IBUS 401 - QUIZ 1 COMPLETELY
SOLVED!!!
As a US resident, a _________________ dollar indicates cheaper imported goods. -
ANSWER stronger
As a US resident, a _________________ dollar indicates more expensive imported
goods. - ANSWER weaker
Agency Cost - ANSWER cost of ensuring that managers maximize shareholder wealth
MNCs usually have ______________ agency cost. Why? - ANSWER Higher, for
several reasons:
- monitoring managers of distant subsidiaries in foreign countries is more difficult
- foreign subsidiary managers raised in different cultures may not follow uniform goals
- sheer size of larger MNCs can create large agency problems
- some non-US managers tend to downplay the short-term effects of decisions
Theories of International Business - ANSWER 1. Theory of Competitive Advantage
2. Imperfect Market Theory
3. Product Cycle Theory
Theory of Competitive Advantage - ANSWER Specialization increases production
efficiency. (a country does something better than another country so you should do
work with them)
Imperfect Markets Theory - ANSWER Factors of production are somewhat immobile
providing incentive to seek out foreign opportunities
Valuation of MNC - ANSWER Present value of dollar cash flows discounted by cost of
capital. US Company - dollar cash flow. Foreign company - forecast currency exchange
rates to get back to dollars.
International flow of funds - ANSWER accounting for cash (positive if cash comes in,
negative if cash goes out)
Balance of payments - ANSWER transactions between domestic and foreign residents
for a specific country over a specific period of time (the plus and minuses)
Components of the balance of payments statement - ANSWER Current Account,
Capital Account, Financial Account
, Current Account - ANSWER summary of flow of funds due to purchases of goods or
services, interest payments, and and transfer payments
Balance of trade - ANSWER largest part of current account; Export goods/services (+)
and import goods/services (-)
Capital Account - ANSWER summary of flow of funds resulting from the sale of assets
between one specified country and all other countries over a specified period of time
(small amount compared to everything else; minor things)
Financial Account - ANSWER special types of investment, including direct foreign
investment and portfolio investment (long-term cash flows)
Key exporters to the United States - ANSWER Canada, China, Mexico, and Japan
Major objectives of International Monetary Fund - ANSWER 1. promote cooperation
among countries on international monetary issues
2. promote stability in exchange rates
3. provide temporary funds to member countries attempting to correct imbalances of
international payments
4. promote free mobility of capital funds across countries
5. promote free trade
World Bank - ANSWER loan money to countries that need it to develop their economy
Gold Standard - ANSWER 1876-1913 gold was the currency
Bretton Woods Agreement - ANSWER fixed every major currency in the world to the US
dollar (US dollar was tied to gold)
fiât currency - ANSWER not backed up by gold. USD is one - it's backed by full faith and
credit
Bid - ANSWER how much bank will pay for a currency
Ask - ANSWER how much bank wants for a currency
Bid/ask spread = - ANSWER (ask - bid)/ask
Spot Market - ANSWER don't know rate until that day (the actuals)
Forward Market - ANSWER can buy/enter an agreement today to buy/sell a currency in
the future, ensure an exchange rate at some time in the future
how you participate in the forward market - ANSWER forward/futures contracts and
put/call options
SOLVED!!!
As a US resident, a _________________ dollar indicates cheaper imported goods. -
ANSWER stronger
As a US resident, a _________________ dollar indicates more expensive imported
goods. - ANSWER weaker
Agency Cost - ANSWER cost of ensuring that managers maximize shareholder wealth
MNCs usually have ______________ agency cost. Why? - ANSWER Higher, for
several reasons:
- monitoring managers of distant subsidiaries in foreign countries is more difficult
- foreign subsidiary managers raised in different cultures may not follow uniform goals
- sheer size of larger MNCs can create large agency problems
- some non-US managers tend to downplay the short-term effects of decisions
Theories of International Business - ANSWER 1. Theory of Competitive Advantage
2. Imperfect Market Theory
3. Product Cycle Theory
Theory of Competitive Advantage - ANSWER Specialization increases production
efficiency. (a country does something better than another country so you should do
work with them)
Imperfect Markets Theory - ANSWER Factors of production are somewhat immobile
providing incentive to seek out foreign opportunities
Valuation of MNC - ANSWER Present value of dollar cash flows discounted by cost of
capital. US Company - dollar cash flow. Foreign company - forecast currency exchange
rates to get back to dollars.
International flow of funds - ANSWER accounting for cash (positive if cash comes in,
negative if cash goes out)
Balance of payments - ANSWER transactions between domestic and foreign residents
for a specific country over a specific period of time (the plus and minuses)
Components of the balance of payments statement - ANSWER Current Account,
Capital Account, Financial Account
, Current Account - ANSWER summary of flow of funds due to purchases of goods or
services, interest payments, and and transfer payments
Balance of trade - ANSWER largest part of current account; Export goods/services (+)
and import goods/services (-)
Capital Account - ANSWER summary of flow of funds resulting from the sale of assets
between one specified country and all other countries over a specified period of time
(small amount compared to everything else; minor things)
Financial Account - ANSWER special types of investment, including direct foreign
investment and portfolio investment (long-term cash flows)
Key exporters to the United States - ANSWER Canada, China, Mexico, and Japan
Major objectives of International Monetary Fund - ANSWER 1. promote cooperation
among countries on international monetary issues
2. promote stability in exchange rates
3. provide temporary funds to member countries attempting to correct imbalances of
international payments
4. promote free mobility of capital funds across countries
5. promote free trade
World Bank - ANSWER loan money to countries that need it to develop their economy
Gold Standard - ANSWER 1876-1913 gold was the currency
Bretton Woods Agreement - ANSWER fixed every major currency in the world to the US
dollar (US dollar was tied to gold)
fiât currency - ANSWER not backed up by gold. USD is one - it's backed by full faith and
credit
Bid - ANSWER how much bank will pay for a currency
Ask - ANSWER how much bank wants for a currency
Bid/ask spread = - ANSWER (ask - bid)/ask
Spot Market - ANSWER don't know rate until that day (the actuals)
Forward Market - ANSWER can buy/enter an agreement today to buy/sell a currency in
the future, ensure an exchange rate at some time in the future
how you participate in the forward market - ANSWER forward/futures contracts and
put/call options
