Mergers and acquisitions are quicker to execute than greenfield investments
D. Mergers and acquisitions are quicker to execute than greenfield investments
7. The _____ of FDI refers to the amount of FDI undertaken over a year.

A. stock
B. net value
C. accumulated value
D. flow
D. flow
8. Foreign producers typically agree to voluntary export restrictions because:

A. their manufacturing capacity is limited.
B. they can divert their exports to other countries and charge more for their products.
C. they fear far more damaging punitive tariffs or import quotas might follow if they do not.
D. they are required to by the World Trade Organization.
C. they fear far more damaging punitive tariffs or import quotas might follow if they do not.
9. A French wind power company gives an Indonesian company the right to produce and sell wind turbines in return for a royalty fee on every unit sold. Which business practice is this an example of?

A. Acquisition
B. Licensing
C. Exporting
D. Greenfield investment
B. Licensing
10. The move toward economic union raises the issue of how to make a coordinating bureaucracy accountable to the citizens of member nations. Which of the following offers a solution to this problem?

A. A common market
B. A free trade area
C. A customs union
D. A political union
D. A political union
11. Which of the following is a reason why the European Union is considered an imperfect economic union?

A. Factors of production are not allowed to move freely between member countries.
B. Not all members of the union have adopted the euro.
C. Almost all markets are heavily regulated.
D. Products and services are not allowed to move freely between member countries.
B. Not all members of the union have adopted the euro.
12. The Netherlands exported tulip bulbs to almost every country in the world except Japan. This was because in Japan, customs inspectors insisted on checking every tulip bulb by cutting it vertically down the middle. This is an example of which of the following trade barriers?

A. Export restraint
B. Administrative trade policies
C. Local content requirement
D. Ad valorem
B. Administrative trade policies
13. In which way can the source country's balance of payments benefit from an FDI made in a foreign country?

A. From cash outflow during the initial investment to finance the FDI
B. If the purpose of the foreign investment is to serve the home market from a low-cost production location
C. From the inward flow of foreign earnings
D. If FDI is a substitute for direct exports
C. From the inward flow of foreign earnings
14. From least integrated to most integrated, the levels of economic integration are:

A. a common market, a free trade area, an economic union, a customs union, and a political union.
B. a free trade area, a customs union, a common market, an economic union, and a political union.
C. a customs union, a free trade area, a common market, a political union, and an economic union.
D. a common market, an economic union, a customs union, a free trade area, and a political union.
B. a free trade area, a customs union, a common market, an economic union, and a political union.
15. The U.S. government has used the threat of punitive trade sanctions to try to get the Chinese government to enforce its intellectual property laws. This is an example of government intervention based on:

A. human rights protection.
B. national security.
C. consumer protection.
D. retaliation.
D. retaliation.
16. Which of the following summarizes the total amount of resources invested in factories, stores, office buildings, and the like?

A. Gross capital index
B. Gross fixed capital formation
C. Gross domestic product
D. Gross national product
B. Gross fixed capital formation
17. 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
A. strategic trade
18. _____ occurs when high-cost domestic producers are replaced by low-cost producers within the free trade area.

A. Trade deficit
B. Trade diversion
C. Trade creation
D. Trade distortion
C. Trade creation
19. In which of the following situations does the internalization theory recommend FDI as opposed to licensing?

A. When the firm has know-how that can be adequately protected by a licensing contract
B. When the firm produces products that have a low value-to-weight ratio
C. When a firm's skills and know-how are amenable to licensing
D. When the firm needs tight control over a foreign entity
D. When the firm needs tight control over a foreign entity
20. Advantages that arise from using resource endowments or assets that are tied to a particular place and that a firm finds valuable to combine with its own unique assets are known as:

A. location-specific advantages.
B. capital-specific advantages.
C. absolute advantages.
D. production factor advantages.
A. location-specific advantages.