AIB Exam 2 UPDATED ACTUAL Exam
Questions and CORRECT Answers
Administrative (direct) capital controls - CORRECT ANSWER - Either prohibit or require
prior approval for certain capital account transactions
Bad Law - CORRECT ANSWER - a law is bad if it impedes or disrupts economic
efficiency
o The unnecessary costs of formality are derived fundamentally from bad law
Capital controls - CORRECT ANSWER - national restrictions or prohibitions on capital
(money)
• Moving into (inflows) a country, generally to prevent crises or out (outflows) of a country,
generally to manage crises
Chinese IP laws increase US tariffs - CORRECT ANSWER - Arranged marriages
License to sare
Shopping Spree
Five Finger Discount
Competitive exposure - CORRECT ANSWER - risks that arise when changes in exchange
rate impact the competitive dynamics facing a company for example changing the cost structure
of a foreign competition
Concerns with cross-border due diligence - CORRECT ANSWER - cultural differences
regulatory compliance
reliance on local counsel
procedures for due-diligence investigation
, Consequences of Capital flows - CORRECT ANSWER - Administratively brudensome,
favors large businesses, small businesses rely on banks, black market for currency, large
companies protest
Currency board - CORRECT ANSWER - Gov't set a conversion rate to a foreign currency
and guarantees full convertibility through accumulation of reserves (ex. Hong Kong to the US)
Dollarization - CORRECT ANSWER - partial or full: eliminate the domestiv currency and
replace with the US $ (ex. Panama and El Salvador)
Due Diligence - CORRECT ANSWER - the preliminary exchange of information b/t
potential JV partners
Example of capital control - CORRECT ANSWER - Limits on ATM, limit on money that
can leave the country, transaction taxes
Exchange rate considerations - CORRECT ANSWER - Monetary policy
Trade
Liability Dollarization
Risk Premium
International Reserves
Exchange Rates - CORRECT ANSWER - Free floating
Managed
Fixed or Pegged
Export Processing Zone - CORRECT ANSWER - A industrial estate, usually a fenced in
area...that specializes in manufacturing for export. It offers firms free trade conditions and a
liberal regulatory environment.
Questions and CORRECT Answers
Administrative (direct) capital controls - CORRECT ANSWER - Either prohibit or require
prior approval for certain capital account transactions
Bad Law - CORRECT ANSWER - a law is bad if it impedes or disrupts economic
efficiency
o The unnecessary costs of formality are derived fundamentally from bad law
Capital controls - CORRECT ANSWER - national restrictions or prohibitions on capital
(money)
• Moving into (inflows) a country, generally to prevent crises or out (outflows) of a country,
generally to manage crises
Chinese IP laws increase US tariffs - CORRECT ANSWER - Arranged marriages
License to sare
Shopping Spree
Five Finger Discount
Competitive exposure - CORRECT ANSWER - risks that arise when changes in exchange
rate impact the competitive dynamics facing a company for example changing the cost structure
of a foreign competition
Concerns with cross-border due diligence - CORRECT ANSWER - cultural differences
regulatory compliance
reliance on local counsel
procedures for due-diligence investigation
, Consequences of Capital flows - CORRECT ANSWER - Administratively brudensome,
favors large businesses, small businesses rely on banks, black market for currency, large
companies protest
Currency board - CORRECT ANSWER - Gov't set a conversion rate to a foreign currency
and guarantees full convertibility through accumulation of reserves (ex. Hong Kong to the US)
Dollarization - CORRECT ANSWER - partial or full: eliminate the domestiv currency and
replace with the US $ (ex. Panama and El Salvador)
Due Diligence - CORRECT ANSWER - the preliminary exchange of information b/t
potential JV partners
Example of capital control - CORRECT ANSWER - Limits on ATM, limit on money that
can leave the country, transaction taxes
Exchange rate considerations - CORRECT ANSWER - Monetary policy
Trade
Liability Dollarization
Risk Premium
International Reserves
Exchange Rates - CORRECT ANSWER - Free floating
Managed
Fixed or Pegged
Export Processing Zone - CORRECT ANSWER - A industrial estate, usually a fenced in
area...that specializes in manufacturing for export. It offers firms free trade conditions and a
liberal regulatory environment.
