EXAM ON:

Chapter 5: The Political Economy of International Trade

Chapter 8: The Foreign Exchange Market

Instructions:
1. Groups should submit only the answers in file format.
2. Submission is on or before 12 noon on Friday, May 15, 2020. Late submission will
be meted out with points deduction.
3. Non-submission of group’s summary will nullify the exam .

Chapter 5: THE POLITICAL ECONOMY OF INTERNATIONAL TRADE

1. Extra profit that producers make when supply is artificially limited by an import quota.

2. This policy suggests that in cases where there may be important first mover
advantages, governments can help firms from their countries attain these
advantages.

3. Arguments typically concerned with boosting the overall wealth of a nation (to the
benefit of all, both producers and consumers) protected until it can develop and be
viable and competitive internationally.

4. Policies designed to punish foreign firms that engage in dumping and protect
domestic producers from “unfair” foreign competition.

5. Demands that some specific fraction of a good be produced domestically.

6. Bureaucratic rules that are designed to make it difficult for imports to enter a country.

7. Levied as a proportion of the value of the imported good.

8. Government payments to domestic producers.

9. Directly restrict the quantity of some good that may be imported into a country.

10. Quotas on trade imposed by the exporting country, typically at the request of the
importing country’s government.

11. Restraints benefit domestic producers by limiting import competition, but they raise
the prices of imported goods.

12. Occurs when governments do not attempt to restrict what its citizens can buy from
another country or what they can sell to another country.

13. Taxes levied on imports that effectively raise the cost of imported products relative to
domestic products.
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14. A hybrid of a quota and a tariff where a lower tariff is applied to imports within the
quota than to those over the quota.

15. Refers to selling goods in a foreign market below their costs of production, or selling
goods in a foreign market below their “fair” market value.
16. Arguments concerned with protecting the interests of certain groups within a nation
(normally producers), often at the expense of other groups. (normally consumers).

17. Levied as a fixed charge for each unit of a good imported.

Chapter 8: THE FOREIGN EXCHANGE MARKET

18. A barter like agreements by which goods and services can be traded for other goods
and services to facilitate international trade.

19. When a government of a country allows both residents and non-residents to

purchase unlimited amounts of foreign currency with the domestic currency.

20. The rate at which one currency is converted into another.

21. A theory which argues that given relatively efficient markets in which few
impediments to international trade and investment exist, the price of a “basket of
goods” should be roughly equivalent in each country.

22. When residents and nonresidents rush to convert their holdings of domestic
currency into a foreign currency.

23. Occurs when expectations on the part of traders can turn into self-fulfilling
prophecies, and traders can join the bandwagon and move exchange rates based
on group expectations.

24. The short-term movement of funds from one currency to another in the hopes of
profiting from shifts in exchange rates.

25. The simultaneous purchase and sale of a given amount of foreign exchange for two
different value dates.

26. When non-residents can convert their holdings of domestic currency into a foreign
currency, but when the ability of residents to convert currency is limited in some way.

27. The possibility that unpredicted changes in future exchange rates will have adverse
consequences for the firm.

28. Insures itself against foreign exchange risk.

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29. The rate at which a foreign exchange dealer converts one currency into another
currency on a particular day.

30. A market for converting the currency of one country into that of another country.

31. It occurs when two parties agree to exchange currency and execute the deal at
some specific date in the future.

32. It is a global network of banks, brokers, and foreign exchange dealers connected by
electronic communications systems—it is not located in any one place.

33. When both residents and non-residents are prohibited from converting their holdings
of domestic currency into a foreign currency.

Chapter 5: THE POLITICAL ECONOMY OF INTERNATIONAL TRADE

1. Which theory suggests that in cases where there may be important first mover
advantages, governments can help firms from their countries attain these
advantages?
a) The infant industry argument
b) Strategic trade theory
c) Comparative advantage theory
d) The Leontief paradox

2. Which of the following is not a political argument for government intervention?

a) protecting jobs
b) protecting infant industries
c) protecting industries deemed important for national security
d) protecting consumers from “dangerous” products

3. All of the following except _____ are key issues on the table at the Doha Round.
a) Anti-dumping policies
b) Protectionism in agriculture
c) Intellectual property rights
d) Infant industry protection

4. When tariffs are levied as a fixed charge for each unit of a good imported, they are
called
a) Specific tariffs
b) Ad valorem tariffs
c) Tariff rate quotas
d) Transit tariffs

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5. A ________ demands that some specific fraction of a good be produced
domestically
a) subsidy
b) quota rent
c) voluntary export requirement
d) local content requirement

6. The two most common economic arguments for intervention include the infant
industry argument and ________________:
a) To protect infant industries
b) Strategic trade policy
c) To protect jobs
d) To protect industries that are important for national security

Chapter 8: THE FOREIGN EXCHANGE MARKET

7. The _______ is the rate at which a foreign exchange dealer converts one currency
into another currency on a particular day.
a) Currency swap rate
b) Forward rate
c) Specific rate
d) Spot rate

8. When a government of a country allows both residents and non-residents to

purchase unlimited amounts of foreign currency with the domestic currency, the
currency is
a) Nonconvertible
b) Freely convertible
c) Externally convertible
d) Internally convertible

9. Which of the following is not good predictor of long-run changes in exchange rate?
a) Relative monetary growth
b) A country’s inflation rate
c) Forward exchange rate
d) Nominal interest rate differentials

10. The ________ is the rate at which one currency is converted into another.
a) Exchange rate
b) Cross rate
c) Conversion rate
d) Foreign exchange market

WHAT ARE THE SEVEN INSTRUMENTS OF TRADE POLICY? (7 POINTS)

TOTAL: 50 POINTS

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