Multiple Choice Answers

1. In some countries, bribes are commonplace. If a U.S.-based MNC decides to adhere to a strict code of ethics and not pay bribes, its subsidiary may be at a competitive disadvantage in the foreign country.
A) true.
B) false.

2. Which of the following theories identifies specialization as a reason for international business?
A) theory of comparative advantage.
B) imperfect markets theory.
C) product cycle theory.
D) none of the above

3. According to the text, products and services are generally becoming _______ standardized across countries, which tends to _______ the globalization of business.
A) more; encourage
B) more; discourage
C) less; discourage
D) less; encourage

4. Which of the following is an example of direct foreign invest¬ment?
A) exporting to a country.
B) establishing licensing arrangements in a country.
C) purchasing existing companies in a country.
D) investing directly (without brokers) in foreign stocks.

5. A high home inflation rate relative to other countries would _______ the home country’s current account balance, other things equal. A high growth in the home income level relative to other countries would _______ the home country’s current account balance, other things equal.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

6. Over time, international trade (exports plus imports) as a percentage of GDP has:
A) increased for most major countries.
B) decreased for most major countries.
C) stayed about constant for most major countries.
D) increased for about half the major countries and decreased for the others.
7. A weak home currency may not be a perfect solution to correct a balance of trade deficit because:
A) it reduces the prices of imports paid by local companies.
B) it increases the prices of exports by local companies.
C) it prevents international trade transactions from being prearranged.
D) foreign companies may reduce the prices of their products to stay competitive.

8. A balance-of-trade surplus indicates an excess of merchandise imports over merchandise exports.
A) true.
B) false.

9. Assume that a bank’s bid rate on Swiss francs is $.45 and its ask rate is $.47. Its bid ask percentage spread is:
A) about 4.44%.
B) about 4.26%.
C) about 4.03%.
D) about 4.17%.

10. According to the text, the forward rate is commonly used for:
A) hedging.
B) Eurocurrency transactions.
C) Eurocredit transactions.
D) Eurobond transactions.

11. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will need C$200,000 in 90 days to make payment on imports from Canada, it could:
A) obtain a 90 day forward purchase contract on Canadian dollars.
B) obtain a 90 day forward sale contract on Canadian dollars.
C) purchase Canadian dollars 90 days from now at the spot rate.
D) sell Canadian dollars 90 days from now at the spot rate.

12. An investor engaging in a transaction whereby he or she contracts to purchase British pounds one year from now is an example of a spot market transaction.
A) true.
B) false.

13. A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming no change in interest rates or other factors) a(n) ______ in Mexican demand for U.S. goods, and the Mexican peso should _______.
A) increase; appreciate
B) increase; depreciate
C) decrease; depreciate
D) decrease; appreciate

14. Assume that Swiss investors have francs available to invest in securities, and they initially view U.S. and British interest rates as equally attractive. Now assume that U.S. interest rates increase while British interest rates stay the same. This would likely cause:
A) the Swiss demand for dollars to decrease and the dollar will depreciate against the pound.
B) the Swiss demand for dollars to increase and the dollar will depreciate against the Swiss franc.
C) the Swiss demand for dollars to increase and the dollar will appreciate against the Swiss franc.
D) the Swiss demand for dollars to decrease and the dollar will appreciate against the pound.

15. The phrase “the dollar was mixed in trading” means that:
A) the dollar was strong in some periods and weak in other periods over the last month.
B) the volume of trading was very high in some periods and low in other periods.
C) the dollar was involved in some currency transactions, but not others.
D) the dollar strengthened against some currencies and weakened against others.

16. Relatively high Japanese inflation may result in an increase in the supply of yen for sale and a reduction in the demand for yen.
A) true.
B) false.