Economics Quiz
Sample Midterm #1 Questions
1. Which of the following does not constitute a form of direct foreign investment?
a. Franchising
b. International trade
c. Joint ventures
d. Acquisitions of existing operations
e. Establishment of new foreign subsidiaries
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. Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic firms because
a. Monitoring of managers located in foreign countries is more difficult.
b. Foreign subsidiary managers raised in different cultures may not follow …show more content…
planning for more sophisticated computer technology.
5. 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.
6. Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance of trade position (increase its exports or reduce its imports).
a. It could attempt to reduce its home currency's value.
b. The government could require firms to engage in outsourcing.
c. The government could require that its local firms pursue outsourcing.
d. All of the above are mentioned.
7. If a country's government imposes a tariff on imported goods, that country's current account balance will likely ____ (assuming no retaliation by other governments).
a. decrease
b. increase
c. remain unaffected
d. either A or C are possible
8. 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%.
9. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000 in …show more content…
If Baylor Bank's forecast is correct, what will its dollar profit be from speculation over the five-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)?
a. $521,325.
b. $500,520.
c. $104,262.
d. $413,419.
e. $208,044.
16. If inflation increases substantially in Australia while U.S. inflation remains unchanged, this is expected to place ____ pressure on the value of the Australian dollar with respect to the U.S. dollar.
a. upward
b. downward
c. either upward or downward (depending on the degree of the increase in Australian inflation) d. none of the above; there will be no impact
17. The one-year forward rate of the British pound is quoted at $1.60, and the spot rate of the British pound is quoted at $1.63. The forward ____ is ____ percent.
a. discount; 1.9
b. discount; 1.8
c. premium; 1.9
d. premium; 1.8
18.If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call options or ____ euros forward in the forward exchange market.
a. selling; selling
b. selling;
1. Which of the following does not constitute a form of direct foreign investment?
a. Franchising
b. International trade
c. Joint ventures
d. Acquisitions of existing operations
e. Establishment of new foreign subsidiaries
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. Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic firms because
a. Monitoring of managers located in foreign countries is more difficult.
b. Foreign subsidiary managers raised in different cultures may not follow …show more content…
planning for more sophisticated computer technology.
5. 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.
6. Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance of trade position (increase its exports or reduce its imports).
a. It could attempt to reduce its home currency's value.
b. The government could require firms to engage in outsourcing.
c. The government could require that its local firms pursue outsourcing.
d. All of the above are mentioned.
7. If a country's government imposes a tariff on imported goods, that country's current account balance will likely ____ (assuming no retaliation by other governments).
a. decrease
b. increase
c. remain unaffected
d. either A or C are possible
8. 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%.
9. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is receiving 100,000 in …show more content…
If Baylor Bank's forecast is correct, what will its dollar profit be from speculation over the five-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)?
a. $521,325.
b. $500,520.
c. $104,262.
d. $413,419.
e. $208,044.
16. If inflation increases substantially in Australia while U.S. inflation remains unchanged, this is expected to place ____ pressure on the value of the Australian dollar with respect to the U.S. dollar.
a. upward
b. downward
c. either upward or downward (depending on the degree of the increase in Australian inflation) d. none of the above; there will be no impact
17. The one-year forward rate of the British pound is quoted at $1.60, and the spot rate of the British pound is quoted at $1.63. The forward ____ is ____ percent.
a. discount; 1.9
b. discount; 1.8
c. premium; 1.9
d. premium; 1.8
18.If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call options or ____ euros forward in the forward exchange market.
a. selling; selling
b. selling;