ECO 103 Final Exam Review

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A government would impose administrative trade policies in order to ___.
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Terms in this set (195)
Which two actions can governments use to intervene in business with the intent of helping firms establish a competitive advantage?Subsidies & antidumping actionsThe stalled Doha Round has caused many nations to use _____ to foster trade.multilateral trade agreementsWhat are two drawbacks of government intervention in the process of free trade?It invites retaliation and trade wars & it's unlikely to be well-executed.A government would impose administrative trade policies in order tomake it difficult for imports to enter a country.Which country has a policy that encourages FDI?Country A has a government-backed insurance program to protect against the risk of expropriation.What are the two most common incentives governments offer to foreign firms to invest in their country? (Check all that apply.)Low-interest loans & subsidiesWhat are three trade barriers that can constrain a firm's ability to disperse productive activities?Local content regulations, tariffs, quotasWith the formation of the ______ in 1995, there now is a multinational institution that has become involved in regulations governing FDI.WTOTrue or False: Government policies related to international trade have little effect on the success of a business.False: Government actions, such as tariffs and subsidies, have a direct effect on the success of a company.A foreign exchange market is where one country's ______ is converted into that of another country.currencyGovernment intervention is said to be self-defeating because it tends to protect _____.inefficient firmsThe adverse consequences of unpredictable changes in exchange rates are called foreign exchangeriskTo encourage FDI, many countries have eliminated ______ taxation of foreign income.doubleAn American tourist in Japan is interested in buying a souvenir that costs 1800 yen. How much is this in dollars if the exchange rate is $1 to Y400.$4.50True or false: Tax concessions can be used by a government to encourage foreign firms to do business in that country.True: Tax concessions are one example of incentives governments use to encourage FDI.The value of a currency is determined by the ______ of that currency relative to other currencies.demand and supplyWhat international organization is involved in the governing of FDI?WTOThe most important foreign exchange trading center is ______ with 43 percent of the activity.LondonJameson Electric Corp. would use the foreign exchange market when it needs toconvert currencyAt the simplest of levels, exchange rates are determined by _____.the supply and demand of currenciesWhat are the two main functions of the foreign exchange market?Provide insurance against foreign exchange risk & currency conversionAccording to _____, identical products sold in different countries must sell for the same price in competitive markets when their price is expressed in terms of the same currency.the law of one priceIf the exchange rate is 1 British pound to $1.35, an American in London will need ______ to purchase a purse priced at 20 pounds.$27A(n) ______ exchange rate is the price to exchange one currency for another for immediate delivery.spotThe five most important foreign exchange trading centers in terms of level of activity areLondon, New York, Zurich, Tokyo, and Hong Kong.If the demand for the yen outstrips its availability and if the supply of the dollar outweighs the demand, the yen will _____ against the dollar.appreciateThe law of ______ is the economic theory that the price of a given security, asset, or commodity must have the same price when exchange rates are taken into pricePPP theory predicts that changes in relative prices will result ina change in exchange ratesThe Fisher effect equates the nominal interest rate asthe required real interest rate + expected rate of inflation.True or false: Empirical evidence suggests that the International Fisher effect does NOT explain short-term exchange rate movements well.TrueThe impact of psychological factors and investor expectations makes it difficult for exchange rate theories to predict ______ changes in exchange rates.short-term: day-to-day fluctuations are difficult to predict.Theoretically, a country in which price inflation is running wild should expect to see its currency Blank______ against that of countries in which inflation rates are lowerdepreciateWhat is the key way a company can reduce economic exposure?Distribute production facilities and assets to various locationsThe Fisher effect predicts that there is a strong relationship between _____ and interest rates.inflation ratesThe international monetary system establishes the rules and regulations that govern ratesOne main reason why the IFE is NOT good at explaining short-term exchange rate movements is the impact of _____ in determining the expectations of market traders.investor psychologyThe extent to which income from individual transactions is affected by fluctuations in foreign exchange values is known as transaction ____.exposureCompany A is based in Europe and does a large amount of business in the United States. The company fears that the euro will gain in strength against the dollar, so it sets up a local production facility in the United States. This is a way to reduce ____ exposure.economicIn 1971, the OPEC oil crisis increased the inflation rate in the United States, which led to negative effects on the country's trade position anda decline in the value of the dollarThe ____ refers to the institutional arrangements that govern exchange monetary systemOne argument for a floating exchange rate system is that a country regains control of its _____ policy.monetaryAn argument against a fixed rate system is that this system limits countries' abilities to use ____ policy to expand or contract their economies.monetaryA fixed rate system can ensure that ______ do not respond to political pressures by expanding the monetary system too quickly and causing inflation.governmentsTrue or false: About 25 percent of IMF member countries have no separate legal tender of their own.False: Only about 5 percent of IMF member countries have no separate legal tender of their own.________ exposure is the risk, faced by companies involved in international trade, that currency exchange rates will change after the companies have already entered into financial obligations. Such exposure to fluctuating exchange rates can lead to major losses for firms.TransactionThe IMF was initially established to allow members to borrow short term to adjust their balance-of-payments position and maintain their rateA(n) ______ occurs when a speculative attack on the exchange rate leads to a large depreciation in that country's legal tender.currency crisisTrue or false: One argument, in favor of a floating rate system, is that, under a fixed system, a country's ability to expand or contract the money supply is unlimited.False: Under a fixed system, a country's ability to expand or contract the money supply is limited by the need to maintain exchange rate parity.A major criticism of the IMF is that it imposes tight macroeconomic policy on any country it lends money to. This is referred to as a(n) ______ the 1980s and 1990s, exchange rate movements were not strongly influenced relative to ______ which was contrary to the purchasing power parity theory.inflation ratesAn argument against a fixed rate system is that this system limits countries' abilities to use ______ policy to expand or contract their economies.monetaryWhat are three different exchange rate policies in effect today around the world?Pegged, Free float, FixedSince the 1970s, developed countries like Great Britain and the United States have tended to finance their deficits byborrowing private money.A currency crisis occurs whena speculative attack on the currency exchange value creates a sharp depreciation in the value of currency.The policy position of the ______ is that when this institution lends money to countries, it imposes a tight macroeconomic policy that is not always considered appropriate by critics.International Monetary FundThe use of currency management instruments such as swaps and the forward market has ______ since 1973.increasedThe IMF was initially established to allow members to borrow short-term to adjust their balance-of-payments position and maintain their rateIt is common practice for people today to use products that are produced or assembled in various nations around the world. This is a reflection of _____.globalizationThe globalization of _____ is the term used to describe the merging of national markets into one large global place.marketsParagon Corp., based in Ohio, sources goods from Southeast Asia to take advantage of labor cost savings. This company is benefiting from _____.the globalization of productionThe International Monetary Fund and the World Bank are both examples of _____ that help govern the global business institutionsA U.S.-based shoe company has decided to invest in a British company that specializes in clasps and buckles. This would be an example of _____.foreign direct investmentAdvances in information processing and communication are two ways _____ has made the globalization of markets a reality.technologyThose who support globalization argue that increasing globalization willlead to reduced prices for goods and services.Some demonstrations against globalization are based on the idea that falling barriers to international traderesult in job losses in industries targeted by foreign competitors.According to the critics of globalization, which of the following are results of falling trade barriers? (Check all that apply.)A depression of wages in developed nations The destruction of manufacturing jobs in advanced economiesWhen NAFTA was first introduced, what was the biggest argument opponents presented?U.S. firms would move manufacturing to Mexico and feel free to pollute the air and employ child labor.The division between rich and poor nations has ____ with the advent of globalization.increasedThe political economy of a country refers to the interaction of the political, economic, and _____ systems of a country.legalThe system of government in a nation is called the _____ system.politicalCollectivism refers to a political system thatrestricts an individual's right to do something on the grounds that it runs counter to the "good of society"._____ refers to a political system in which the citizens exercise power directly or elect representatives to form a governing body.DemocracyIn a ______ economy, both private enterprise and state ownership co-exist.mixed______ measures the total annual income received by residents of a country.Gross national incomeWhen analyzing the process of innovation, it can be said that itgoes hand-in-hand with entrepreneurship.Innovators and entrepreneurs flourish most in a _____ because economy; it grants existing businesses and entrepreneurs the freedom to improve their operations through innovationWhich of these situations relates to Sachs's view on a country's economic development?Country A has the benefit of nutrient-rich soil which provides a competitive advantage for the country's tobacco industry.______ is seen as a transfer of ownership of a business, property, or enterprise from the public sector to the private sector.PrivatizationWhen discussing the changes in the political and economic systems of the world, it can be said thatthe battle between the ideologies of collectivism and individualism is less distinct today.An international firm, entering a country's market early, may achieve a significant payback if that country:achieves sustained high economic growth rates.______ are the benefits earned by early entrants into a market.First-mover advantagesEnergy Resources Ltd. does business in 50 countries around the world. The company stresses to all employees the importance of understanding the prevailing culture in the countries that they are doing business in. In other words, the company is aware of the importance ofcross-cultural literacy.The ideas about what a group believes to be good, right, and desirable are called _____.valuesThere _____ a strict one-to-one relationship between one culture and a notWhat are three of the determinants of culture?Political philosophy Social structure Economic philosophyThe basic social organization of a society is called its social _____.structureStephen usually eats lunch with three of his co-workers and on the weekends he gets together with his college friends. The people Stephen interacts with represent two types of _____.groupsWhat are three principles of social stratification? (Check all that apply.)It carries over to the next generation. It is generally universal. It involves beliefs as well as inequality.Nigel was born into a poor, working-class family in England. He is resigned to the fact that his life will be much like his fathers as he has no way to earn a degree and change his status. Nigel believes that a lack of _____ determines his mobilityWhat are three examples of the "hidden curriculum" of schools? (Check all that apply.)Dealing with competition Obedience to authority Respect for others______ is judging another's culture solely by the values and standards of one's own culture.EthnocentrismThe accepted principles of right and wrong that guide a person's decisions are called _____ethicsAs demonstrated by the Nike example in the text, which situation is generally MOST preferred when considering employment practices in international business?Requiring good conditions in home and foreign operations even when this results in a smaller profit marginIn the 1980s, Western businesses questioned the ethics of operating in South Africa because the apartheid system in place thereviolated basic human rights.Ethical issues arise in international business whenenvironmental regulations in host nations are less stringent than those in the home country.The Foreign Corrupt Practices Act was amended to include _____ because some U.S. businesses complained the act would put U.S. firms at a competitive disadvantage.facilitating paymentsMarietta is visiting her company's manufacturing subcontractor in Pakistan. She notices children working on the machinery with no air conditioning and little access to water. But she also knows these children are probably supporting their families. Marietta can't decide if children working in the factory is appropriate or inappropriate. This is an example of a(n) ______.ethical dilemmaWhat are four determinants of ethical behavior? (Check all that apply.)Organizational culture Personal ethics Leadership Societal cultureWhen making ethical decisions, ______ factors are stressed in Japan, while ______ factors are more important in the United States.organizational; individual or personalSanjay told his staff that the company didn't care if the components came from a company using sweatshop labor, the parts were needed to meet the order and the company needed the order to make the sales quota. In this situation, the company makes this decision based on purely _____ terms.economicUnrealistic performance goals can often only be attained bytaking shortcuts or behaving in an unethical manner.Which description of leader behavior is most likely to promote a strong ethical culture in an organization?The boss who consistently demonstrates strong personal ethics in all dealings with clients.Which two of Hofstede's dimensions are present in countries where ethical practices are commonly practiced?High in uncertainty avoidance High in individualismThe straw men theory that states that businesses should behave in a socially responsible manner, according to ethical custom and without deception and fraud is the _______.Friedman Doctrine______ ethics measure actions on a cost-benefit scale.UtilitarianTrue or false: Pursuing strategies that are sustainable has little impact on helping an organization ensure that ethical issues are considered in business decisions.False: Pursuing strategies that are sustainable is one of the seven actions that a firm can take to make sure ethical issues are considered in business decisions.An organization's code of ethics may be partially based on documents such as the United Nations Universal Declaration ofHuman RightsWhich two theories provide the moral compass that is important when thinking through the ethical implications of decisions in a systematic way? (Check all that apply.)Rawl's theory of justice Rights theoriesCustomers, suppliers, and unions are all examples of _____ stakeholdersexternal______ is reflected in a nation in which the government does not attempt to influence what its citizens can buy from another country by applying import duties or what citizens can produce and sell to another country.Free tradeBased on the theories of Smith, Ricardo, and Heckscher-Ohlin, in a country with access to cheap labor, productive land, and diverse plant life, it makes sense to _____ agricultural goods.exportSome countries specialize in manufacturing a particular product (such as cars) for which the global market can only support a limited number of firms. This is a reflection of trade theoryThe trade theories associated with Smith and Ricardo advocate for _____ free trade.unrestrictedWhen a government intervenes to achieve a surplus in the nation's balance of trade, this action is consistent with the main tenet of ______.mercantilismA country is said to have an absolute advantage in the production of an item when the countryis more efficient than any other country at producing the item.A basic message of Ricardo's theory of comparative advantage is that: (Check the two that apply.)potential world production is greater with unrestricted free trade than it is with restricted trade. even if countries lack an absolute advantage in the production of any good, consumers can still consume more if there are no restrictions on trade.A criticism of Ricardo's theory of comparative advantage is that it is a simple model that includes manyunrealistic assumptions.When discussing constant returns to specialization, it is realistic to assume that the units of resources required to produce one unit will _____ no matter where a country is on the production possibilities frontier.remain the sameSamuelson is concerned that advances in communications technology will result in theoffshoring of service jobs.Sachs and Warner found a strong correlation between a(n) ______ response to trade and economic growth.openPreempting demand, gaining volume cost advantages, building the brand, and establishing a long-term competitive advantage are associated withfirst-mover advantages.Taxes placed on imports to protect domestic producers from foreign competition and to produce revenue for the government are calledtariffs.A(n) ______ is a payment by the government to a domestic producer to help lower production costs so they are better able to compete with foreign imports.subsidyThe United States has placed a limit on the amount of tuna in airtight containers that can be imported into this country. This is an example of a(n) _____.import quotaA(n) ______ states that some percentage of a good must be produced domestically.local content requirementThe oldest argument for government intervention in trade in which developing nations must protect their domestic industries until they are ready to compete globally is the ______ argument.infant industry______ constrain a firm's ability to export its products by raising the price of the exported product, which could put the firm at a competitive disadvantage with domestic firms in that country.Tariff barriersFDI occurs when a company invests in facilitiesin a foreign country.The stock of foreign direct investment refers to the totalaccumulated value of foreign-owned assets at a given point in time.How has a shift toward democratic political institutions and free market economies affected FDI?These shifts encourage businesses to participate in FDI.The United States, the United Kingdom, the Netherlands, France, Germany, and Japan together have accounted for the majority of all FDI outflows for 1998-2018 for what two reasons?They provided the base for many of the largest and best-capitalized businesses. They were the most developed nations with the largest economies in the postwar period.Which theory of foreign direct investment attempts to combine (1) the theories that focus on favoring direct investment when exporting and licensing are available and (2) theories that say certain locations are favored over others for FDI?The eclectic paradigmInstead of FDI, a company could choose ______, which involves producing goods at home and shipping them overseas, or ______, which is granting a foreign firm the right to produce and sell a product in return for a royalty fee.exporting; licensingThe ability of an individual, company, or economy to conduct an activity better than another for reasons related to location is called a(n)location-specific advantage.The _____ view of foreign direct investment has its basis in Marxist theory.radicalWhich view of FDI is based on the classical international trade theory of Smith and Ricardo asserting that international production should be based on comparative advantage?Free marketWhat are two current trends in FDI? (Check all that apply.)An increase in FDI aimed at countries that have liberalized their FDI regimes An increase in the volume of FDIWhat two positive contributions to a host country can FDI provide?Supply capital, technology, and management resources Boost a country's economic growth rateThe 2,000 employees working in Toyota's factory in France are an example of the ______ effect of FDI on employment, while the 2,000 new jobs that were created in support industries are an example of the ______ effect of FDI on, indirectOne cost to a host country related to FDI would be the ____ of sovereignty and autonomy.lossRegional _____ integration creates agreements among countries in a specific geographic area in order to reduce and eventually remove tariff and nontariff barriers to the free flow of goods.economicEconomic theories suggest that free trade allows countries tospecialize in producing goods and service that they are most efficient at producing.True or false: One political reason for economic integration is the potential to minimize violent conflict between nations.True: Nations that are dependent on each other for economic reasons are less likely to participate in violent conflicts with each other.A key impediment to economic integration is that although a majority of citizens may benefit from free trade, certain groups may lose their jobs to low-cost and low-skilled labor in other countries as was the experience of some U.S. and Canadian workers in the ______ industry following the establishment of NAFTA.textileSome economists argue that regional free trade agreements will provide global benefits only iftrade creation exceeds trade diversion.What are three advantages of regional market integration that can result in cost savings to a business? (Check all that apply.)Free movement of goods across borders Simplified tax regimes Harmonized product standardsIn a command economy, businesses are owned by _____.the stateEven though there are many state-owned businesses in China, many Western businesses feel that they should still invest in the country because ______.the nation is moving toward a market-based systemIn the past 40 years, China, South Korea, Taiwan, Singapore, and Hong Kong had the fastest-growing economies. These nations also had ______ in place.undemocratic governmentsWhat is one of the steps that pave the way for a shift toward a market-based economic system?Creation of a legal system to safeguard property rightsWhat economic tactic was used when former communist countries removed price controls and allowed prices to be set as the result of supply and demand?DeregulationPortugal can produce wine and cloth with less labor than England. But, given all factors of production, England can produce cloth relatively better than Portugal. According to Ricardo's theory of comparative advantage, it make sense for England toexport cloth and import wine from Portugal: Labor is not the only factor in producing cloth. Overall, England can produce cloth better than Portugal.True or false: The benefits from free trade are not evenly distributed throughout an economy.True: Unions or other parts of the labor force might suffer from free trade while consumers might benefit.______ trade is the economic policy of not discriminating against exports to or imports from foreign countries.FreeIf a country places a 20 percent tax on dairy products exported to other nations in order to limit exports and have sufficient supplies of dairy products for the home country, it is using a(n) ______.export tariffBy threatening ______ trade sanctions, one country can convince another country to open its markets.punitiveWhat are two reasons the United States has been an attractive target for FDI?Stable economy Large domestic marketsA low-cost, no-frills grocery store chain that began in the United States decided to open similar stores in Germany which did not have any stores like this. What type of FDI is this company using?Greenfield investmentFDI that serves the home market is called ______ production.offshoreWhat is the least integrated form of economic integration?Free trade areaTrue or False: The recent fast-paced economic growth in some Asian economies can be attributed to their adoption of more totalitarian forms of government.False: These countries have adopted more democratic governments.Identify two costs of FDI to a home country. (Check all that apply.)Balance of payments are negatively affected if FDI is a substitute for direct exports. Balance of payments are negatively affected if purpose of FDI is to develop a low-cost production location.Supporters of globalization argue that bodies such as the World Trade Organization and the United Nations exist to serve the collective interests of member states, not to subvert those interests.True: Supporters of globalization argue that bodies such as the World Trade Organization and the United Nations exist to serve the collective interests of member states, not to subvert those interests.The production of goods in a pure market economy is determined bysupply and demand.To foster innovation in the business environment, it is important that strong legal protection of property rights is in place. Inadequately enforced property rights can lead to an increase in therisk of expropriation of profits.Monica asked her manager if appropriate dress for the meeting was business casual or traditional business. Monica is inquiring about the ______ associated with the meeting.folkwayCelia, a product manager, advocated for the company to proceed with the development of the product even though it hadn't received FDA approval yet because she wanted to be the first to market with the product when it was approved. Jessica, the director of product development, felt this wasn't a good idea because early studies had shown that the product might be causing neurological problems in users and might need to be reformulated. Which step in the process to assess an ethical issue does this represent?Establishing moral intentWhat are four main instruments of trade policy?Import quotas Tariffs Local content requirements Antidumping dutiesWhen manufacturers export a product to another country at a price either below the price charged in its home market or below its cost of production, it is called ______.dumpingWhich view of FDI states that there are benefits and costs to FDI and that countries attempt to maximize the benefits and minimize the national costs of FDI?Pragmatic nationalismWhat are two benefits of FDI to a home country?Foreign subsidiary creates demand for home-country exports MNE learns skills from exposure to foreign marketWhich two factors would reveal that a company has little bargaining power when considering FDI?The company has a short period of time to complete negotiations Host government does not value what the firm has to offerWhich of the following factors help determine the Human Development Index of a country? (Check all that apply.)Average incomes Educational attainment Life expectancy at birthInfluential economists, politicians, and business leaders who favor globalization argue thatfalling barriers to international trade drive the economy toward greater prosperity.True or False: The world today remains a more democratic place with a much greater adherence to a market-based economic system. True false question.TrueAccording to Hofstede's theory, cultures high in masculinity and power distance are _____ (more or less?) likely to engage in unethical behavior.moreReflecting the theories of Smith, Ricardo, and Heckscher-Ohlin, free trade permits ______, which allows a country to manufacture and export in those areas where they have a comparative advantage.specializationWhich form of returns to specialization means that the units of resources required to produce one unit are assumed to remain the same no matter where a country is on the production possibilities frontier?ConstantWhich two political factors support the idea for economic integration of nations through trade?Interdependency among nations decreases the potential for violent conflict. It can enhance the political weight of those countries in the world.The creation of a single market creates _____ costs of doing business.lowerProperty rights are only truly secure when a _____ exists.mature democratic stateWhat assumption does the Ricardian model of comparative advantage make in terms of converting resources?It assumes that all resources can easily shift from one thing to another.One concern voiced by critics of globalization is thatan interdependent global economy shifts economic power away from national governments and toward organizations such as the United Nations.It is___for the government to expropriate profits from innovation through excessive taxation.legalWhen the German-based company Forrest Health Supply Inc. developed operations in Italy, it built a manufacturing facility there. In turn, the new facility also imported supplies and equipment from companies based in Germany. Which home country benefit of FDI does this represent?Employment effects