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Which of the following is best identified by saying it is the absence of government-imposed barriers to the free flow of goods and services between countries?
How do countries' economies gain from international trade?
Countries can import products that can be produced more efficiently in other countries.
List 2 reasons that we trade.
1. International trade allows a country to specialize in the manufacture and export of products that can produced most efficiently in that country. 2. To import products that can be produced more efficiently in other countries.
The theory of comparative advantage, advanced by _____, is the intellectual basis of the modern argument for unrestricted free trade.
Propagated in the 16th and 17th centuries, _____ advocated that countries should simultaneously encourage exports and discourage imports.
A situation in which a gain by one party results in a loss by another is called:
a zero-sum game.
A country is noted as having a(n) _____ in the production of a product when it is more efficient than any other country in producing that product.
A situation in which a country specializes in producing the goods it produces most efficiently and buys the products it produces less efficiently from other countries, even if it could produce the good more efficiently itself is referred to as:
The economic and strategic advantages that accrue to early entrants in an industry are called:
Why do we trade? List 2 reasons.
1. International trade allows a country to specialize in the manufacture and export of products that can produced most efficiently in that country.
2. To import products that can be produced more efficiently in other countries.
What are the 4 parts of Porter's Diamond?
1. Factor endowments
2. Demand conditions
3. Relating and supporting industries
4. Firm strategy, structure, and rivalry
FDI is an acronym that stands for:
foreign direct investment
The establishment of a wholly new operation in a foreign country is referred to as a(n):
The flow of foreign direct investment out of a country is:
outflow of FDI.
Since World War II, _____ has been the largest source country for FDI.
the United States
_____ involves producing goods at home and then shipping them to the receiving country for sale.
Which of the following involves granting a foreign entity the right to produce and sell the firm's product in return for a royalty fee on every unit sold?
Some firms undertake foreign direct investment as a response to actual or threatened:
Most firms will favor FDI over exporting or licensing as an entry strategy when:
the transportation costs or tariffs are high
An industry composed of a limited number of large firms is referred to as a(n):
A country's _____ tracks both its payments to and its receipts from other countries.
The costs of FDI to a host country include adverse effects on competition and a perceived loss of national ___________________.
An agreement between countries in a geographic region to reduce tariff and nontariff barriers to the free flow of goods, services, and factors of production between each other is referred to as:
regional economic integration
The North American Free Trade Agreement is an example of a (an)
free trade area
Which countries are members of the free trade area known as MERCOSUR?
Argentina, Brazil, Paraguay, and Uruguay
Which of the following selections accurately depicts the levels of economic integration, from least integrated to most integrated?
Free trade area, customs union, common market, economic union, and full political union
The most advanced regional integration group is (the)
A _____ eliminates trade barriers between member countries and adopts a common external trade policy.
A _____ eliminates only trade barriers between member countries
free trade area
A common market includes all of the following characteristics, EXCEPT:
harmonization of members' tax rates, and a common monetary and fiscal policy
Like the common market, a(n) _____ involves the free flow of products and factors of production between members and the adoption of a common external trade policy.
The two main reasons that have made economic integration difficult to achieve are:
concerns over costs and concerns over national sovereignty
Which of the following EU countries did not agree to have the euro as its currency?
The phenomenon that occurs when high-cost domestic producers are replaced by low-cost producers within the free trade is called:
_____ occurs when lower-cost external suppliers are replaced by higher-cost suppliers within the free trade area.
The European Community became the European Union with the signing of:
the Maastricht Treaty.
For participating countries, a drawback of a single currency in Europe is that:
national authorities will lose control over monetary policy
Which of the following makes it harder for euro zone exporters to sell their goods abroad?
A strong euro
The principle argument of those who opposed NAFTA centered on the fear that ratification would result in:
mass exodus of jobs from the United States into Mexico
The _____ is a market for converting the currency of one country into that of another.
foreign exchange market
The _____ is the rate at which the market converts one currency into another.
The foreign exchange market serves two main functions. These are:
convert the currency of one country into the currency of another and provide some insurance against foreign exchange risk
Although the foreign exchange market offers some insurance against _____, it cannot provide complete insurance.
foreign exchange risk
Which of the following countries does NOT use the euro as its primary currency?
Which of the following correctly matches a country with its currency?
Japan - the yen
_____ typically involves the short-term movement of funds from one currency to another in the hopes of profiting from shifts in exchange rates.
When two parties agree to exchange currency and execute the deal immediately, the transaction is referred to as a:
The value of a currency is determined by
the interaction between the demand and supply of that currency relative to the demand and supply of other currencies
Which of the following would cause depreciation of U.S. dollars against the Japanese yen?
Demand for U.S. dollars is low compared to yen
A _____ exchange occurs when two parties agree to exchange currency and execute the deal at some specific date in the future.
The simultaneous purchase and sale of a given amount of foreign exchange for two different value dates is called a:
The largest trading center in the foreign exchange market is:
The process of buying a currency low and selling it high is called:
At the most basic level, exchange rates are determined by the demand and supply of one currency relative to the:
demand and supply of another
The _____ states that in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency.
law of one price
If the law of one price were true for all goods and services, the _____ exchange rate could be found from any individual set of prices.
purchasing power parity (PPP)
The newsmagazine The Economist has selected the _____ as a proxy for a "basket of goods" because it is produced according to the same recipe in about 120 countries.
McDonald's Big Mac
A system of institutional arrangements that countries adopt to govern exchange rates is called:
the international monetary system.
The great strength claimed for the gold standard was that it contained a powerful mechanism for achieving _____ by all countries.
As the volume of international trade expanded in the wake of the Industrial Revolution, a more convenient means of financing international trade was needed and the solution was to arrange for payment in:
paper currency that was converted into gold on demand at a fixed rate.
The Bretton Woods conferences occurred in 1944 and established the basic framework for:
the post-World War II international monetary system.
The Bretton Woods conference created two major international institutions. These are:
the International Monetary Fund and the World Bank
Under the Bretton Woods system, which currency served as the base currency?
Under the Bretton Woods agreement, only the dollar remained convertible to gold, at a price of:
An increase in money supply typically leads to an increase in:
A ____________ exchange rate system exists when the value of a currency is fixed to a reference country and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.
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