3RD EXAMINATION REVIEWER

WTO comes as the third economic pillar of world-wide dimensions along with the World Bank
and ___________?

d.
International Monetary Funds (IMF)

The form of economic integration where countries remove all barriers to trade among
themselves, implement a common trade policy towards non-members, allow free movement of
capital and labor and harmonize economic policies is called:

e.
An economic union

In a(n) ________________________, similarities in the underlying structure of economic activity

make it feasible to adopt a single currency and use a single exchange rate as an instrument of
macroeconomic policy.

a.
optimal currency zone

Foreign direct investment has grown more rapidly than world trade and world output for many
reasons, including the fear of international businesses of protectionist pressures.

b.
True

The desire by Europe to hold its own on the world’s economic and political stage prompted the
formation of the EU.

a.
True

FDI is more profitable than licensing when the firm has valuable know-how that cannot be
protected by a licensing contract and when ______________________.

e.
The firm needs tight control over a foreign entity to maximize its market share and
earnings in that country

What kind of economic integration arrangement has common policies on product regulation, and
free movement of goods, services, capital and labor?

a.
Common markets

African countries have been experimenting with regional trade blocks with the following result:

e.
There are nine trade blocks, often with countries members of more than one block.

If a customs union were established for all of South America, then these countries would

b.
practice free trade within South America and have a common trade policy for other
countries

Which of the following best describes the term Foreign Direct Investment (FDI)?

a.
When a company makes an investment into a foreign country and has right to control

Which of the following methods would NOT attract FDI into a country?

e.
Political instability and uncertainty

Among the policies countries can take to encourage outward foreign direct investment are
foreign risk insurance, capital assistance, tax incentives, and ___________________.

b.
political pressure

When Multinational Corporations (MNCs) set up in new countries, they may use legal creative
accounting to minimize the tax burden in the recipient countries (host countries). This is an
example of:

b.
Tax avoidance

Members of the World Trade Organization are required to

c.
Enforce patent rights for patent holders from other countries.

______________ is the political ideology most hostile to FDI, and ______________ is the most
supportive of FDI.

c.
The radical view; the free market view

Which of the following is not one of the four main benefits of FDI for a host country?

a.
the resource transfer effect

If a country is running a current account deficit:

b.
the deficit must be financed by the sales of assets of the country.

By 2012, nearly all of the members of the WTO have notified the organization of their
participation in free trade agreements, and the number of these agreements is around
________.
e.
500

Select options below that represent reasons for the emergence of Multinational Corporations
(MNCs) and Foreign direct investment (FDI):
I. Higher transport and communication costs.
II. Increase protectionism and trade restrictions
III. Access to cheap materials
IV. Large customer populations in foreign markets

c.
3 and 4

An arrangement that permits free trade among member countries and sets a common tariff
policy for the rest of the world is called

b.
a customs union

Licensing is a potentially good option for which of the following industries or industry groups?

a.
The fast food industry
One of the main impediments to regional economic integration is the cost that individuals must
bear even while the country as a whole might gain. The second major impediment is the
______________.

a.
loss of national sovereignty

If, prior to NAFTA, the U.S. produced its own textiles at a higher cost than Mexico, but after
NAFTA imports them from Mexico:

e.
trade has been created.

Which of the following best describes economic integration?

d.
Agreements between two or more countries to reduce barriers to trade and economic
activities between the countries.
Several levels of economic integration are possible. Three such levels from the least integrated
to the most integrated are:

d.
free trade area, customs union, common market.

Which piece of legislation committed EC members to adopt a common currency?

e.
Maastricht Treaty

Job creation is a significant advantage for countries that receives FDI. Which situation below
indicates that a foreign country has created jobs in the United States?

a.
Japanese car manufacturer Honda builds a production plant in Marysville, Ohio and
expands to 11 other locations as well

Benefit of foreign direct investment (FDI) include all of the following EXCEPT:

a.
National sovereignty and autonomy

More expansion of foreign direct investment (FDI) can boost:

d.
Employment

Despite its importance in international trade, China is not a member of any major free trade
agreement.

b.
False

Since 2002, the number of regulations that have been unfavorable to FDI have increased,
particularly in Latin America.

a.
True

GATT, IBRD, and the IMF were the three institutions of what Post-WWII system?

a.
Bretton Woods

________________ arise(s) when two or more enterprises encounter each other in different
regional markets, national markets, or industries.
c.
Multipoint competition

NAFTA’s initial impact on jobs was very small.

b.
True

Which institution is responsible for proposing EU legislation, implementing it, and monitoring
compliance?

d.
The European Commission

Internalization theory explains why firms often prefer FDI over licensing as a strategy for
entering foreign markets.

b.
True

Turkey’s application to join the European Union has presented the EU with difficult issues.
Which of the following is not one of those issues?

e.
Less than a quarter of Turkey’s international trade is with the EU.

Home countries can faces costs as well as benefits from FDI, including ______________.

d.
employment effects when FDI is seen as a substitute for domestic production

Regional economic integration can be seen as an attempt to achieve gains from

________________ beyond those attainable under international agreements such as the WTO.

d.
the free flow of trade and investment

The main difference between a free trade area and a customs union is that

d.
the former allows free trade among members and individual tariff policies to be applied
to nonmembers, while the latter allows free trade among members and a common tariff
policy for nonmembers
Establishing a new operation in a foreign country is called a(n) _________.

e.
greenfield investment

A government’s _________________ legislation allows it to block mergers between foreign and

domestic firms.

e.
Anti-trust

NAFTA is an example of which of the following?

e.
Free trade area

If a company wants a quick entry into a foreign market, ______ are appropriate.

d.
mergers and acquisitions

Progress toward a Free Trade Agreement of the Americas has been slow:

b.
because of debates over intellectual property rights and agricultural subsidies.

It was not until the 1990s that there was consistent involvement of a multinational institution in
governing FDI. This changed with the formation of _____________.

e.
The WTO

The most integrated level of economic integration is the common market.

b.
False

Knowledge spillovers such as those arising from the concentration of intellectual talent in Silicon
Valley are referred to as ________.

a.
externalities

Which of the following best defines a multinational corporation (MNC)?

d.
A company that operates in more than two different countries.

Regional economic integration, for example, the EU, offers significant opportunities to US
businesses including:

e.
companies can realize significant cost economies by centralizing operations where
factor costs and skills are optimal.

The North American Free Trade Agreement (NAFTA)

e.
created a free trade area that includes Canada, the United States, and Mexico

Exporting involves granting a foreign entity the right to produce and sell the firm’s product in
return for a royalty fee on each unit sold.

b.
False

Only a few countries choose pragmatic nationalism preferring instead either the free market or
radical view.

a.
False

What is the relationship between foreign direct investment (FDI) and Multinational Corporations
(MNCs)?

b.
MNCs involve FDI

"Individual countries in the region are too small to make their presence felt on the world stage."
Implied in this statement is the need for individual countries to?

a.
seek to create trading links with each other

Regional economic integration presents potentially significant threats to business outside the
area, including:

a.
long-term improvements in the competitive positions of firms inside the areas.

A company that establishes a new operation in a foreign country has made:

b.
A greenfield investment
When a MNE considering FDI is negotiating with a country about a potential investment which
of the following is the least important factor?

d.
The strength of the military and police forces of the country

Which of the following is NOT a feature of globalization

d.
use of low levels of technology in the production of goods

Which of the following countries is currently not a member of the European Free Trade
Association?

b.
Austria