McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Master of Business Administration (MBA) .
Chapters
| 1. |
Recently, the UK experienced an annual balance of trade representing a __________. |
| A. | large surplus (exceeding £100 billion) |
| B. | level of zero |
| C. | small surplus |
| D. | deficit |
| Answer» D. deficit | |
| 2. |
An increase in the current account deficit will place _______ pressure on the home currency value, other things equal. |
| A. | upward |
| B. | downward |
| C. | no |
| D. | upward or downward (depending on the size of the deficit) |
| Answer» B. downward | |
| 3. |
The North American Free Trade Agreement (NAFTA) increased restrictions on: |
| A. | trade between Canada and Mexico. |
| B. | trade between Canada and the U.S. |
| C. | direct foreign investment in Mexico by U.S. firms. |
| D. | none of the above. |
| Answer» D. none of the above. | |
| 4. |
The primary component of the current account is the: |
| A. | balance of trade. |
| B. | balance of capital market flows. |
| C. | balance of money market flows. |
| D. | unilateral transfers. |
| Answer» A. balance of trade. | |
| 5. |
A General Agreement on Tariffs and Trade (GATT) accord in 1993 called for: |
| A. | increased trade restrictions outside of North America. |
| B. | lower trade restrictions around the world. |
| C. | uniform environmental standards around the wor |
| Answer» B. lower trade restrictions around the world. | |
| 6. |
______________ is (are) income received by investors on foreign investments in financial assets (securities). |
| A. | Portfolio income |
| B. | Unilateral transfers |
| C. | Direct foreign income |
| D. | Factor income |
| Answer» D. Factor income | |
| 7. |
Based on the text, it should be obvious that markets are__________ in reality, and consequently, monopolistic advantages _________ be exploited. |
| A. | Perfect; may possibly |
| B. | Perfect; cannot |
| C. | Imperfect; may possibly |
| D. | Imperfect; cannot |
| Answer» C. Imperfect; may possibly | |
| 8. |
If countries are highly influential upon each other, the correlations of their economic growth levels would likely be __________. A firm would benefit __________ by diversifying sales among these countries relative to another set of countries that were not influential upon each other. |
| A. | high and positive; more |
| B. | high and positive; less |
| C. | close to zero; more |
| D. | close to zero; less |
| Answer» C. close to zero; more | |
| 9. |
Which of the following is a reason to consider international business? |
| A. | economies of scale. |
| B. | exploit monopolistic advantages. |
| C. | diversification. |
| D. | all of the above |
| Answer» D. all of the above | |
| 10. |
Assume a U.S. firm initiates direct foreign investment in the U.K.. If the British pound is expected to appreciate against the dollar, the dollar value of earnings remitted to the parent should _______. The parent may request that the subsidiary _______ in order to benefit from the expectation about the pound. |
| A. | increase; postpone remitting earnings until the pound strengthens |
| B. | decrease; postpone remitting earnings until the pound strengthens |
| C. | decrease; remit earnings immediately before the pound strengthens |
| D. | increase; remit earnings immediately before the pound strengthens |
| Answer» A. increase; postpone remitting earnings until the pound strengthens | |
| 11. |
A country with high unemployment could best increase its employment by: |
| A. | encouraging foreign firms to establish subsidiaries that produce the same products local firms produce. |
| B. | encouraging foreign firms to establish licensing arrangements for products local firms produce. |
| C. | encouraging foreign firms to establish subsidiaries that produce products local firms do not produce. |
| D. | none of the above would reduce employment. |
| Answer» C. encouraging foreign firms to establish subsidiaries that produce products local firms do not produce. | |
| 12. |
Which of the following is not true regarding host government attitudes towards foreign direct investment (FDI)? |
| A. | Host governments may offer incentives to MNCs in the form of subsidies in certain circumstances. |
| B. | Host governments generally perceive FDI as a remedy to eliminate a country's political problems. |
| C. | The ability of a host government to attract FDI is dependent on the country's markets and resources. |
| D. | Some types of FDI will be more attractive to some governments than to others. |
| Answer» B. Host governments generally perceive FDI as a remedy to eliminate a country's political problems. | |
| 13. |
When a firm perceives that a foreign currency is ________, the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively _______. |
| A. | overvalued; high |
| B. | overvalued; low |
| C. | undervalued; high |
| D. | undervalued; low |
| Answer» D. undervalued; low | |
| 14. |
To enter markets where superior profits are possible, an MNC should: |
| A. | acquire a competitor that has controlled its local market. |
| B. | establish a subsidiary or acquire a competitor in a new market. |
| C. | establish a subsidiary in a market where tougher trade restriction will adversely affect the firm's export volume. |
| D. | establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based. |
| Answer» A. acquire a competitor that has controlled its local market. | |
| 15. |
When economic conditions of two countries are ________, then a firm would _______ its risk by operating in both countries instead of concentrating just in one. |
| A. | highly correlated; reduce |
| B. | not highly correlated; reduce |
| C. | not highly correlated; not reduce |
| D. | none of the above |
| Answer» C. not highly correlated; not reduce | |
| 16. |
Consider an exporter that sells its accounts receivables off to another firm that becomes responsible for obtaining cash from the various importers. This reflects: |
| A. | accounts receivable financing. |
| B. | consignment. |
| C. | factoring. |
| D. | a letter of credit. |
| Answer» C. factoring. | |
| 17. |
Consider an exporter that is willing to send goods to the importer without a guaranteed payment by the bank. The bank provides a loan to the exporter that is backed by the value of the exported goods. This reflects:. |
| A. | accounts receivable financing. |
| B. | forfaiting. |
| C. | factoring. |
| D. | a letter of credit. |
| Answer» A. accounts receivable financing. | |
| 18. |
A ________ provides a summary of freight charges and conveys title to the merchandise. |
| A. | letter of credit |
| B. | banker's acceptance |
| C. | bill of lading |
| D. | bill of exchange |
| Answer» C. bill of lading | |
| 19. |
With _______, the exporter ships the goods to the importer while still retaining actual title to the merchandise. |
| A. | a letter of credit arrangement |
| B. | an open account arrangement |
| C. | a draft arrangement |
| D. | a consignment arrangement |
| Answer» D. a consignment arrangement | |
| 20. |
A bill of exchange requesting the bank to pay the face amount upon presentation of documents is a: |
| A. | banker's acceptance. |
| B. | time draft. |
| C. | letter of credit. |
| D. | sight draft. |
| Answer» D. sight draft. | |
| 21. |
Countertrade represents foreign trade: |
| A. | restrictions imposed by the government on imports from another country. |
| B. | restrictions imposed by the government on exports sent from the country. |
| C. | transactions that force the sales of goods of one country to be linked to the purchase or exchange of goods from the country. |
| D. | financing provided to an exporter in exchange for goods provided to the creditor by the exporter. |
| Answer» C. transactions that force the sales of goods of one country to be linked to the purchase or exchange of goods from the country. | |
| 22. |
Which of the following is not a payment method used for international trade? |
| A. | consignment. |
| B. | open account. |
| C. | factoring. |
| D. | draft. |
| Answer» C. factoring. | |
| 23. |
Which of the following is not true regarding letters of credit? |
| A. | They are issued by banks on behalf of the importer promising to pay the exporter. |
| B. | A revocable letter of credit can be cancelled or revoked at any time without prior notification to the beneficiary. |
| C. | They guarantee that the goods shipped are the goods purchas |
| Answer» C. They guarantee that the goods shipped are the goods purchas | |
| 24. |
A banker's acceptance is a draft drawn on and accepted by a(n) __________. |
| A. | bank |
| B. | importer |
| C. | exporter |
| D. | none of the above |
| Answer» A. bank | |
| 25. |
A(n) ___________ is an unconditional promise drawn by one party, instructing the buyer to pay the face amount upon presentation. |
| A. | draft |
| B. | bill of lading |
| C. | trade acceptance |
| D. | letter of credit |
| Answer» A. draft | |
| 26. |
In balance of payments accounting, a credit entry for the home country is |
| A. | an international transaction in which foreigners make payments to residents of the home country |
| B. | one in which residents of the home country make payments for foreigners |
| C. | one which results from an import of goods into the home country |
| D. | one which results from an outflow of capital from the home country to a foreign country |
| Answer» A. an international transaction in which foreigners make payments to residents of the home country | |
| 27. |
If the value of exports for a country is $35,500,000 and the value of imports is $35,000,000, the balance of trade can be described as |
| A. | in surplus but unfavorable |
| B. | showing a gain in real goods but in deficit |
| C. | in deficit and favorable |
| D. | in surplus, favorable and +$500,000 |
| Answer» D. in surplus, favorable and +$500,000 | |
| 28. |
All of the following statements are explanations of the reason for short-term capital transfers from Country X to Country Y EXCEPT |
| A. | Political instability in Country X |
| B. | Lower interest rates in Country X |
| C. | Lower interest rates in Country Y |
| D. | Country X has made it known that it is considering devaluation of its currency |
| Answer» C. Lower interest rates in Country Y | |
| 29. |
Multinational firms face exposure to many different types of international risk. Which of the following is not a type of exposure? |
| A. | diversifiable risk |
| B. | political risk |
| C. | foreign economies |
| D. | exchange rate movements |
| Answer» C. foreign economies | |
| 30. |
A firms expects to receive $20,000 from domestic operations and 20,000 British pounds (£) from a business in England. If the pound's value is $1.25, the expected total dollar cash flows are: |
| A. | $40,000 |
| B. | $36,000 |
| C. | $45,000 |
| D. | $20,000 |
| Answer» C. $45,000 | |
| 31. |
When a country realizes a deficit on its current account: |
| A. | Its net foreign investment position becomes positive |
| B. | It becomes a net demander of funds from other countries |
| C. | It realizes an excess of imports over exports on goods and services |
| D. | It becomes a net supplier of funds to other countries |
| Answer» B. It becomes a net demander of funds from other countries | |
| 32. |
Reducing a current account deficit requires a country to: |
| A. | Increase private saving relative to investment |
| B. | Increase private consumption relative to saving |
| C. | Increase private investment relative to consumption |
| D. | Increase private investment relative to saving |
| Answer» A. Increase private saving relative to investment | |
| 33. |
Reducing a current account deficit requires a country to: |
| A. | Increase the government’s deficit and increase private investment relative to saving |
| B. | Increase the government’s deficit and decrease private investment relative to saving |
| C. | Decrease the government’s deficit increase private investment relative to saving |
| D. | Decrease the government’s deficit and decrease private investment relative to saving |
| Answer» D. Decrease the government’s deficit and decrease private investment relative to saving | |
| 34. |
Reducing a current account surplus requires a country to: |
| A. | Increase the government’s deficit and increase private investment relative to saving |
| B. | Increase the government’s deficit and decrease private investment relative to saving |
| C. | Decrease the government’s deficit and increase private investment relative to saving |
| D. | Decrease the government’s deficit and decrease private investment relative to saving |
| Answer» A. Increase the government’s deficit and increase private investment relative to saving | |
| 35. |
Concerning a country’s business cycle, rapid growth of production and employment is commonly associated with: |
| A. | Large or growing trade deficits and current account deficits |
| B. | Large or growing trade deficits and current account surpluses |
| C. | Small or shrinking trade deficits and current account deficits |
| D. | Small or shrinking trade deficits and current account surpluses |
| Answer» A. Large or growing trade deficits and current account deficits | |
| 36. |
The burden of a current account deficit would be the least if a nation uses what it borrows to finance: |
| A. | Unemployment compensation benefits |
| B. | Social Security benefits |
| C. | Expenditures on food and recreation |
| D. | Investment on plant and equipment |
| Answer» D. Investment on plant and equipment | |
| 37. |
On the balance-of-payments statements, merchandise imports are classified in the: |
| A. | Current account |
| B. | Capital account |
| C. | Unilateral transfer account |
| D. | Official settlements account |
| Answer» A. Current account | |
| 38. |
The balance of international indebtedness is a record of a country’s international: |
| A. | Investment position over a period of time |
| B. | Investment position at a fixed point in time |
| C. | Trade position over a period of time |
| D. | Trade position at a fixed point in time |
| Answer» B. Investment position at a fixed point in time | |
| 39. |
Which of the following exchange rate policies uses a target exchange rate, but allows the target to change? |
| A. | fixed exchange rate |
| B. | flexible exchange rate |
| C. | crawling peg |
| D. | moving target |
| Answer» C. crawling peg | |
| 40. |
A firm that buys foreign exchange in order to take advantage of higher foreign interest rates is |
| A. | speculating. |
| B. | demonstrating purchasing power parity. |
| C. | engaging in interest rate arbitrage. |
| D. | responding to fluctuations in the business cycle. |
| Answer» B. demonstrating purchasing power parity. | |
| 41. |
When an individual or firm in a particular country requests that a bank sell foreign exchange, the bank will probably |
| A. | call a foreign bank and arrange a purchase. |
| B. | call the central bank and arrange a purchase. |
| C. | call another bank customer with foreign exchange holdings. |
| D. | call another domestic bank and arrange a purchase. |
| Answer» A. call a foreign bank and arrange a purchase. | |
| 42. |
In order to protect against foreign exchange risk, firms can use |
| A. | the spot market for foreign exchange. |
| B. | interest rate arbitrage. |
| C. | purchasing power parity. |
| D. | the forward market for foreign exchange. |
| Answer» B. interest rate arbitrage. | |
| 43. |
Covered interest arbitrage involves both |
| A. | the purchase of a foreign asset and a forward contract in the market for foreign exchange. |
| B. | the purchase of a domestic asset and a spot contract in the market for foreign exchange. |
| C. | the sale of a foreign asset and the purchase of a forward contract in the market for foreign exchange. |
| D. | the sale of domestic stocks and the purchase of foreign bonds. |
| Answer» D. the sale of domestic stocks and the purchase of foreign bonds. | |
| 44. |
All else equal and under a system of floating exchange rates, if a country enters a period of exceptionally strong growth, |
| A. | the pressure on its currency is to revalue. |
| B. | the pressure on its currency is to devalue. |
| C. | the pressure on its currency is to depreciate. |
| D. | the pressure on its currency is to appreciate. |
| Answer» A. the pressure on its currency is to revalue. | |
| 45. |
All else equal, if Euro Area raises its interest rates, |
| A. | the dollar depreciates. |
| B. | the U.S. demand for euros increases. |
| C. | the Euro Area supply of euros increases. |
| D. | Both A and B. |
| Answer» B. the U.S. demand for euros increases. | |
| 46. |
An Austrian firm that buys foreign exchange because its managers expect the euro to depreciate is |
| A. | increasing the supply of foreign exchange. |
| B. | increasing the demand for foreign exchange. |
| C. | speculating. |
| D. | Both A and B. |
| Answer» A. increasing the supply of foreign exchange. | |
| 47. |
Suppose the exchange rates between the United States and Euro Area are in long-run equilibrium as defined by the idea of purchasing power parity. If the law of one price holds perfectly, then differences between U.S. and Euro Area rates of inflation would |
| A. | have no effect on nominal exchange rates. |
| B. | be completely offset by changes in the real exchange rate. |
| C. | be completely offset by changes in the nominal exchange rate. |
| D. | violate the conditions for the law of one price. |
| Answer» D. violate the conditions for the law of one price. | |
| 48. |
An increase in the current account deficit will place _______ pressure on the home currency value, other things equal. |
| A. | upward |
| B. | downward |
| C. | no |
| D. | upward or downward (depending on the size of the deficit) |
| Answer» B. downward | |
| 49. |
The World Bank's Multilateral Investment Guarantee Agency (MIGA): |
| A. | offers various forms of export insurance. |
| B. | offers various forms of import insurance. |
| C. | offers various forms of exchange rate risk insurance. |
| D. | provides loans to developing countries. |
| Answer» A. offers various forms of export insurance. | |
| 50. |
From 1944 to 1971, the exchange rate between any two currencies was typically: |
| A. | fixed within narrow boundaries. |
| B. | floating, but subject to central bank intervention. |
| C. | floating, and not subject to central bank intervention. |
| D. | nonexistent; that is currencies were not exchanged, but gold was used to pay for all foreign transactions. |
| Answer» C. floating, and not subject to central bank intervention. | |
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