Q&A Hero

Q: The implied loss of national sovereignty to the European Central Bank (ECB) underlies the decision by Great Britain, Denmark, and Sweden to stay out of the euro zone for now. ⊚ true ⊚ false

Q: Concerns about national sovereignty in the EU have been a major impediment to economic integration. ⊚ true ⊚ false

Q: Coordination and policy harmonization problems increase as the number of countries that seek agreement increases. ⊚ true ⊚ false

Q: The European Union is an example of an economic union. ⊚ true ⊚ false

Q: Charlyce lives in a country where there are no barriers to the trade of goods and services. This is called a free trade area/zone. ⊚ true ⊚ false

Q: Firms outside of trading areas run the risk of being shut out of the single market by the creation of a A) trade fortress. B) contracting economy. C) single-market zone. D) destabilized economy.

Q: The emerging role of the _____ in competition policy suggests the EU is increasingly willing and able to intervene and impose conditions on companies proposing mergers and acquisitions. A) European Commission B) Court of Justice C) European Council D) European Parliament

Q: Once barriers to trade and investment are removed, companies A) can realize cost economies by centralizing production in key locations regardless of culture differences. B) can treat a group of integrated countries like the EU as a single market and produce standardized products for it. C) no longer have to deal with competitive practices that formerly limited their ability to realize cost economies. D) may still find it difficult to produce a standardized product for a single multiple-country market due to cultural, economic, administrative and geographic distances.

Q: The lowering of barriers to trade and investment among countries has led to _____ throughout the EU. A) higher costs of borrowing B) increase prices C) increase in hedging costs D) increased price competition

Q: Which of the following established the second largest currency zone in the world? A) Treaty of Rome B) Maastricht Treaty C) Treaty of Lisbon D) Single European Act

Q: Four main institutions make up the political structure of the EU. Which of them is responsible for proposing EU legislation, implementing it, and monitoring compliance with EU laws? A) European Council B) Court of Justice C) European Commission D) European Parliament

Q: The United States, Canada, and Mexico are member nations of A) CAFTA. B) Mercosur. C) the Andean Pact. D) NAFTA.

Q: The most recent attempt to reenergize the free trade movement in Africa occurred in early 2001, when _____, Uganda, and Tanzania, member states of the East African Community (EAC), committed themselves to relaunching their bloc, 24 years after it collapsed. A) Sudan B) Ethiopia C) Kenya D) Somalia

Q: According to _____, the trade diversion effects of Mercosur outweigh its trade creation effects. A) Alexander Yeats B) the majority of economists C) Jacques Delors D) the World Trade Organization

Q: On average, studies indicate that NAFTA s overall impact has been A) large but negative. B) large and positive. C) small and negative. D) small but positive.

Q: Three long-term EU members, Great Britain, _____, and Sweden, have not adopted the euro. A) France B) Italy C) Denmark D) Greece

Q: The establishment of the euro required participating countries to A) first convert their currency to U.S. dollars, then to euros. B) give up national control over monetary policy. C) create national banks at which citizens can convert their existing currency. D) maintain their own currency in parallel to the euro.

Q: The _____ is primarily a consultative rather than legislative body. A) European Parliament B) Court of Justice C) Council of the European Union D) European Commission

Q: The ultimate controlling unit within the EU is the A) European Commission. B) European Parliament. C) Court of Justice. D) Council of the European Union.

Q: How has the euro contributed to increasing competition in the European region? A) by increasing hedging costs B) by increasing the cost of capital C) by making price comparisons easy D) by enabling a common monetary policy

Q: Which of the following, adopted by the member nations of the European Community in 1987, committed member countries to work toward the establishment of a single market by December 31, 1992? A) Treaty of Rome B) Single European Act C) Treaty of Lisbon D) Maastricht Treaty

Q: The _____ represents the interests of member states and is clearly the ultimate controlling authority within the EU. A) European Council B) European Parliament C) Court of Justice D) European Commission

Q: Mercosur originated as _____ between Brazil and Argentina in 1988. A) a common market B) a free trade pact C) a customs union D) an economic union

Q: In 1990, Bolivia, Peru, Ecuador, Colombia, and Venezuela relaunched A) Mercosur. B) NAFTA. C) APEC. D) the Andean Pact.

Q: Which of the following is a reason Turkey is not yet a member of the EU? A) Only about 10 percent of Turkey s international trade is with the EU. B) There are concerns over human rights issues in the country. C) The country has yet to form a customs union with the EU. D) Turkey has a weak economy.

Q: In ____, similarities in the underlying structure of economic activity make it feasible to adopt a single currency and use a single exchange rate as an instrument of macroeconomic policy. A) an optimal currency area B) a unified economic area C) a uniform currency zone D) a monetary zone

Q: Which treaty, signed in February 1992, committed EC members to adopting a common currency by January 1, 1999? A) the Maastricht Treaty B) the Treaty of Rome C) the Single European Act D) the Treaty of Lisbon

Q: Which of the following observations is true of the euro? A) It is used by all member states of the European Union. B) While recommended, it is not required that participating countries give up their own currencies. C) It required participating countries to give up control over monetary policy. D) By adopting it, the EU created the most widely traded currency in the world.

Q: Which of the following observations pertaining to the EU s Court of Justice is correct? A) It is composed of two judges from each country. B) It is the supreme appeals court for EU law. C) Its judges are required to act as representatives of national interests. D) A member country can bring other members to the court for failing to meet EU treaty obligations only with the support of two other uninvolved EU countries.

Q: Tax concessions, low-interest loans, and grants or subsidies are all incentives that governments offer to foreign firms to invest in their countries. ⊚ true ⊚ false

Q: The British advanced corporation tax system taxed British companies foreign earnings at a higher rate than their domestic earnings. This tax code created an incentive for British companies to invest abroad. ⊚ true ⊚ false

Q: One way countries have encouraged firms to undertake FDI is through double taxation. ⊚ true ⊚ false

Q: The WTO supports the promotion of international trade in services. ⊚ true ⊚ false

Q: Offshore production refers to FDI undertaken to serve the host market. ⊚ true ⊚ false

Q: Indirect effects of FDI arise when jobs are created in local suppliers as a result of the FDI and when jobs are created because of increased local spending by employees of the MNE. ⊚ true ⊚ false

Q: According to the radical view, the MNE is a tool for exploiting host countries to the exclusive benefit of their capitalist-imperialist home countries. ⊚ true ⊚ false

Q: John Dunning pioneered the eclectic paradigm. ⊚ true ⊚ false

Q: Rivals rarely imitate what a firm does in an oligopoly. ⊚ true ⊚ false

Q: An oligopoly is an industry composed of a few large firms with somewhat equal market share. ⊚ true ⊚ false

Q: By placing tariffs on imported goods, governments increases the cost of exporting relative to foreign direct investment and licensing. ⊚ true ⊚ false

Q: Mergers and acquisitions are quicker to execute than greenfield investments. ⊚ true ⊚ false

Q: The amount of foreign direct investment (FDI) undertaken over a given time period is known as the flow of FDI. ⊚ true ⊚ false

Q: As transportation costs or trade barriers increase, exporting becomes unprofitable, and the choice is between FDI and A) subsidies. B) incentives. C) licensing. D) resource endowments.

Q: The _____ and Knickerbocker s theory of FDI tend to be less useful from a business perspective because they are descriptive rather than analytical. A) noninterventionist theory B) internalization theory C) eclectic paradigm D) product life-cycle theory

Q: From the perspective of a firm negotiating the terms of an investment with a host government, the firm s bargaining power is high when the A) firm has a short time in which to complete the negotiations. B) host government places a high value on what the firm has to offer. C) number of comparable alternatives open to the firm is low. D) host government does not places a high value on the firm s offering.

Q: _____ is essentially the service-industry version of licensing, although it normally involves much longer-term commitments. A) Franchising B) Subsidizing C) Greenfield investment D) Patenting

Q: Which of the following is a home-country policy aimed at restricting outward FDI flow? A) taxing domestic companies foreign earnings at a higher rate than their domestic earnings B) implementation of government-backed insurance programs to cover major types of foreign investment risk C) eliminating double taxation of foreign income D) persuading host countries to relax their restrictions on inbound FDI

Q: In which way can the source country s balance of payments benefit from FDI made in a foreign country? A) from cash outflow during the initial investment to finance the FDI B) if the purpose of the foreign investment is to serve the home market from a low-cost production location C) from the inward flow of foreign earnings D) if FDI is a substitute for direct exports

Q: FDI can benefit the home country s _____ if the foreign subsidiary creates demands for home-country exports of capital equipment, intermediate goods, complementary products, and the like. A) balance of payments B) oligopolistic industry C) current accounts D) licensing endeavors

Q: A country s _____ accounts keep track of both its payments to and its receipts from other countries. A) current B) offshore C) balance-of-payments D) currency

Q: A country s _____ keep track of its payments to and its receipts from other countries. A) federal payments ledgers B) concurrent accounts C) checks-and-balances accounts D) balance-of-payments accounts

Q: According to pragmatic nationalist view, FDI should be allowed so long as A) the benefits outweigh the costs. B) they do not aggressively court domestic firms. C) the costs outweigh the benefits. D) the MNE does not seek tax breaks or grants.

Q: Recent years have seen _____ in the number of countries that adhere to a radical ideology regarding FDI. A) decline B) no change C) a marked increase D) a slight increase

Q: An aspect of _____ is the tendency to aggressively court FDI believed to be in the national interest by, for example, offering subsidies to foreign MNEs in the form of tax breaks or grants. A) the radical view B) the noninterventionist principle C) the free market view D) pragmatic nationalism

Q: The pragmatic nationalist view highlights _____ of FDI. A) only the benefits B) only the costs C) both the benefits and costs D) neither the benefits nor the costs

Q: _____ argues that FDI is a benefit to both the source country and the host country. A) Pragmatic nationalism B) The free market view C) The noninterventionist principle D) The radical view

Q: _____ traces its roots to Marxist political and economic theory. A) The radical view B) Pragmatic nationalism C) The free market view D) The noninterventionist principle

Q: The country of Manystan has adopted neither a radical policy nor a free market policy, but rather one that posits that FDI has both benefits and costs. This is best described as A) pragmatic nationalism. B) postmodernism. C) the free market view. D) the noninterventionist principle.

Q: According to the _____ view of FDI, multinational enterprises (MNE) extract profits from the host country and take them to their home country, giving nothing of value to the host country in exchange. A) imperialist B) conservative C) free market D) radical

Q: Which of the following is a major drawback of using Knickerbocker s theory in explaining FDI? A) It ignores the fact that firms invest in a foreign country when demand in that country will support local production. B) It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license. C) It fails to identify when it is profitable to invest abroad. D) It ignores the fact that licensing as an entry strategy has its limitations.

Q: According to Knickerbocker s theory A) when a firm has valuable know-how that cannot be adequately protected by a licensing contract, it engages in FDI. B) when a firm s skills and know-how are not amenable to licensing, it usually prefers the FDI route. C) by placing tariffs on imported goods, governments indirectly increase the cost of exporting relative to foreign direct investment and licensing. D) when a firm that is part of an oligopolistic industry expands into a foreign market, other firms in the industry will be compelled to make similar investments.

Q: _____ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. A) Horizontal integration B) Multipoint competition C) An oligopoly D) Vertical integration

Q: Which of the following observations concerning Knickerbocker s theory is true? A) It does not explain imitative FDI behavior by firms in oligopolistic industries. B) Economists favor this theory as an explanation for FDI compared to the internalization theory. C) It addresses the issue of whether FDI is more efficient than exporting or licensing for expanding abroad. D) It does not explain why the first firm in an oligopoly decides to undertake FDI rather than to export or license.

Q: Which of the following best describes an industry composed of a few large firms? A) an oligopoly B) a monopoly C) an oligarchy D) a perfectly competitive market

Q: _____ and its extensions can help to explain imitative FDI behavior by firms in oligopolistic industries. A) Internalization theory B) The eclectic paradigm C) The noninterventionist theory D) Knickerbocker s theory

Q: _____ gives a firm tight control over manufacturing, marketing, and strategy in a foreign country that may be required to maximize its profitability. A) Licensing B) Internalization C) Foreign direct investment D) A merger

Q: _____ seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets. A) Knickerbocker s theory B) Internalization theory C) The noninterventionist theory D) The eclectic paradigm

Q: Which branch of economic theory seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets? A) internalization theory B) product life-cycle theory C) multipoint competition theory D) strategic behavior theory

Q: _____ occurs when a firm legally allows the right to produce its product, to use its production processes, or to use its brand name or trademark to another firm. A) Licensing B) Acquisition C) Internalization D) Merger

Q: _____ arise(s) from using resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets. A) Multipoint competition B) The eclectic paradigm C) Location-specific advantages D) Outflow of FDI

Q: ________ arises when two or more enterprises encounter each other in different regional markets, national markets, or industries. A) Comparative advantage B) Multipoint competition C) Competitive advantage D) Economic advantage

Q: What primarily explains why developing nations are characterized by a lower percentage of cross-border mergers and acquisitions compared to developed nations? A) fewer target firms to acquire in developing nations B) fierce opposition to mergers and acquisitions in developed nations C) unwillingness of foreign companies to invest in developing nations D) presence of import quotas in developing nations

Q: What is the primary reason Africa has attracted FDI in recent years? A) growth of the services sector B) complete deregulation of markets C) wave of privatization D) raw material availability

Q: The stock of FDI refers to the A) amount of FDI undertaken over a given period of time. B) total accumulated value of foreign-owned assets at a given time. C) flow of FDI out of a country. D) amount of foreign direct investment made by domestic companies over a given period of time.

Q: What has made the United States an attractive target for foreign direct investment? A) its unstable economy B) its unfavorable political environment C) its wealthy domestic consumer markets D) its closed society

Q: Since World War II, the largest source country for FDI has been A) China. B) Japan. C) the United States. D) the Netherlands.

Q: An Italian car manufacturer purchases a U.S. producer of car tires. This is an example of A) an acquisition. B) an absolute advantage. C) a greenfield investment. D) a merger.

Q: When a firm is considering FDI, what are some of the negotiating points it must weigh before making its decision?

Q: Describe some home-country policies that encourage outward FDI.

Q: What are the possible adverse effects of FDI on a host country s balance-of-payments position?