Question 1

Hedging exchange rate exposure involves establishing an offsetting currency position such that the loss or gain of one currency position is offset by a corresponding gain or loss in some other currency.

Accepted Answer

Hedging exchange rate exposure is the practice of taking an offsetting position in a foreign currency in order to mitigate the risk of losses due to fluctuations in exchange rates. This can involve buying or selling currencies, or entering into derivatives contracts such as forwards, options, or futures. The aim is to create a position that will generate gains if the original currency position loses value, thereby offsetting the losses and providing a measure of protection against currency risk.

Question 2

In the broadest sense, a stronger Chinese currency, renminbi, should help rebalance the global economy.

Accepted Answer

A stronger renminbi would make Chinese exports more expensive, potentially decreasing demand for them and increasing demand for imports, which would help balance trade flows globally.

Question 3

A country's currency would be overvalued if the Big Mac price (converted to dollars)is lower than the U.S.price.

Accepted Answer

A country's currency would be overvalued if the Big Mac price (converted to dollars) is higher than the U.S. price. If the price is lower than the U.S. price, it means that the currency is undervalued.

Question 4

Global companies can also contribute to economic development by finding creative ways to preserve old-growth forests and other resources while creating economic opportunities for local inhabitants.

Accepted Answer

Global companies can engage in sustainable practices that preserve natural resources while also creating economic opportunities, such as establishing conservation agreements with local communities or investing in eco-tourism ventures. This approach can help to support economic development while also promoting conservation and responsible stewardship of the environment.

Question 5

The United States regularly posts deficits in both the current account and the trade balance in goods.

Accepted Answer

The current account measures the balance of trade in goods and services, as well as income flows, while the trade balance in goods only measures the balance of trade in physical goods. The United States has consistently posted deficits in both of these measures, meaning that imports have exceeded exports, leading to outflows of money from the country.

Question 6

The CEO of Otis Elevators says they measure elevator populations in countries as units installed per thousand people.According to this, China is about half an elevator per thousand people.

Accepted Answer

The answer of The CEO of Otis Elevators says they...

Question 7

The foreign exchange market consists literally of a buyer's and a seller's market where currencies are traded for both spot and future delivery on a continuous basis.The forward market is for immediate delivery and the spot market is for future delivery.

Accepted Answer

The forward market is for future delivery and the spot market is for immediate delivery.

Question 8

A country with a positive current account balance has a trade deficit; that is, the outflow of money to pay for imports exceeds the inflow of money for sales of exports.

Accepted Answer

A country with a positive current account balance has a trade surplus; that is, the inflow of money for sales of exports exceeds the outflow of money to pay for imports.

Question 9

With per capita GNI of $10,150, Venezuela is classified as an upper-middle-income country.

Accepted Answer

The World Bank's classification for upper-middle-income countries is with a per capita GNI between $4,046 and $12,535, which includes Venezuela with its per capita GNI of $10,150. Therefore, the statement is true.

Question 10

In China, saturation levels of private motor vehicles and personal computers (PCs)are quite high.

Accepted Answer

China has a large population, and while the number of private motor vehicles and personal computers is growing, the saturation levels are not yet considered high compared to more developed countries.

Question 11

The United Nations designates 50 countries in the bottom ranks of the low-income category as least-developed countries (LDCs); the term is sometimes used to indicate a contrast with developing countries and developed countries.

Accepted Answer

The statement correctly describes how the United Nations designates countries as least-developed and distinguishes them from developing and developed countries.

Question 12

Upper-middle-income countries, also known as industrializing or developing countries, are those that achieve the highest rates of economic growth and are also collectively referred to as Newly Incoming Economies or NIEs.

Accepted Answer

Upper-middle-income countries are not necessarily the same as Newly Industrialized Economies (NIEs). NIEs are a subset of countries that have moved from developing to more industrialized economies, but not all upper-middle-income countries are classified as NIEs.

Question 13

According to C.K.Prahalad and A.Hammond, the poor often pay higher prices for many goods, and so there is an opportunity for efficient competitors to realize attractive margins by offering quality and low prices.

Accepted Answer

C.K.Prahalad and A.Hammond suggested that due to the lack of access to affordable alternatives, the poor often pay higher prices for goods. This creates an opportunity for efficient competitors to offer quality products at lower prices and capture a significant market share. As a result, these efficient competitors can realize attractive margins while catering to the needs of the poor. Therefore, the statement is true.

Question 14

A distinction between industrial and postindustrial countries is that the postindustrial countries exhibit an orientation toward the future and stress the importance of interpersonal relationships in the functioning of society.

Accepted Answer

This statement is generally true. Postindustrial countries, also known as information or service-based economies, tend to prioritize technology, innovation, and development of new ideas for the future. These societies also often place a higher value on social and emotional connections between individuals, as opposed to just the economic or material aspects emphasized in industrial economies. That being said, there may be variations and exceptions to this trend among different countries and cultures.

Question 15

The Coca-Cola Company recently began to address dietary and health needs in low-income countries by developing Vitango, a beverage product that can help fight anemia, blindness, and other ailments related to malnutrition.

Accepted Answer

The statement is true. The Coca-Cola Company has developed Vitango, a beverage product that provides essential vitamins and minerals to people in low-income countries who suffer from malnutrition-related health problems such as anemia and blindness.

Question 16

China offsets its trade surpluses with an outflow of capital, while the United States offsets its trade deficit with an inflow of capital.

Accepted Answer

This statement is true. China has been investing heavily in foreign assets such as Treasuries, real estate, and businesses to offset its trade surpluses. On the other hand, the United States has been borrowing from foreign investors to finance its trade deficit.

Question 17

The "balance of payments" is a record of all economic transactions between the residents of a country and the rest of the world.

Accepted Answer

The balance of payments is a record of all economic transactions between the residents of a country and the rest of the world, including trade in goods and services, financial investments and transfers.

Question 18

The thirty nations that belong to the OECD, who believe in market-allocation economic systems and pluralistic democracy, addressed the vexing problem of bribery by requiring members to cooperate when pursuing bribery allegations.

Accepted Answer

This statement is true. The OECD has implemented the Anti-Bribery Convention which requires member countries to cooperate in the investigation and prosecution of bribery allegations.

Question 19

With the exception of a few oil-rich nations, the countries in the high-income category reached their present income level through a process of sustained economic growth.

Accepted Answer

Countries in the high-income category, with the exception of a few oil-rich nations, have achieved their present income level through sustained economic growth.

Question 20

A call option in foreign currency gives the buyer the right, not the obligation, to sell a specified number of foreign currency units at a fixed price, up to the option's expiration date.

Accepted Answer

A call option in foreign currency gives the buyer the right, not the obligation, to buy a specified number of foreign currency units at a fixed price, up to the option's expiration date. The option to sell foreign currency units would be a put option.

Quiz 2: The Global Economic Environment