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International Business
Q:
If freely floating currencies are allowed to fluctuate against one another, at times the fluctuations might be quite large.
Q:
A central reserve asset is a holding that has value that is held by private banks in case of a liquidity crisis.
Q:
The controlling mechanism for a gold-based exchange system and a floating-rate system are the same.
Q:
The Bank for International Settlements operates as the banker for central banks.
Q:
(p. 206) Global foreign currency exchange transactions total in the area of $4 trillion daily.
Q:
One possible current currency arrangement is a fixed peg, whereby the exchange rate of a currency is allowed to move (within a narrow band) with another currency. One example is the pegging of the Canadian dollar to the U.S. dollar.
Q:
De Gaulle pushed Nixon to close the gold window at the Treasury, and this one action moved the IMF toward a floating exchange rate system.
Q:
As a result of Bretton Woods and the dollar's use as a proxy for gold, the United States ran up a balance-of-payments deficit of around $56 billion, which led to the United States going off the gold exchange standard in 1971.
Q:
The Bretton Woods system led to minimal growth in international trade but helped to reduce inflation levels.
Q:
The Bretton Woods meeting in 1944 established a fixed-rate exchange system among Allied governments that was imposed on the Axis governments.
Q:
The complexity of the gold standard was a part of its appeal.
Q:
Sir Isaac Newton established the price of gold in 1717 and de facto put England on the gold standard.
Q:
How might inflation influence the firm in its foreign markets?
Q:
Your firm operates in Seattle and is signing a contract to supply advisory services to a design firm in Beijing. Your payment is 50 percent on contract signing and 50 percent on completion, which is two years out. Would you want your payment in dollars or yuan/renminbi for today's portion? What about the portion on completion? Why?
Q:
What are currency exchange controls, why are they used, and how might they influence the international manager located in an exchange-controlled environment?
Q:
Briefly review the appeal of the gold standard, and comment on why it is not presently in use.
Q:
Explain the principles on which The Economist's Big Mac index is built, and comment on its use to international managers.
Q:
Who took the United States off the gold system?
A. President Eisenhower
B. President Kennedy
C. the Supreme Court
D. President Nixon
Q:
The largest international reserve accounts are held by:
A. Hong Kong and Singapore.
B. the United States, Mexico, and Canada (NAFTA).
C. the EU.
D. China and Japan.
Q:
The SDR is:
A. a special deposit for corporate reimbursement.
B. special drawing rights, an international reserve asset.
C. a special deficit refund, made to compensate for currency devaluation.
D. a paper credit issued by the Bank for International Settlements.
Q:
The Triffin paradox suggests that:
A. reserve currencies can never run deficits.
B. eventually, reserve currencies will run deficits, which will lead to lack of confidence in the currency.
C. the more a currency is held in reserves, the stronger it is.
D. the U.S. dollar could never be a reserve currency.
Q:
Hawalas make currency exchange and:
A. avoid the international currency exchange markets.
B. offer their clients nearly untraceable transactions.
C. transfer funds through the established banking system.
D. A and B.
Q:
What is appealing about the gold standard is:
A. everyone loves gold.
B. its simplicity.
C. its transportability.
D. its carrying costs.
Q:
In 1717, Sir Isaac Newton took Britain from the silver standard (pounds sterling) to:
A. floating exchange rates.
B. fixed exchange rates, using silver.
C. the gold standard, with fixed rates.
D. pegged rates.
Q:
The price of gold since about 1200 A.D. has been:
A. trending downward.
B. flat, keeping its value.
C. wildly fluctuating.
D. trending upward.
Q:
A purchase of foreign goods from the United States (requiring importing) will:
A. be recorded in the BOP as an asset in the current account.
B. be recorded in the BOP as a debit in the current account.
C. have no record in the BOP because the purchase is made in the United States.
D. be recorded in the BOP as a liability in the foreign transfer account.
Q:
The U.S. current account deficit can be explained by:
A. citizens of other nations wanting to hold dollars because the dollar is a stable currency.
B. foreigners wanting to invest in the United States.
C. U.S. citizens importing more than they are exporting.
D. B and C.
Q:
The balance part of the BOP is explained by:
A. the accounts being double-entry, so they are always balanced.
B. imbalances showing immediately.
C. actions governments take to achieve the balance.
D. none of the above.
Q:
The current account on the BOP has three subaccounts:
A. export, import, and capital.
B. tangible exports, tariff revenues, and capital.
C. fixed assets, current liabilities, and long-term debt.
D. merchandise, services, and unilateral transfers.
Q:
Balance-of-payments data:
A. reveal a country's assets.
B. suggest areas of concern in monetary and fiscal policy.
C. reveal demand for a country's currency.
D. show how the country's currency arrangement (fixed, pegged, floating) is valued.
Q:
World interest rates tend to vary across a small range because:
A. the IMF has been successful at promoting responsibility in the monetary sector.
B. world financial markets are integrated, so we see the law of one price at work.
C. bankers have low market appeal, given the financial crisis.
D. the BIS has coordinated monetary policy.
Q:
With increasing inflation, borrowing becomes:
A. more attractive because repayment can be made with cheaper money.
B. less attractive because repayment is made with dearer money.
C. impossible because money has lost its value.
D. a mute issue because of liquidity issues.
Q:
The inflation rate determines:
A. the capital structure of the firm.
B. the growth rate of sales.
C. the real cost of borrowing in capital markets.
D. the equilibrium point.
Q:
In an inflationary economy the following conditions may be present:
A. demand exceeds supply.
B. money supply is increasing.
C. prices are rising.
D. all of the above.
Q:
Withholding tax is:
A. an indirect tax paid by employers before employees receive salaries.
B. a direct tax levied on earned income.
C. a 30 percent tax levied on foreign residents.
D. an indirect tax levied on passive income.
Q:
A value-added tax is actually a sales tax that is:
A. paid by the firm rather than the consumer.
B. paid in stages along the process from raw materials to consumer and then credited after final sale.
C. called value added to create a positive spin on taxation.
D. voluntarily paid on exports.
Q:
The three major taxes governments use to generate revenue are:
A. VAT, income tax, and withholding tax.
B. sales tax, VAT, and income tax.
C. property tax, VAT, and sales tax.
D. income tax, property tax, and sales tax.
Q:
When a government requires a permit to purchase foreign currency, the exchange rates:
A. are market-driven.
B. can be negotiated by the firm.
C. are unpredictable.
D. are set by the government, often above the free market rate.
Q:
Countries put limitations on the convertibility of their currency when they are concerned that:
A. there is too much domestic spending.
B. foreigners will hold control of their monetary policy.
C. their foreign reserves could be depleted.
D. there is not enough domestic spending.
Q:
In general, with regard to exchange controls, developed countries:
A. rarely use them.
B. use them only to discourage foreign investment.
C. use them when needed to implement monetary policy.
D. use them secretly.
Q:
Fixed-rate relationships among currencies could not stay fixed, according to Obstfeld and Rogoff, because:
A. the volume of global transactions started to exceed most countries' foreign exchange reserves, so governments couldn't intervene to sustain the value of their currency.
B. the complexity of international trade demanded return of the gold standard.
C. Walmart and other leading firms argued successfully at the Federal Reserve that fixed rates were too costly to maintain.
D. the EU had decided to float the euro.
Q:
One attribute of the U.S. tariff schedule is:
A. that it is printed in both Arabic and Hebrew.
B. how specific it is.
C. that its categories are quite general and easy to apply.
D. that its harmonized version can be accessed via cell phone and iPad.
Q:
The Eonomist's Big Mac index (May 2010) suggests that against the dollar, the Chinese yuan is:
A. trading fairly, since the Big Mac prices are similar.
B. quite undervalued, since the Chinese Big Mac is almost 50 percent less expensive than the U.S.-dollar Big Mac.
C. is overvalued, since the Big Mac sells for almost 50 percent less in Chinese currency than in U.S. dollars.
D. trading at a historical premium.
Q:
The Fisher effect states that the real interest rate:
A. is the nominal rate plus the recorded inflation rate.
B. is the only measure to use in calculating PPP.
C. is the nominal rate minus the expected inflation rate.
D. is the difference between the nominal rate and the inflation rate.
Q:
The law of one price is that:
A. only one price can be charged for an item in a contract deal.
B. in an efficient market, one price only is the permissible price.
C. in an efficient market, like goods will have like prices.
D. even in international markets, bait and switch is illegal.
Q:
The international Fisher effect says that interest rate differentials:
A. predict exchange rate movement.
B. can be used to determine purchasing power parity.
C. are an example of the law of one price.
D. illustrate Pareto optimality.
Q:
Monetary and fiscal policies:
A. have nothing to do with exchange rate movement.
B. influence interest rates and taxation, and so may influence exchange rates.
C. have no predictable influence on inflation.
D. have no influence on trade patterns.
Q:
In order to strengthen the U.S. dollar, the Federal Reserve might sell yen and buy dollars, in which case the yen functions as:
A. a stronger currency than the dollar.
B. an intervention currency.
C. an arbitrage currency.
D. none of the above.
Q:
A vehicle currency is a currency:
A. used to trade in the transportation sector and is usually the dollar, euro, or yen.
B. whose value lies in its function in transfer pricing.
C. specifically used in arbitrage deals as a trading medium only.
D. used for international trade or investment.
Q:
Most significantly for the international manager, the balance of payments reveals:
A. demand for a firm's products.
B. a firm's financial position.
C. a country's export patterns.
D. demand for a country's currency and potential changes in its economic environment.
Q:
The balance-of-payments account is divided into the following three major subaccounts:
A. trade, capital, and debt.
B. cash flow, assets, and reserves.
C. services, cash flow, and debt.
D. current, capital, and reserves.
Q:
The balance-of-payments account is a record of:
A. the total tangible trade flows of a country over a five-year period.
B. a country's transactions with the rest of the world.
C. a country's total debt service payments during a one-year period.
D. the outstanding balance of a country's debt payments for the fiscal year.
Q:
The inflation rate determines:
A. a currency's strengthening.
B. the real price of borrowing in capital markets.
C. locations for outsourcing.
D. import substitution regimes.
Q:
The lowest corporate tax rates are found in:
A. the United States, Brazil, India, and France.
B. Brazil, China, Australia, and Japan.
C. Peru, Australia, Italy, and Luxembourg.
D. Switzerland, Ireland, Singapore, and Russia.
Q:
Taxation is a financial force in that:
A. if the firm can achieve a lower tax burden than its competitors, it can generate higher revenues and then lower its prices or pay higher wages and dividends.
B. governments, which enact taxes, are formal institutions that enforce tax law via force.
C. businesses are compelled by foreign governments to pay taxes.
D. it is not controlled by the firm.
Q:
Foreign reserves are used to:
A. help foreigners who need additional funds.
B. provide military support to foreign operations, for example, the French legion and UN peacekeepers.
C. cover foreign debt, import purchases, and other demands for foreign currency that banks might encounter.
D. support foreign operations that are branches but not subsidiaries.
Q:
How might U.S. law affect international managers?
Q:
How are antitrust laws enforced?
Q:
Describe approaches to international dispute settlement.
Q:
What is international law?
Q:
The Foreign Corrupt Practices Act has:
A. carried the discussion of transparency and corruption out into the open.
B. impaired American competitiveness abroad.
C. jailed legions of corrupt foreign executives in the United States.
D. introduced clear, concise terminology into the discussion of corruption.
E. been based on the United Kingdom Bribery Act.
Q:
The FCPA has:
A. hurt American business because managers cannot use bribes anymore.
B. challenged the creativity of American managers and consultants to develop ways to work around the FCPA.
C. brought the discussion of bribery into the open, which has, overall, been positive.
D. resulted in American foreign business going to Japanese and German businesses.
E. eliminated bribery in international business.
Q:
The FCPA includes:
A. wording consistent with the United Kingdom Bribery Act to facilitate application globally.
B. specific explicit rules with clear definitions of terms that U.S. companies must follow in their foreign operations.
C. all accounting processes, including the accounting of transfer payments.
D. foreign tax liabilities and other adjustments specific to business outside the home country.
E. uncertainties that make its application problematic.
Q:
The Foreign Corrupt Practices Act is U.S. legislation that:
A. outlines bribery practices that are allowed abroad but not in the United States.
B. prohibits bribery by American companies abroad.
C. allows bribery in foreign dealings when culturally sanctioned.
D. outlines and prohibits foreign bribery practices by foreign nationals in foreign nations.
E. clearly states the basis for illegal bribery.
Q:
Running afoul of miscellaneous laws in a foreign country is:
A. easily understood and forgiven by foreign police.
B. a serious error, so the local law should be known.
C. not a major issue, since the embassy can work out your release.
D. not a serious issue because your country and company stand behind you.
E. none of the above.
Q:
If an international manager runs afoul of a miscellaneous law while working abroad, calling the embassy:
A. will ensure that the charges are dropped.
B. to let an official know of the situation may be a good idea, but usually the embassy cannot help much.
C. will lead to meetings that will arrange for everything.
D. to explain the various cultural values in your homeland to the foreign government official is a reasonable approach.
E. will result in the application of American law to the resolution of the problem.
Q:
Punitive damages in product liability cases can be awarded in:
A. Japan.
B. Japan and the EU.
C. the UK.
D. the United States
E. all of the above.
Q:
The concept of strict liability, as found in the U.S. legal system, applies:
A. to harm done by the designer/manufacturer without the need to prove negligence.
B. to harm done within narrow limits, considering the design of the product.
C. to children harmed by products in both the United States and the EU.
D. strictly to harm caused by the designer/manufacturer, so no penalties outside of damages can be awarded.
E. none of the above.
Q:
In the U.S. court system, tort claims may result in:
A. exceedingly large awards.
B. lower liability insurance.
C. a reduction in strict liability.
D. reduced liability insurance costs for foreign companies.
E. none of the above.
Q:
The end result of legal trade obstacles is often:
A. limited trade, with the recipient of the obstacles withdrawing.
B. political negotiations between the two countries, to smooth relations and reduce costs.
C. higher costs to consumers.
D. lower taxes to citizens due to tariff revenues.
E. none of the above.
Q:
Trade obstacles are considered to be legal forces because:
A. they often are based on legislation.
B. their compliance is costly to the firm and the consumer.
C. they are imposed by a formal institution and noncompliance can carry punishment.
D. two of the above.
E. all of A, B, and C.
Q:
Antitrust laws differ among countries, and complying with them is often difficult for the firm, so:
A. international firms have had to increase their legal staff to ensure compliance.
B. the U.S. government is pushing for a world organization to clear antitrust issues.
C. firms have moved toward fewer mergers and more regionalized organizations.
D. firms expect to be in antitrust litigation and act accordingly.
E. two of the above.
Q:
Unlike antitrust or competition proceedings in the EU, in the United States such proceedings:
A. may involve civil and criminal penalties.
B. are heard at the local level.
C. involve the top management team.
D. are headed by a three-judge panel.
E. two of the above.
Q:
The U.S. antitrust law contains both civil and criminal penalties:
A. neither of which can be applied outside the United States.
B. and the criminal penalties apply to foreign companies even if the conspiracy took place outside the United States.
C. but their application to foreign companies is limited to actions that have taken place within the United States.
D. and they can be administered by foreign courts.
E. and they are enforced through the United Nations
Q:
The United States and the EU:
A. both apply antitrust law extraterritorially.
B. both oppose the Japanese Anti-Monopoly Law.
C. share a commitment to the per se concept in law.
D. two of the above.
E. all of A, B, and C.
Q:
The EU applies its competition policy:
A. extraterritorially.
B. only within the EU.
C. within the EU and applicant states.
D. within the EU and other European nations.
E. none of the above.
Q:
U.S. antitrust law is applied:
A. to all firms based in the United States, but not others.
B. to all firms, including extraterritorially.
C. only to U.S.-owned firms with assets in the United States.
D. to all firms, as long as they have assets in the United States.
E. all of the above.
Q:
One difference between the U.S. and EU approaches to antitrust law is that:
A. the United States follows the per se concept, wherein actions are illegal whether they have done harm.
B. the EU forbids market dominance by cartels, no matter the conditions, whereas the United States does not.
C. the U.S. focus is on impact on competition, whereas the EU focus is on the consumer.
D. the EU avoids competition, whereas the United States seeks it.
E. the EU emphasizes the prevention of price fixing, while the United States does not.
Q:
In the United States and EU, attitudes toward competition:
A. are quite similar.
B. are based on differing assumptions, with the United States following a per se concept and the EU concerned about the existence of harm.
C. differ because the EU is anticompetitive; its Commission on Competition ensures competition isn't too severe.
D. differ on the role of market dominance, with the United States supporting it and the EU wanting to avoid it.
E. are both focused on prevention of price fixing.
Q:
Antitrust law is intended to:
A. challenge successful businesses to allow proper levels of competition.
B. prevent large concentrations of economic power, such as monopolies.
C. create a more trusting business environment.
D. allow socialism to flourish.
E. two of the above.