FIN 420 EXAM 1 COST OF CAPITAL AND
LEVERAGE CONCEPTS PROBLEM SET WITH
ANSWERS
●● Exports
Answer: Goods and services sold to foreign buyers
●● Net Exports
Answer: Exports minus imports
●● Free Trade
Answer: No government restrictions on imports or exports
●● Trade Protection
Answer: Government restrictions, limits, or charges on trade
●● Absolute Advantage
Answer: Ability to produce a good using fewer resources than another
country
●● Comparative Advantage
, Answer: Ability to produce a good at lower opportunity cost than
another country
●● Opportunity Cost
Answer: Value of the next best alternative foregone
●● Balance of Payments (BOP)
Answer: Record of all international transactions of a country
●● Current Account
Answer: Trade in goods, services, income, and transfers
●● Financial Account
Answer: Foreign direct investment, portfolio investment, and other
capital flows
●● Capital Account
Answer: Capital transfers and non-produced, non-financial assets
●● Trade Deficit
Answer: Imports exceed exports
●● Trade Surplus
LEVERAGE CONCEPTS PROBLEM SET WITH
ANSWERS
●● Exports
Answer: Goods and services sold to foreign buyers
●● Net Exports
Answer: Exports minus imports
●● Free Trade
Answer: No government restrictions on imports or exports
●● Trade Protection
Answer: Government restrictions, limits, or charges on trade
●● Absolute Advantage
Answer: Ability to produce a good using fewer resources than another
country
●● Comparative Advantage
, Answer: Ability to produce a good at lower opportunity cost than
another country
●● Opportunity Cost
Answer: Value of the next best alternative foregone
●● Balance of Payments (BOP)
Answer: Record of all international transactions of a country
●● Current Account
Answer: Trade in goods, services, income, and transfers
●● Financial Account
Answer: Foreign direct investment, portfolio investment, and other
capital flows
●● Capital Account
Answer: Capital transfers and non-produced, non-financial assets
●● Trade Deficit
Answer: Imports exceed exports
●● Trade Surplus