Ch01
Student: ___________________________________________________________________________
1. What major dimension sets apart international finance from domestic finance?
A. Foreign exchange and political risks
B. Market imperfections
C. Expanded opportunity set
D. all of these
2. Market imperfections include all of the following except:
A. Taxes on imported goods
B. Taxes on exported goods
C. Stock markets
D. Two different classes of shareholders for one company
3. Privatization refers to process of:
A. Having government operate businesses for the betterment of the public sector
B. Government allowing the operation of privately owned business
C. Prohibiting government operated enterprises
D. A country divesting itself of the ownership and operation of a business venture by turning it over to the
free market system
4. The goal of shareholder wealth maximization
A. is not appropriate for non-U.S. business firms
B means that all business decisions and investments that a firm makes are done for the purpose of making
. the owners of the firm better off financially
C. is a sub-objective the firm should attempt to achieve after the objective of customer satisfaction is met
D. is in conflict with the privatization process taking place in third-world countries
5. The theory of comparative advantage:
A. Claims that economic well-being is enhanced if each country's citizens produce only a single product
BClaims that economic well-being is enhanced when all countries compare commodity prices after
. adjusting for exchange rate differences in order to standardize the prices charged all countries
CClaims that economic well-being is enhanced if each country's citizens produce that which they have a
. comparative advantage in producing relative to the citizens of other countries, and then trade production
D. Claims that no country has an absolute advantage over another country in the production of any good
or service
6. A multinational firm can be defined as:
A. A firm that invests short-term cash inflows in more than one currency
B. A firm that has sales affiliates in several countries
C. A firm that is incorporated in more than one country
D. A firm that incorporated in one country that has production and sales operations in several other
countries
7. An example of a political risk is
A. Expropriation of assets
B. Adverse change in tax rules
C. The opposition party being elected
D. a and b
,8. Country A can produce 10 yards of textiles and 6 pounds of food per unit of input. Compute the
opportunity cost of producing food instead of textiles.
A. 1 yard of textiles per 1.67 pounds of food
B. 1 pound of food per 1.67 yards of textiles
C. 1 yard of textiles per .6 pounds of food
D. 1 pound of food per .6 yards of textiles
9. Country A can produce 10 yards of textiles and 6 pounds of food per unit of input. Country B can
produce 8 yards of textiles and 5 pounds of food per unit of input.
A. Country A is relatively more efficient than Country B in the production of food
B. Country B is relatively more efficient than Country A in the production of textiles
C. Country A has an absolute advantage over Country B in the production of food and textiles
D. Country B has an absolute advantage over Country A in the production of food and textiles
10. Country A can produce 10 yards of textiles and 6 pounds of food per unit of input. Country B can
produce 8 yards of textiles and 5 pounds of food per unit of input.
A. Country A is relatively more efficient than Country B in the production of textiles
B. Country B is relatively more efficient than Country A in the production of food
C. Country A has an absolute advantage over Country B in the production of food and textiles
D. All of these
11. Exchange rate risk refers to
A. An expected drop in an exchange rate
B. A highly variable exchange rate
C. Lower profit due to an expected drop in an exchange rate
D. Lower profits due to an unexpected change in exchange rates
12. Political risk includes all of the following except:
A. Expropriation
B. Unexpected changes in tax rules
C. Change in government
D. Unexpected changes in environmental rules
13. Multinational firms gain from their global presence in the following ways EXCEPT:
A. Rising marginal costs of production
B. Economies of Scale
C. Low-cost labour in foreign countries
D. Spreading R&D expenditures over global sales
14. Recent trends in the globalization of the world economy include all of the following except:
A. emergence of global financial markets
B. economic differentiation
C. advent of the euro
D. privatization
15. David Ricardo's theory of comparative advantage has the following policy implication:
A. Liberalization of international trade will enhance the welfare of the world's citizens
B. International trade is a zero-sum game
C. One country will benefit from trade at the expense of another country
D. Restriction of international trade will enhance the welfare of the world's citizens
16. GATT, the General Agreement on Tariffs and Trade, has been successful by:
A. Reduce import tariffs worldwide by an average of 98%
B. Reduce import tariffs worldwide by an average of 78%
C. Reduce import tariffs worldwide by an average of 58%
D. Reduce import tariffs worldwide by an average of 38%
,17. Which of the following statements about the EU (European Union) is wrong?
A. All member countries of the EU have adopted the euro
B. The EU recently enlarged to include some formerly socialist countries
C. The EU was established to foster economic integration in Western Europe
D. The EU is a direct descendent of the European Community
18. The "Big Bang" refers to:
A. Deregulation of the Japanese stock market
B. Deregulation of the German stock market
C. Deregulation of the British stock market
D. Deregulation of the Mexican stock market
19. Which of the following statements is NOT true about the euro?
A. Was introduced in 1999
B. Precipitated the emergence of continent-wide capital markets in Europe
C. Competes with American dollar
D. Is used by all European countries
20. The euro zone has
A. A common fiscal policy
B. A common monetary policy
C. A common taxation policy
D. A common immigration policy
Assume that the world economy consists of two countries: Russia and Byelorussia. Each country can
produce tomatoes and potatoes. Russia can produce 1000 tons of tomatoes or 3000 tons of potatoes or any
linear combination of tomatoes and potatoes that satisfies potatoes + 3 tomatoes = 3000. Byelorussia
can produce 500 tons of tomatoes or 1000 tons of potatoes or any linear combination of tomatoes and
potatoes that satisfies potatoes + 2 tomatoes = 1000. Countries can freely trade with each other.
21. Which country has comparative advantage in producing potatoes?
A. Russia
B. Byelorussia
C. Both countries
D. Neither country
22. Which country has absolute advantage in producing potatoes?
A. Russia
B. Byelorussia
C. Both countries
D. Neither country
23. If the price of potatoes is $300 per ton, with free trade the price of tomatoes can be any of the numbers
below EXCEPT
A. $600
B. $750
C. $900
D. All of these numbers can be the equilibrium price of tomatoes
24. If the total world production of potatoes is 2000 tons, how much tomatoes will be produced in Russia?
A. 1000 tons
B. 500 tons
C. 666.67 tons
D. 333.33 tons
, 25. If people in both countries eat the same dish that requires 0.1kg or tomatoes and 1.4kg of potatoes to
prepare, how much potatoes will be produced in Byelorussia?
A. None
B. 333.33 tons
C. 500 tons
D. 666.67 tons
26. If people in both countries eat the same dish that requires 0.1kg or tomatoes and 1.4kg of potatoes to
prepare, and the price of potatoes is $1000 per ton, what is the GDP in Byelorussia?
A. $165,000
B. $333,333
C. $1,000,000
D. None of these
27. If people in both countries eat the same dish that requires 0.1kg or tomatoes and 1.4kg of potatoes to
prepare, how much tomatoes are CONSUMED in Byelorussia?
A. Less than 100 tons
B. At least 100 tons but less than 200 tons
C. At least 200 tons but less than 400 tons
D. More than 400 tons
28. What is special about international finance?
29. What is the goal of sound financial management?
30. What are some of major recent trends in globalization?
31. What is the euro?
Student: ___________________________________________________________________________
1. What major dimension sets apart international finance from domestic finance?
A. Foreign exchange and political risks
B. Market imperfections
C. Expanded opportunity set
D. all of these
2. Market imperfections include all of the following except:
A. Taxes on imported goods
B. Taxes on exported goods
C. Stock markets
D. Two different classes of shareholders for one company
3. Privatization refers to process of:
A. Having government operate businesses for the betterment of the public sector
B. Government allowing the operation of privately owned business
C. Prohibiting government operated enterprises
D. A country divesting itself of the ownership and operation of a business venture by turning it over to the
free market system
4. The goal of shareholder wealth maximization
A. is not appropriate for non-U.S. business firms
B means that all business decisions and investments that a firm makes are done for the purpose of making
. the owners of the firm better off financially
C. is a sub-objective the firm should attempt to achieve after the objective of customer satisfaction is met
D. is in conflict with the privatization process taking place in third-world countries
5. The theory of comparative advantage:
A. Claims that economic well-being is enhanced if each country's citizens produce only a single product
BClaims that economic well-being is enhanced when all countries compare commodity prices after
. adjusting for exchange rate differences in order to standardize the prices charged all countries
CClaims that economic well-being is enhanced if each country's citizens produce that which they have a
. comparative advantage in producing relative to the citizens of other countries, and then trade production
D. Claims that no country has an absolute advantage over another country in the production of any good
or service
6. A multinational firm can be defined as:
A. A firm that invests short-term cash inflows in more than one currency
B. A firm that has sales affiliates in several countries
C. A firm that is incorporated in more than one country
D. A firm that incorporated in one country that has production and sales operations in several other
countries
7. An example of a political risk is
A. Expropriation of assets
B. Adverse change in tax rules
C. The opposition party being elected
D. a and b
,8. Country A can produce 10 yards of textiles and 6 pounds of food per unit of input. Compute the
opportunity cost of producing food instead of textiles.
A. 1 yard of textiles per 1.67 pounds of food
B. 1 pound of food per 1.67 yards of textiles
C. 1 yard of textiles per .6 pounds of food
D. 1 pound of food per .6 yards of textiles
9. Country A can produce 10 yards of textiles and 6 pounds of food per unit of input. Country B can
produce 8 yards of textiles and 5 pounds of food per unit of input.
A. Country A is relatively more efficient than Country B in the production of food
B. Country B is relatively more efficient than Country A in the production of textiles
C. Country A has an absolute advantage over Country B in the production of food and textiles
D. Country B has an absolute advantage over Country A in the production of food and textiles
10. Country A can produce 10 yards of textiles and 6 pounds of food per unit of input. Country B can
produce 8 yards of textiles and 5 pounds of food per unit of input.
A. Country A is relatively more efficient than Country B in the production of textiles
B. Country B is relatively more efficient than Country A in the production of food
C. Country A has an absolute advantage over Country B in the production of food and textiles
D. All of these
11. Exchange rate risk refers to
A. An expected drop in an exchange rate
B. A highly variable exchange rate
C. Lower profit due to an expected drop in an exchange rate
D. Lower profits due to an unexpected change in exchange rates
12. Political risk includes all of the following except:
A. Expropriation
B. Unexpected changes in tax rules
C. Change in government
D. Unexpected changes in environmental rules
13. Multinational firms gain from their global presence in the following ways EXCEPT:
A. Rising marginal costs of production
B. Economies of Scale
C. Low-cost labour in foreign countries
D. Spreading R&D expenditures over global sales
14. Recent trends in the globalization of the world economy include all of the following except:
A. emergence of global financial markets
B. economic differentiation
C. advent of the euro
D. privatization
15. David Ricardo's theory of comparative advantage has the following policy implication:
A. Liberalization of international trade will enhance the welfare of the world's citizens
B. International trade is a zero-sum game
C. One country will benefit from trade at the expense of another country
D. Restriction of international trade will enhance the welfare of the world's citizens
16. GATT, the General Agreement on Tariffs and Trade, has been successful by:
A. Reduce import tariffs worldwide by an average of 98%
B. Reduce import tariffs worldwide by an average of 78%
C. Reduce import tariffs worldwide by an average of 58%
D. Reduce import tariffs worldwide by an average of 38%
,17. Which of the following statements about the EU (European Union) is wrong?
A. All member countries of the EU have adopted the euro
B. The EU recently enlarged to include some formerly socialist countries
C. The EU was established to foster economic integration in Western Europe
D. The EU is a direct descendent of the European Community
18. The "Big Bang" refers to:
A. Deregulation of the Japanese stock market
B. Deregulation of the German stock market
C. Deregulation of the British stock market
D. Deregulation of the Mexican stock market
19. Which of the following statements is NOT true about the euro?
A. Was introduced in 1999
B. Precipitated the emergence of continent-wide capital markets in Europe
C. Competes with American dollar
D. Is used by all European countries
20. The euro zone has
A. A common fiscal policy
B. A common monetary policy
C. A common taxation policy
D. A common immigration policy
Assume that the world economy consists of two countries: Russia and Byelorussia. Each country can
produce tomatoes and potatoes. Russia can produce 1000 tons of tomatoes or 3000 tons of potatoes or any
linear combination of tomatoes and potatoes that satisfies potatoes + 3 tomatoes = 3000. Byelorussia
can produce 500 tons of tomatoes or 1000 tons of potatoes or any linear combination of tomatoes and
potatoes that satisfies potatoes + 2 tomatoes = 1000. Countries can freely trade with each other.
21. Which country has comparative advantage in producing potatoes?
A. Russia
B. Byelorussia
C. Both countries
D. Neither country
22. Which country has absolute advantage in producing potatoes?
A. Russia
B. Byelorussia
C. Both countries
D. Neither country
23. If the price of potatoes is $300 per ton, with free trade the price of tomatoes can be any of the numbers
below EXCEPT
A. $600
B. $750
C. $900
D. All of these numbers can be the equilibrium price of tomatoes
24. If the total world production of potatoes is 2000 tons, how much tomatoes will be produced in Russia?
A. 1000 tons
B. 500 tons
C. 666.67 tons
D. 333.33 tons
, 25. If people in both countries eat the same dish that requires 0.1kg or tomatoes and 1.4kg of potatoes to
prepare, how much potatoes will be produced in Byelorussia?
A. None
B. 333.33 tons
C. 500 tons
D. 666.67 tons
26. If people in both countries eat the same dish that requires 0.1kg or tomatoes and 1.4kg of potatoes to
prepare, and the price of potatoes is $1000 per ton, what is the GDP in Byelorussia?
A. $165,000
B. $333,333
C. $1,000,000
D. None of these
27. If people in both countries eat the same dish that requires 0.1kg or tomatoes and 1.4kg of potatoes to
prepare, how much tomatoes are CONSUMED in Byelorussia?
A. Less than 100 tons
B. At least 100 tons but less than 200 tons
C. At least 200 tons but less than 400 tons
D. More than 400 tons
28. What is special about international finance?
29. What is the goal of sound financial management?
30. What are some of major recent trends in globalization?
31. What is the euro?
