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International Finance

Assignment Problems (1) Name: Student No.:

Choose the correct answer for the following questions (only ONE correct answer)

1. Which of the following is NOT true regarding the subject matter of international finance?

A. International finance studies the important trade theories.

B. International finance examines the theory of balance of payments and its relationship with macroeconomic variables.

C. International finance studies exchange rate theories and the impacts of the exchange rate on the economy.

D. International finance discusses the exchange rate risks and the derivative instruments by which people use to cover the exchange rate risks and to speculate.

2. Globalization refers to __________.

A. the strengthening of existing international linkages of commerce, finance and the addition of new international linkages

B. the expansion of world governance and global society C. the increased mobility of peoples and information D. All of the above

3. Mutually beneficial trade requires each country to be the least-cost producer of at least one good that it can export to its trading partner. This is called __________. A. the theory of comparative advantage B. the international finance theory C. the theory of absolute advantage D. the theory of balance of payments

4. Which of the following would NOT be a way to implement comparative advantage?

A. IBM exports computers to Gambia.

B. Computer hardware is designed in the United States but manufactured and assembled in Malaysia.

C. Water of the greatest purity is obtained from the wells in Oregon, bottled, and exported worldwide.

D. All of the above are examples of ways to implement comparative advantage.

5. Which of the following would NOT be considered a feature of comparative advantage?

A. Exporters in country A sell goods to importers in country B.

B. Firms in country A specialize in making products that can be produced relative

efficiently, given country A’s endowment of factors of production. Firms in country B do likewise thus maximizing the combined output of countries A and B.

C. Trade exists between countries A and B because of specialized factors of production that cannot be moved among countries.

D. All of the above are features of comparative advantage.

6. The real sector in an economy deals with __________. A. transactions in all goods and services B. transactions in all financial assets

C. transactions in goods, services and financial assets D. transactions in new technological products only

7. Of the following, which would NOT be considered a way that government interferes with comparative advantage? A. tariffs B. quotas

C. managerial skills

D. other non-tariff restrictions

8. A firm with operations in more than one country is called a (an) _________. A. big firm

B. multinational corporation C. international firm D. all of the above

9. The primary goal of an MNC comes down to __________. A. seek markets

B. improve its production efficiency

C. gain access to technology or managerial expertise D. maximize shareholder wealth

10. World trade of goods and services has expanded in a remarkable pace because of the __________.

A. reduction in trade barriers B. lower transportation costs

C. advances in telecommunications, information technology and financial services D. All of the above are the reasons of rapid growth in international trade.

11. Nowadays the world trade in goods and services is important __________. A. only to developed countries B. only to less developed countries

C. to both developed and less developed countries D. to neither developed nor less developed counties

12. Which of the following is NOT a characteristic of the nowadays financial markets?

A. Increasingly interdependent national financial markets B. the global trend toward free-market economies

C. An increasingly number of cross-border partnerships, including many international merges, acquisitions, and joint ventures

D. An increasing number of cooperative linkages among securities exchange

13. __________ indicates that mutually beneficial trade can occur even when one nation is absolutely more efficient in the production of all goods. A. The theory of comparative advantage B. The theory of absolute advantage C. The theory of balance of payments

D. The theory of exchange rate determination

14. A well-established multinational company needs __________ to maximize its firm value.

A. an open market place

B. high quality strategic management C. access to capital D. all of the above

Questions 15 through 20 are based on the information presented in table 1.1:

Table 1.1

Production capability

Containers of snowboards Containers of digital cameras Austria has 1,000 units 15 containers/unit 8 containers/unit of production factors

Russia has 1,000 units 12 containers/unit 3 containers/unit of production factors

15. One production factor in Austria has a (an) __________ over one production factor in Russia in _________.

A. absolute disadvantage; digital cameras B. absolute disadvantage; snowboards

C. absolute advantage; both digital cameras and snowboards D. none of the above

16. Austria has a large comparative advantage over Russia in the production of __________ at a ratio of __________. A. snowboards; 5:4 B. digital cameras; 8:3