Question 1

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 10 rand/US$, then

Accepted Answer

Given the exchange rate of 10 rand/US$, the price of the wine in both countries is effectively the same (US$250 = 2500 rand), meaning there is no arbitrage opportunity as buying and selling would result in no profit.

Question 2

A ban on imports, a tariff, or a quota raise the price to domestic consumers. This means that consumers will buy less of the product at a higher price. The loss associated with this is called

Accepted Answer

A ban on imports, a tariff, or a quota all create an artificial barrier to trade, resulting in a decrease in the supply of the imported good and an increase in the price to domestic consumers. This increase in price causes them to buy less, resulting in a loss of consumer surplus, producer surplus, and potential tax revenue. This overall loss is called deadweight loss. Therefore, the correct answer is C, deadweight loss.

Question 3

Your U.S.-based company is selling parts to a company in Bangladesh. If you require payment in US$

Accepted Answer

If your company requires payment in US$, the Bangladeshi company bears the exchange rate risk because they are the ones who will have to convert their local currency to US$ in order to pay for the parts. The exchange rate can fluctuate between the time the order is placed and the time of payment, which can affect the amount of money that the Bangladeshi company ultimately has to pay.

Question 4

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 20 rand/US$, then

Accepted Answer

The bottle of wine costs 12.5 times more in the U.S. than in South Africa (250 US$ / 2500 rand). If we convert the price in South African Rand to US dollars using the exchange rate (2500 rand / 20 rand/US$), the equivalent price in the U.S. is only $125, while it costs $250 locally. This means we can buy the wine in South Africa for 125 US$, sell it in the U.S. for 250 US$, and make a profit of 125 US$. Therefore, there is an arbitrage opportunity by buying the wine in South Africa and selling it in the U.S., and the price in the U.S. will go down.

Question 5

Compared to free trade, a ban on imports of a good

Accepted Answer

When imports of a good are banned, it reduces competition in the domestic market, leading to an increase in the domestic price of the good, which is disadvantageous for consumers. As a result, consumer surplus is reduced. However, domestic producers benefit from the ban on imports. Due to the higher domestic price, domestic producers supply more units of the good than before. But the inefficiency arises in the economy as a result of reduced consumer surplus and no imports. This causes the deadweight loss.

Question 6

Your U.S.-based company is selling parts to a company in Chile and the company will pay you US$10,000 in 3 months. The current exchange rate is 490 pesos/US$. If the exchange rate at the time of payment is 510 pesos/US$

Accepted Answer

The answer of Your U.S.-based company is selling parts to...

Question 7

Your U.S.-based company is doing business internationally. One way to mitigate exchange rate risk is to

Accepted Answer

All the options listed are methods to mitigate exchange rate risk. Requiring payment in US dollars eliminates the need to convert foreign currency. Forward and futures contracts allow a company to lock in exchange rates for future transactions, thus avoiding unexpected fluctuations.

Question 8

-The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. Currently 10 units are imported. The Consumption distortion loss is equal to

Accepted Answer

The answer of 
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Question 9

Your U.S.-based company is selling parts to a company in Chile and the company will pay you 9.8 million pesos in 3 months. The current exchange rate is 490 pesos/US$. If the exchange rate at the time of payment is 510 pesos/US$

Accepted Answer

When the exchange rate changes from 490 pesos/US$ to 510 pesos/US$, it means you get more pesos for each dollar. However, since you are receiving a fixed amount of pesos, when you convert these pesos back to dollars at the higher exchange rate, you will end up with fewer dollars than initially anticipated, thus earning less profit.

Question 10

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 5 rand/US$, then

Accepted Answer

If we buy the wine in the U.S. for US$250 and sell it in South Africa for 2500 rand, we will receive 12,500 rand (2500 x 5) for each bottle of wine (assuming there are no transaction costs). This is significantly more than the price of 2500 rand that the wine is sold for in South Africa. Therefore, there is an arbitrage opportunity by buying the wine in the U.S. and selling it in South Africa. As a result, the demand for the wine in South Africa will increase, and the price will eventually drop as the market corrects itself.

Question 11

-The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. If imported rice is banned, the loss in social welfare is

Accepted Answer

The answer of 
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Question 12

Your U.S.-based company is selling parts to a company in Bangladesh. If the Bangladeshi company purchases a futures contract

Accepted Answer

By purchasing a futures contract, the Bangladeshi company locks in an exchange rate for a future date, effectively eliminating the exchange rate risk for both parties involved in the transaction.

Question 13

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are transaction costs of US$50, and the exchange rate is 20 rand/US$, then

Accepted Answer

If we convert the price of the wine in South Africa to U.S. dollars, it would be 2500/20 = US$125. With transaction costs included, the total cost of buying the wine in South Africa and selling it in the U.S. would be US$125 + US$50 = US$175. This is lower than the price of buying the wine directly in the U.S. for US$250, so there is an opportunity for arbitrage by buying the wine in South Africa and selling it in the U.S. This would lead to an increase in the price of the wine in the U.S. and a decrease in the price in South Africa.

Question 14

A ban on imports, a tariff, or a quota raise the price to domestic consumers creates a deadweight loss. This loss is composed of

Accepted Answer

A ban on imports, a tariff, or a quota raises the price to domestic consumers, which creates a distortion in consumption and production. This leads to a consumption distortion loss, which is the excess burden of a tax on consumption, and a production distortion loss, which is the inefficiency created by reducing the quantity of goods produced. Therefore, the correct answer is C - consumption distortion loss and production distortion loss.

Question 15

The larger the U.S. imposed per unit import tariff on a good imported and that is also produced in the U.S.

Accepted Answer

When the U.S imposes a per unit import tariff on a good imported and that is also produced in the U.S, the following outcomes are observed:
A) The smaller the U.S consumer surplus - this is because the increase in the price of the imported good reduces the quantity demanded and causes consumers to pay a higher price, reducing their consumer surplus.
B) The larger the U.S producer surplus - the increase in the price of the imported good increases the quantity supplied by domestic producers, leading to an increase in their producer surplus.
C) Government revenue may be larger or smaller - this depends on the size of the per unit import tariff and the elasticity of demand for the imported good. If the demand is elastic, the government revenue may be smaller as the increase in price may lead to a large decrease in the quantity demanded, leading to a reduction in revenue. On the other hand, if the demand is inelastic, the government revenue may be larger. 
Thus, all of the above are true.

Question 16

International price discrimination for a good is possible if

Accepted Answer

International price discrimination for a good is possible if the price difference between two countries is less than the transaction costs in arbitrage. This condition prevents buyers from profitably buying the good in a lower-priced country and selling it in a higher-priced country, allowing sellers to maintain different prices in different markets.

Question 17

Which of the following can reduce the number of cars imported?

Accepted Answer

A tariff is a tax on imported goods, which makes imported cars more expensive and therefore reduces the demand and the number imported. 
A quota sets a limit on the number of cars that can be imported, which directly reduces the number imported. 
A ban prohibits the importation of cars altogether, which obviously reduces the number imported to zero. Therefore, all of the aforementioned methods can reduce the number of cars imported.

Question 18

The imposition of a quota on an imported good

Accepted Answer

Imposing a quota on an imported good limits the quantity of the good that can be imported, effectively reducing the supply of the good in the market. This is represented by a leftward shift of the supply curve, which can be interpreted as the supply curve moving up when considering a graph where price is on the vertical axis and quantity on the horizontal axis. It does not directly affect the demand curve for the good.

Question 19

-The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. Currently 10 units are imported. The loss from shifting production from foreign to domestic producers equals

Accepted Answer

The answer of 
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Question 20

Levying a tariff on an imported good

Accepted Answer

Levying a tariff on an imported good effectively increases the cost for importers, which is reflected as a decrease in supply or an upward shift in the supply curve, as it becomes more expensive to supply the good at any given price. It does not directly affect the demand curve.

Quiz 17: Global Business

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 10 rand/US$, then

A ban on imports, a tariff, or a quota raise the price to domestic consumers. This means that consumers will buy less of the product at a higher price. The loss associated with this is called

Your U.S.-based company is selling parts to a company in Bangladesh. If you require payment in US$

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 20 rand/US$, then

Compared to free trade, a ban on imports of a good

Your U.S.-based company is selling parts to a company in Chile and the company will pay you US$10,000 in 3 months. The current exchange rate is 490 pesos/US$. If the exchange rate at the time of payment is 510 pesos/US$

Your U.S.-based company is doing business internationally. One way to mitigate exchange rate risk is to

-The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. Currently 10 units are imported. The Consumption distortion loss is equal to

Your U.S.-based company is selling parts to a company in Chile and the company will pay you 9.8 million pesos in 3 months. The current exchange rate is 490 pesos/US$. If the exchange rate at the time of payment is 510 pesos/US$

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 5 rand/US$, then

-The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. If imported rice is banned, the loss in social welfare is

Your U.S.-based company is selling parts to a company in Bangladesh. If the Bangladeshi company purchases a futures contract

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are transaction costs of US$50, and the exchange rate is 20 rand/US$, then

A ban on imports, a tariff, or a quota raise the price to domestic consumers creates a deadweight loss. This loss is composed of

The larger the U.S. imposed per unit import tariff on a good imported and that is also produced in the U.S.

International price discrimination for a good is possible if

Which of the following can reduce the number of cars imported?

The imposition of a quota on an imported good

-The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. Currently 10 units are imported. The loss from shifting production from foreign to domestic producers equals

Levying a tariff on an imported good