Question 1

When a country exports and imports the same product to satisfy consumer demands for product variety,that country is engaged in:

Accepted Answer

Intra-industry trade is the best choice as it refers to the trade between countries that involves the exchange of similar types of goods and services. This typically occurs when countries have a comparative advantage in different aspects of production or when consumer preferences demand a variety of product options. Therefore, when a country exports and imports the same product to satisfy consumer demands for product variety, it is engaged in intra-industry trade, not deceptive trade, duplicate trade or agglomeration.

Question 2

Positive externalities that can cause firms in an industry to locate in the same area include:

Accepted Answer

Positive externalities refer to benefits enjoyed by firms due to the actions of others. In this case, firms in the same industry located in the same area benefit from the exchange of ideas and shared labor pools, which can lead to greater innovation and efficiency in the industry. The other options, such as industry-friendly policies, favorable tax rates, and low cost power supplies, may also be beneficial but are not necessarily specific to firms in the same area.

Question 3

When a nation's products are first introduced into global markets,that country has a competitive advantage that is not easily overcome in the short-term.This expresses the basis of the _____________________________ of international trade.

Accepted Answer

The given statement is expressing the concept of the Product Life Cycle Theory, which suggests that a country has a competitive advantage in the beginning when it introduces new products in the global market. As the product becomes mature, the advantage decreases and other countries can also compete by introducing similar products. Hence, option A is the correct answer. Option B (Gravity Theory) explains the trade flows between countries based on their size and distance, while option C (Comparative Advantage Theory) explains how countries can benefit from trading with each other by specializing in producing goods that they can produce at a relatively lower opportunity cost. Option D (New Trade Theory) explains how economies of scale and network effects can enhance a country's competitiveness in international trade.

Question 4

Because setting up a foreign operation can involve significant costs,MNCs must:

Accepted Answer

MNCs must carefully consider the costs associated with setting up a foreign operation and weigh them against the potential benefits. This requires a thorough analysis of market conditions, regulatory requirements, and infrastructure, among other considerations. Borrowing money from either foreign or domestic banks and involving foreign investors are options, but not necessarily the best choices without a comprehensive cost-benefit analysis.

Question 5

The effect of the risks faced by MNCs is to:

Accepted Answer

The risks faced by MNCs can lead to an increase in the volatility of their cash flow. This is because events such as political instability or currency fluctuations can impact the firm's revenue and expenses, leading to fluctuations in cash flow. This can make it difficult for the firm to plan and make strategic decisions for future growth. Therefore, option D is the best choice. Options A, B, and C are not necessarily true, as MNCs could potentially mitigate risks through various strategies, such as diversification or hedging, and may not necessarily need new sources of foreign capital.

Question 6

If a firm conducts transactions in a foreign currency and the value of that currency declines,the firm's revenues will

Accepted Answer

When a firm conducts transactions in a foreign currency and the value of that currency declines, the firm's revenues will be reduced because the foreign currency will be worth less in the firm's domestic currency. This means that the firm will receive fewer domestic currency units for the same amount of foreign currency revenue.

Question 7

The international trade theory that focuses on consumer demands and preferences is the _________________________________________.

Accepted Answer

The New Trade Theory emphasizes the role of economies of scale and network effects, suggesting that trade patterns are influenced by consumer preferences and the increasing returns to scale for firms in specific industries. It moves beyond traditional theories that focus primarily on comparative advantage and factor endowments, highlighting the importance of market size and the role of consumers in shaping international trade dynamics.

Question 8

Internalization advantages for MNCs refers to:

Accepted Answer

Internalization advantages refer to the benefits firms gain by keeping important information or processes within the firm, avoiding the risks and costs associated with sharing them with external parties.

Question 9

___________________________ identifies factors that explain why certain nations have advantages in producing certain products.

Accepted Answer

Porter's Diamond Theory is a framework that identifies four factors that explain why certain nations have advantages in producing certain products: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry.

Question 10

Macroeconomic conditions that can give rise to affect a firm's cash flow include:

Accepted Answer

Economic growth can lead to increased demand for a firm's products or services, resulting in more cash inflows. However, inflation can increase costs for the firm and decrease the purchasing power of its customers, leading to decreased cash inflows. Therefore, it is important for firms to monitor macroeconomic conditions and adjust their strategies accordingly. Political unrest and recession (B) can also affect a firm's cash flow, but they are not as directly linked to macroeconomic conditions as economic growth and inflation. Competition and interest rates (D) can affect a firm's profitability and financing decisions, but they may not necessarily impact its cash flow directly.

Question 11

One impediment to the free flow of some factors of production,especially in the case of raw materials,is:

Accepted Answer

The answer of One impediment to the free flow of...

Question 12

The core competency that explains FDI activity is:

Accepted Answer

Core competency refers to the unique capabilities and resources that a company possesses, which allow it to achieve a competitive advantage over its rivals. In the case of FDI activity, the core competency is the ability of multinational corporations (MNCs) to invest in foreign real and financial assets in a skilled and effective way, leveraging their expertise and resources to generate higher returns than domestic competitors. This ability includes the capacity to evaluate political and currency risks, as well as to adapt to local market conditions and regulations. The free flow of financial resources and the willingness to take risks are important factors, but they are not the core competency that explains FDI activity.

Question 13

If a firm's financial performance responds to changes in currency value:

Accepted Answer

If a firm's financial performance responds to changes in currency value, it means that the firm is exposed to currency risk. The fluctuations in currency value can affect the firm's revenue, profit, and cash flows, especially if the firm has foreign operations or engages in international trade. Therefore, the firm should have a currency risk management strategy to mitigate the potential impact of these changes. Simply abandoning foreign operations may not be the most strategic choice for the firm.

Question 14

Firms that initially sell their products in the domestic market before eventually exporting products to take advantage of economies of scale are exhibiting the ___________________ of international trade.

Accepted Answer

The given scenario is an example of the Firm-Level Product Cycle Theory, which explains how firms develop and export their products over time to take advantage of economies of scale, changes in the global demand, and the ability to improve their products. This theory is different from the other options given, as the Product Life Cycle Theory focuses on the different stages of a product's life cycle and their impact on international trade, while the Gravity Theory focuses on the trade patterns between countries based on their economic size and distance. The Long-Term Theory is also not applicable to this scenario, as it mainly deals with the long-term effects of international trade on various aspects of the economy, such as economic growth and income distribution.

Question 15

The Gravity Theory of international trade says that the quantity of trade between two countries is positively related to __________________ and negatively related to _________________________.

Accepted Answer

According to the Gravity Theory, the volume of trade between two countries is positively related to their economic size (measured by GNP) and negatively related to the distance between them. Other factors, such as cultural similarities, language, and trade agreements, may also influence trade flows, but the gravity model emphasizes the importance of economic size and distance as the main determinants of trade patterns. Therefore, option B is the correct answer.

Question 16

Compared to _________________,______________________ can be easily transmitted to foreign locations for use there.

Accepted Answer

Knowledge capital, unlike physical capital, can be more easily transmitted to foreign locations because it often exists in digital or intellectual form, making it less bound by physical constraints for transfer and use.

Question 17

What recent developments have made the classical theory of comparative advantage less relevant?

Accepted Answer

Increased movement of factors of production across borders has made the classical theory of comparative advantage less relevant because it assumes immobility of factors like labor and capital between countries.

Question 18

___________________________ says that firms in an industry tend to locate in the same areas because of positive externalities.

Accepted Answer

Industry Agglomeration Theory explains that firms in the same industry tend to locate in the same areas because of positive externalities such as shared specialized labor, infrastructure, knowledge spillovers, and easier access to suppliers and markets.

Question 19

The changes in a firm's cash flow that result from changes in macroeconomic conditions are called:

Accepted Answer

Economic risk refers to the changes in cash flow that are caused by changes in macroeconomic conditions such as inflation, interest rates, and economic growth. This type of risk is typically beyond the control of the firm and can have a significant impact on its financial performance. Business risk refers to the risk of not being able to generate sufficient profits to cover the costs of doing business, while country risk refers to the risks associated with investing in a particular country such as political instability or regulatory changes. Currency risk involves the risks that arise from fluctuations in exchange rates when a firm engages in transactions involving foreign currencies.

Question 20

An MNC acquiring ownership in a foreign branch or subsidiary is an example of:

Accepted Answer

Foreign direct investment involves an MNC acquiring ownership in a foreign branch or subsidiary, whereas globalization refers to the increasing interconnectedness and interdependence of economies worldwide. International trade refers specifically to the exchange of goods and services between countries, and political risk refers to the potential for political factors to negatively impact business operations in a foreign country.

Quiz 1: Introduction