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Question
What is meant by carry trade? Why is it risky?Explain with an example.Answer
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Related questions
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Foreign direct investment (FDI) occurs when a firm invests resources in business activities outside its home country.
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The Cold War was in many respects a war between collectivism, championed by the former Soviet Union, and individualism, championed by the United States.
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One of the tenets of collectivism is that the welfare of society is best served by letting people pursue their own economic self-interest.
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Karl Marx advocated state ownership of the basic means of production, distribution, and exchange (i.e., businesses).
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How is managing an international business different from managing a purely domestic business?
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What are some of the challenges faced by managers of an international business?
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Describe the difference between fundamental analysis and technical analysis in forecasting exchange rate movements.
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Describe the factors that explain the failure of the purchasing power parity theory to predict exchange rates accurately.
Q:
Which of the following states that for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between the two countries?
A.Bandwagon effect
B.Law of one price
C.International Fisher effect
D.Helms-Burton Act
E.Purchasing power parity (PPP) theory
Q:
Which of the following occurs when a government increases the money supply?
A.It results in an overall decrease in credit.
B.It makes it difficult for individuals and companies to borrow from banks.
C.It makes it easier for banks to borrow from the government.
D.It causes a decrease in demand for goods and services.
E.It causes price deflation as the money supply exceeds goods and services output.
Q:
Steven converted $1,000 to 105,000 for a trip to Japan. However, he spent only 50,000. During this period, the value of the dollar weakened against the yen. Considering a current exchange rate of $1 = 100, how many dollars did Steven spend on the trip?
A.$550
B.$523
C.$450
D.$600
E.$500
Q:
Which of the following transactions is used to move out of one currency and into another for a limited period without incurring foreign exchange risk?
A.Currency swap
B.Currency speculation
C.Carry trade
D.Spot exchange
E.Arbitrage
Q:
Which of the following is illustrated by the Big Mac Index published by The Economist?
A.The law of one price
B.The purchasing power parity theorem
C.The Fisher effect
D.Flow of FDI
E.The bandwagon effect
Q:
To express the PPP theory in symbols, let P$ be the U.S. dollar price of a basket of particular goods and P be the price of the same basket of goods in Japanese yen. What does the purchasing power parity (PPP) theory predict to be the equivalent of the dollar/yen exchange rate, E$/?
A.E$/ = (1 + P)/P$
B.E$/ = (1 + P$)/P
C.E$/ = P/P$
D.E$/ = P$/P
E.E$/ = (1 + P$)/(1 + P)
Q:
The euro/dollar exchange rate is €1 = $1.20. According to the law of one price, how much would a camera that retails for $300 in New York sell for in Germany?
A.€320
B.€300
C.€250
D.€360
E.€150
Q:
What is meant by translation exposure?
A.The long-run effect of changes in exchange rates on future prices, sales, and costs
B.The impact of currency exchange rate changes on the reported financial statements of a company
C.The extent to which a firm's future international earning power is affected by changes in exchange rates
D.The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values
E.The obligations for the purchase or sale of goods and services at previously agreed prices
Q:
Which of the following observations is true of technical analysis, an approach to exchange rate forecasting?
A.It draws on economic theory to construct models for predicting exchange rate movements.
B.The variables contained in this model typically include relative money supply growth rates, inflation rates, and interest rates.
C.There is a sound theoretical rationale for the assumption of predictability underlying this approach.
D.Owing to its drawbacks, this approach has declined in importance over the last few years, giving way to fundamental analysis.
E.It does not rely on a consideration of economic fundamentals.
Q:
The interest rate on borrowings in Rhodia is 2 percent and the interest rate on bank deposits in Maritia is 7.5 percent. In this scenario, a carry trade would be to:
A.borrow money in Maritian currency, convert it into Rhodian currency, and deposit it in a Rhodian bank.
B.borrow money in Rhodian currency and invest in stocks with good growth potential in Rhodia.
C.borrow money in Rhodian currency, convert it into Maritian currency, and deposit it in a Maritian bank.
D.invest in bank deposits of Maritia and reinvest the earnings in Rhodia.
E.invest in bank deposits of Rhodia and reinvest the earnings in Maritia.
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Describe the differences in distribution systems in various countries in terms of channel exclusivity.
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Describe how cultural differences affect product attributes.
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What is meant by a marketing mix?
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The members of a cross-functional team should have:
A.low standing within their respective functions.
B.the ability to put functional and national advocacy first.
C.the ability to contribute functional expertise.
D.the ability to solely focus on the ongoing work of their respective functions.
E.the ability to work on several projects simultaneously.
Q:
Which of the following is an important attribute for a product development team to function effectively and meet all of its development milestones?
A.It should be led by a "heavyweight" project manager who has high status within the organization.
B.The team members should always be physically in diverse locations in order to cover multiple bases.
C.It should have preset processes for communication and conflict resolution that are developed by top management.
D.It should have at least three members from each key function included.
E.Its team members should be a part of more than two cross-functional teams.
Q:
Which of the following factors creates a potential market for new products?
A.Rising inflation
B.Affluent consumers
C.Lack of competition among firms
D.Firms suffering from first-mover disadvantages
E.Declining demand
Q:
What kind of demand is seen when a small change in price produces a large change in demand?
A.Elastic
B.Inelastic
C.Relative
D.Rigid
E.Dynamic
Q:
In which of the following conditions does arbitrage occur?
A.When a firm offers a product at low prices through discount coupons and promotions
B.When a firm sells a product at higher prices to make a profit from relatively fewer sales
C.When a firm imports products from a manufacturer and distributes them directly through retail outlets
D.When a firm purchases products in a country where prices are lower and resells them in a country where prices are higher
E.When a firm prices its products at the least cost, risking losses, in order to grab market share
Q:
If a firm favors a push strategy, using direct selling to educate potential consumers about the features of its products, what kind of products would it most likely sell?
A.Professional services
B.Food grains
C.Consumer products
D.Industrial products
E.Standardized products
Q:
Which of the following is true of the barriers to international communication?
A.Noise tends to increase the probability of effective communication.
B.Source effects can be beneficial for an international business when potential consumers in a target country have a bias against foreign firms.
C.Many international businesses try to promote positive source effects by deemphasizing their foreign origins.
D.Fewer firms vie for the attention of prospective customers in developing countries, thus the noise level is lower.
E.Research suggests that a consumer may use country of origin as a cue when evaluating a product, particularly if he or she has detailed knowledge of the product.
Q:
According to research, when do consumers usually use the country of origin as a cue when evaluating a product?
A.When a firm tries to deemphasize its foreign origins
B.When consumers lack detailed knowledge of a product
C.When an advertising campaign stresses the positive performance attributes of a product
D.When a limited number of messages compete with each other for consumers' attention
E.When a firm resorts to personal selling instead of mass media advertising
Q:
Which of the following refers to the extent to which the place of manufacturing influences product evaluations?
A.Noise levels
B.Country of origin effects
C.Source effects
D.Push strategies
E.Pull strategies