Question 1

The doctrine of comparative advantage was first put forth by

Accepted Answer

A) Adam Smith. 
B) Adam Sandler. 
C) David Ricardo. 
D) Ricky Ricardo. 
E) none of the above 
A) Adam Smith. 
B) Adam Sandler. 
C) David Ricardo. 
D) Ricky Ricardo. 
E) none of the above

Question 2

Comparative advantage

Accepted Answer

A) is also known as relative efficiency. 
B) can lead to trade even in the face of absolute efficiency. 
C) exists when one party can produce a good or service at a lower opportunity cost than another party. 
D) all of the above 
A) is also known as relative efficiency. 
B) can lead to trade even in the face of absolute efficiency. 
C) exists when one party can produce a good or service at a lower opportunity cost than another party. 
D) all of the above

Question 3

Suppose that Northern Ireland and Southern Ireland each have 1,000 hours of labor per day. Southern workers are paid €1 per day and Northern workers are paid £1 per day. What is the exchange rate associated with an international price of one keg of beer = 1 bottle of whiskey?

Accepted Answer

A) €1.25 = £1 
B) €0.80 = £1 
C) €1 = £1 
D) None of the above 
A) €1.25 = £1 
B) €0.80 = £1 
C) €1 = £1 
D) None of the above

Question 4

MNC stands for

Accepted Answer

A) Multinational Corporation. 
B) Multi-Nationalized Corporation. 
C) Military National Cooperation. 
A) Multinational Corporation. 
B) Multi-Nationalized Corporation. 
C) Military National Cooperation.

Question 5

For case II, let the international price be 1 bottle = 1 bushel. Derive North Dakota's "trading possibilities curve."

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 6

What is the price of beer without trade in Southern Ireland?

Accepted Answer

A) 2 bottles of whiskey = 3 kegs of beer 
B) 5 bottles of whiskey = 12 kegs of beer 
C) 1 bottle of whiskey = 1 kegs of beer 
A) 2 bottles of whiskey = 3 kegs of beer 
B) 5 bottles of whiskey = 12 kegs of beer 
C) 1 bottle of whiskey = 1 kegs of beer

Question 7

Most governments at least try to make it difficult for people to cross their borders illegally. This barrier to the free movement of labor is an example of

Accepted Answer

A) information asymmetry. 
B) excessive transactions costs. 
C) racial discrimination. 
D) a market imperfection. 
A) information asymmetry. 
B) excessive transactions costs. 
C) racial discrimination. 
D) a market imperfection.

Question 8

The emergence of global financial markets is due in no small part to

Accepted Answer

A) advances in computer and telecommunications technology. 
B) enforcement of the Soviet system of state ownership of resources of production. 
C) government regulation and protection of infant industries. 
D) none of the above 
A) advances in computer and telecommunications technology. 
B) enforcement of the Soviet system of state ownership of resources of production. 
C) government regulation and protection of infant industries. 
D) none of the above

Question 9

Country A can produce 10 yards of textiles or 6 pounds of food per unit of input. Country B can produce 8 yards of textiles or 5 pounds of food per unit of input.

Accepted Answer

A) Country A is relatively more efficient than Country B in the production of textiles. 
B) Country B is relatively more efficient than Country A in the production of food. 
C) Country A has an absolute advantage over Country B in the production of food and textiles. 
D) all of the above 
A) Country A is relatively more efficient than Country B in the production of textiles. 
B) Country B is relatively more efficient than Country A in the production of food. 
C) Country A has an absolute advantage over Country B in the production of food and textiles. 
D) all of the above

Question 10

If you can make a good at a low opportunity cost,

Accepted Answer

A) you would be well served to produce that good and trade for other goods. 
B) you should make something else that has a higher value. 
C) you should make something else that has a higher opportunity cost. 
D) none of the above 
A) you would be well served to produce that good and trade for other goods. 
B) you should make something else that has a higher value. 
C) you should make something else that has a higher opportunity cost. 
D) none of the above

Question 11

Suppose that the citizens of North and South Carolina are currently consuming as much butter as they care to. What is the maximum increase in the number of guns that could occur following trade?

Accepted Answer

A) 83.33 guns 
B) 533.33 guns 
C) No increase 
A) 83.33 guns 
B) 533.33 guns 
C) No increase

Question 12

Which state has an absolute advantage in producing beer in Case I?

Accepted Answer

A) South Dakota 
B) North Dakota 
C) Neither state 
A) South Dakota 
B) North Dakota 
C) Neither state

Question 13

Suppose that you are a U.S. producer of a commodity good competing with foreign producers. Your inputs of production are priced in dollars and you sell your output in dollars. If the U.S. currency depreciates against the currencies of our trading partners,

Accepted Answer

A) your competitive position is likely improved. 
B) your competitive position is likely worsened. 
C) your competitive position is unchanged. 
A) your competitive position is likely improved. 
B) your competitive position is likely worsened. 
C) your competitive position is unchanged.

Question 14

Corporate scandals at firms such as Enron, WorldCom and the Italian firm Parmalat

Accepted Answer

A) show that managers might be tempted to pursue their own private interests at the expense of shareholders. 
B) show that Italian shareholders are better at monitoring managerial behavior than U.S. shareholders. 
C) show that white-collar criminals hardly ever get punished. 
D) show that socialism is a better way to go than capitalism. 
A) show that managers might be tempted to pursue their own private interests at the expense of shareholders. 
B) show that Italian shareholders are better at monitoring managerial behavior than U.S. shareholders. 
C) show that white-collar criminals hardly ever get punished. 
D) show that socialism is a better way to go than capitalism.

Question 15

The theory of comparative advantage

Accepted Answer

A) claims that economic well-being is enhanced if each country's citizens produce only a single product. 
B) claims that economic well-being is enhanced when all countries compare commodity prices after adjusting for exchange rate differences in order to standardize the prices charged all countries. 
C) claims that economic well-being is enhanced if each country's citizens produce that which they have a comparative advantage in producing relative to the citizens of other countries, and then trade production. 
D) claims that no country has an absolute advantage over another country in the production of any good or service. 
A) claims that economic well-being is enhanced if each country's citizens produce only a single product. 
B) claims that economic well-being is enhanced when all countries compare commodity prices after adjusting for exchange rate differences in order to standardize the prices charged all countries. 
C) claims that economic well-being is enhanced if each country's citizens produce that which they have a comparative advantage in producing relative to the citizens of other countries, and then trade production. 
D) claims that no country has an absolute advantage over another country in the production of any good or service.

Question 16

For case II, let the international price be 1 bottle = 1 bushel. Derive South Dakota's "trading possibilities curve."

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 17

A purely domestic firm sources its products, sells its products, and raises its funds domestically

Accepted Answer

A) can face stiff competition from a multinational corporation that can source its products in one country, sell them in several countries, and raise its funds in a third country. 
B) can be more competitive than a MNC on its home turf due to superior knowledge of the local market. 
C) can still face exchange rate risk, just like a MNC. 
D) all of the above are true 
A) can face stiff competition from a multinational corporation that can source its products in one country, sell them in several countries, and raise its funds in a third country. 
B) can be more competitive than a MNC on its home turf due to superior knowledge of the local market. 
C) can still face exchange rate risk, just like a MNC. 
D) all of the above are true

Question 18

Today for a MNC to produce merchandise in one country on capital equipment financed by funds raised in a number of different currencies through issuing securities to investors in many countries and then selling the finished product to customers in yet other countries is

Accepted Answer

A) not uncommon. 
B) extremely common. 
C) uncommon. 
D) the norm. 
A) not uncommon. 
B) extremely common. 
C) uncommon. 
D) the norm.

Question 19

MNCs can use their global presence to

Accepted Answer

A) take advantage of underpriced labor services available in certain developing countries. 
B) gain access to special R&D capabilities residing in advanced foreign counties. 
C) boost profit margins and create shareholder value. 
D) all of the above 
A) take advantage of underpriced labor services available in certain developing countries. 
B) gain access to special R&D capabilities residing in advanced foreign counties. 
C) boost profit margins and create shareholder value. 
D) all of the above

Question 20

Which state has a comparative advantage in wheat production in Case II?

Accepted Answer

A) South Dakota 
B) North Dakota 
C) Neither state 
A) South Dakota 
B) North Dakota 
C) Neither state

Exam 1: Globalization and the Multinational Firm

The doctrine of comparative advantage was first put forth by

Comparative advantage

Suppose that Northern Ireland and Southern Ireland each have 1,000 hours of labor per day. Southern workers are paid €1 per day and Northern workers are paid £1 per day. What is the exchange rate associated with an international price of one keg of beer = 1 bottle of whiskey?

MNC stands for

For case II, let the international price be 1 bottle = 1 bushel. Derive North Dakota's "trading possibilities curve."

What is the price of beer without trade in Southern Ireland?

Most governments at least try to make it difficult for people to cross their borders illegally. This barrier to the free movement of labor is an example of

The emergence of global financial markets is due in no small part to

Country A can produce 10 yards of textiles or 6 pounds of food per unit of input. Country B can produce 8 yards of textiles or 5 pounds of food per unit of input.

If you can make a good at a low opportunity cost,

Suppose that the citizens of North and South Carolina are currently consuming as much butter as they care to. What is the maximum increase in the number of guns that could occur following trade?

Which state has an absolute advantage in producing beer in Case I?

Suppose that you are a U.S. producer of a commodity good competing with foreign producers. Your inputs of production are priced in dollars and you sell your output in dollars. If the U.S. currency depreciates against the currencies of our trading partners,

Corporate scandals at firms such as Enron, WorldCom and the Italian firm Parmalat

The theory of comparative advantage

For case II, let the international price be 1 bottle = 1 bushel. Derive South Dakota's "trading possibilities curve."

A purely domestic firm sources its products, sells its products, and raises its funds domestically

Today for a MNC to produce merchandise in one country on capital equipment financed by funds raised in a number of different currencies through issuing securities to investors in many countries and then selling the finished product to customers in yet other countries is

MNCs can use their global presence to

Which state has a comparative advantage in wheat production in Case II?

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

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