Multinational Corporations Internalize Mnc Quiz Questions

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Multinational Corporations Internalize Mnc Quiz Questions - Quiz

This is an interesting 'multinational corporations internalize MNC' quiz that is designed to test your knowledge about the same. Do you have good knowledge about Multinational Corporations Internalization? It refers to a type of transaction that is conducted within an MNC corporation rather than in the open market. So, if you think you have enough knowledge about the internalization process at MNC's, then you'll be able to score really well on this quiz. Just take the quiz and see how good you can score. Ready? All the best!

Questions and Answers

1.

A national company becomes an MNC when it
- A.
  
  Makes a foreign direct investment
- B.
  
  Takes out a foreign loan
- C.
  
  Imports a foreign product
- D.
  
  Exports a foreign product
- E.
  
  Hires foreign workers
Correct Answer
A. Makes a foreign direct investment

Explanation
A national company becomes an MNC when it makes a foreign direct investment because this means that the company is investing in establishing or acquiring business operations in a foreign country. This expansion into international markets allows the company to operate and have a presence in multiple countries, making it a multinational corporation. By making a foreign direct investment, the company can benefit from new market opportunities, access to resources, and potential cost advantages, while also diversifying its operations and reducing dependence on a single market.

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2.

A multinational is a firm that controls and manages production facilities in
- A.
  
  Both developed and developing countries
- B.
  
  At least two countries
- C.
  
  One country but relies on multiple markets for the consumption of goods it produces
- D.
  
  At least two developed countries and one developing country
- E.
  
  One country, but relies on purchasing intermediate foods from companies in other countries
Correct Answer
B. At least two countries

Explanation
A multinational is a firm that operates in at least two countries. This means that it has production facilities, offices, or branches in more than one nation. By having a presence in multiple countries, a multinational can take advantage of different markets, resources, and labor pools. This allows them to expand their operations, access new customers, and diversify their risks. Multinational companies often have a global supply chain and operate in both developed and developing countries to maximize their competitive advantage and reach a wider consumer base.

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3.

A foreign direct investment occurs when a company in country A invests in a company located in country B and thereby gives the investing company control over the management of the company receiving its investment. A company does not have to be the sole investor in the foreign company.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
A foreign direct investment refers to the investment made by a company in one country in a company located in another country, which grants the investing company control over the management of the receiving company. This means that the investing company has the authority to make decisions and influence the operations of the foreign company. It is important to note that the investing company does not have to be the sole investor in the foreign company, indicating that there may be other investors involved in the foreign direct investment.

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4.

Locational advantages are based on which combination of the following specific country characteristics
- A.
  
  A large reserve of natural resources, a large local market and efficiency opportunities
- B.
  
  A small reserve of natural resources, a large local market and efficiency opportunities
- C.
  
  A small reserve of natural resources, a small local market and efficiency opportunities
- D.
  
  A large reserve of natural resources, a small local market and efficiency opportunities
- E.
  
  A small reserve of natural resources, a large local market but few efficiency opportunities
Correct Answer
A. A large reserve of natural resources, a large local market and efficiency opportunities

Explanation
Locational advantages are based on a combination of factors that include a large reserve of natural resources, a large local market, and efficiency opportunities. These characteristics contribute to the competitiveness and attractiveness of a particular location for businesses. A large reserve of natural resources ensures a stable supply for industries, while a large local market provides a customer base for products and services. Efficiency opportunities refer to factors such as infrastructure, skilled labor, and government policies that enhance business operations and reduce costs. When all these factors are present, a location becomes highly advantageous for businesses.

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5.

Horizontal integration occurs when
- A.
  
  Firm creates singular country production facilities, each of which produces different good or goods
- B.
  
  Firm creates multiple production facilities, each of which produces the same good or goods.
- C.
  
  Firm creates multiple production facilities, each of which produces different good or goods
- D.
  
  Firm creates singular country facilities, each of which produces the same good or goods
- E.
  
  Firm creates multiple production facilities, in multiple countries but with different technologies
Correct Answer
B. Firm creates multiple production facilities, each of which produces the same good or goods.

Explanation
Horizontal integration occurs when a firm creates multiple production facilities, each of which produces the same good or goods. This means that the firm expands its operations by establishing additional facilities that produce the same products as the existing ones. This strategy allows the firm to increase its production capacity, reach a larger market, and potentially achieve economies of scale. By producing the same goods across multiple facilities, the firm can streamline its operations, standardize processes, and enhance efficiency in the production and distribution of its products.

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6.

Which of the following are examples of intangible assets?
- A.
  
  Natural resources and local markets
- B.
  
  Patented processes and natural resources
- C.
  
  Employee know-how and natural resources
- D.
  
  Local markets and natural resources
- E.
  
  Patented processes and employee know-how
Correct Answer
E. Patented processes and employee know-how

Explanation
Patented processes and employee know-how are examples of intangible assets because they cannot be physically touched or seen. Patented processes refer to unique methods or techniques that are protected by a legal patent, giving the owner exclusive rights to use them. Employee know-how refers to the knowledge, skills, and expertise possessed by employees, which can contribute to the success and value of a company. Both of these assets are valuable but do not have a physical form.

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7.

Many MNCs have opted to remove many of their international transactions from the market and place them within a single corporate structure because
- A.
  
  They are usually required by the host country governments
- B.
  
  They are usually required by their home country governments
- C.
  
  They can usually earn substantially higher incomes by internalizing intangible and specific assets
- D.
  
  They will not be held accountable for raising the general welfare of their host countries
- E.
  
  This helps them stay clear of intrusive host government regulations
Correct Answer
C. They can usually earn substantially higher incomes by internalizing intangible and specific assets

Explanation
MNCs often choose to centralize their international transactions within a single corporate structure because it allows them to internalize intangible and specific assets, which usually leads to higher incomes. By consolidating their operations, MNCs can leverage their unique resources and capabilities more effectively, resulting in increased profitability. This strategy also enables them to have better control over their assets and intellectual property, reducing the risk of losing valuable assets to competitors or host country regulations.

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8.

Although MNCs have a global reach, their activities are overwhelmingly concentrated in the advanced industrialized countries
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
The statement suggests that multinational corporations (MNCs) primarily focus their activities in advanced industrialized countries, indicating that their operations are more concentrated in these regions compared to other parts of the world. This aligns with the common understanding that MNCs tend to establish their presence and invest in countries with developed economies, infrastructure, and consumer markets. Therefore, the answer "True" accurately reflects the given statement.

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9.

Vertical integration refers to instances in which multinational corporations internalize (i.e., bring under their ownership and control) their transactions for intermediate goods.
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
Vertical integration refers to the strategy of a multinational corporation bringing its transactions for intermediate goods under its ownership and control. This means that instead of relying on external suppliers for these goods, the corporation chooses to produce them internally. This can provide various benefits such as cost savings, improved coordination, and greater control over the supply chain. Therefore, the given answer "true" is correct as it accurately describes the concept of vertical integration.

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10.

Immediately after WWII, the central political concern for developing countries regarding MNCs ownership of critical natural resource industries was that ____________.
- A.
  
  It compromised the hard won national autonomy over their economies after achieving independence
- B.
  
  Governments would be unable to use these resources to promote ISI strategies.
- C.
  
  Extractive industries did not usually transfer technology
- D.
  
  Extractive industries used primarily underpaid domestic workers even though their skills were developed
- E.
  
  Extractive industries accelerated the depletion of non-renewable resources
Correct Answer
A. It compromised the hard won national autonomy over their economies after achieving independence

Explanation
After achieving independence, developing countries were concerned that MNCs ownership of critical natural resource industries would compromise their hard-won national autonomy over their economies. This means that these countries feared that their control over their own economic decisions and policies would be undermined by foreign companies controlling their natural resources.

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11.

Nationalization was common during the late 1960s and the first half of the 1970s. Nationalizations occured most often in
- A.
  
  Banking and transportation
- B.
  
  Banking and public utilities
- C.
  
  Transportation and extractive industries
- D.
  
  Banking and extractive industries
- E.
  
  Extractive industries
Correct Answer
E. Extractive industries

Explanation
During the late 1960s and the first half of the 1970s, nationalization was a common practice. Nationalizations typically occurred in industries that involved the extraction of natural resources, such as mining, oil, and gas. This was done to gain control over these valuable resources and ensure that they were utilized for the benefit of the nation. Therefore, the correct answer is "extractive industries."

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12.

Export Processing Zones are industrial areas set aside for MNCs with special rules or subsidies. Foreign firms based in EPZs are primarily allowed to
- A.
  
  Import components free of taxes, as long as all of their output is exported
- B.
  
  Pay workers less than elsewhere in the country
- C.
  
  Pay workers more than elsewhere in the country
- D.
  
  Ignore safety and environmental regulations
- E.
  
  Imported components for assembly free of taxes, as long as none of their output is exported
Correct Answer
A. Import components free of taxes, as long as all of their output is exported

Explanation
Export Processing Zones (EPZs) are designated areas where multinational corporations (MNCs) can operate under special regulations and incentives. In these zones, foreign firms are primarily allowed to import components without paying taxes, as long as all of their output is exported. This means that they can bring in raw materials or parts from other countries without incurring additional costs, as long as the final products are intended for exportation. This policy encourages MNCs to establish their operations in EPZs, as it reduces their production costs and promotes international trade.

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13.

Sovereign Wealth Funds (SWFs) are
- A.
  
  Royalty-owned funds that purchase private assets in foreign markets
- B.
  
  Royalty-owned funds that purchase public assets in foreign markets
- C.
  
  Government-owned funds that purchase public assets in domestic markets
- D.
  
  Government owned funds that purchase private assets in domestic markets
- E.
  
  Government-owned funds that purchase private assets in foreign markets
Correct Answer
E. Government-owned funds that purchase private assets in foreign markets

Explanation
Sovereign Wealth Funds (SWFs) are government-owned funds that purchase private assets in foreign markets. These funds are typically established by countries with large reserves of foreign currency or excess revenue from natural resources. The purpose of SWFs is to invest these funds in order to generate long-term returns and diversify the country's investment portfolio. By purchasing private assets such as stocks, bonds, real estate, or private equity, SWFs aim to maximize their returns and contribute to the economic development of their respective countries.

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14.

The Calvo Doctrine of 1868 concerns nationalization of private companies. The doctrine asserts the rights of
- A.
  
  The home of country to intervene to protect its citizens' claims
- B.
  
  The home country to negotiate fair compensation with the host country
- C.
  
  The nationalized company to full compensation from the host country
- D.
  
  The host country to determine the value of full compensation
- E.
  
  The host country to determine fair compensation
Correct Answer
E. The host country to determine fair compensation

Explanation
The Calvo Doctrine of 1868 states that the host country has the right to determine fair compensation in cases of nationalization of private companies. This means that when a company is nationalized, the host country has the authority to decide the amount of compensation that should be given to the company. This doctrine emphasizes the sovereignty of the host country and its ability to protect its own interests in such situations.

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15.

Locational incentives are packages host countries offer to MNCs that
- A.
  
  Decrease the profits of a particular investment.
- B.
  
  Increase the costs of that investment
- C.
  
  Increase the risk of that investment
- D.
  
  Provide subsidized loans for that investment.
- E.
  
  Depreciate their investments at slower rates.
Correct Answer
D. Provide subsidized loans for that investment.

Explanation
Locational incentives refer to the packages that host countries provide to multinational corporations (MNCs) in order to attract their investments. These incentives are designed to make the investment more attractive and lucrative for the MNCs. One common form of locational incentives is providing subsidized loans for the investment. By offering loans at lower interest rates or with favorable terms, the host country reduces the financial burden on the MNC and makes the investment more financially viable. Therefore, the correct answer is that locational incentives provide subsidized loans for that investment.

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16.

The reason why there are no comprehensive international investment rules is that
- A.
  
  Governments have never tried to create multilateral rules
- B.
  
  The OCED and WTO rules have already created effective comprehensive guidelines.
- C.
  
  Conflict between capital-exporting advanced industrial countries and the capital-importing developing countries has prevented agreement of such rules
- D.
  
  Conflict between WTO and the group of 77 has prevented agreement on such rules
- E.
  
  MNCs have already created rules on their own initiative
Correct Answer
C. Conflict between capital-exporting advanced industrial countries and the capital-importing developing countries has prevented agreement of such rules

Explanation
The conflict between capital-exporting advanced industrial countries and the capital-importing developing countries has prevented the agreement of comprehensive international investment rules. This suggests that these two groups have differing interests and priorities when it comes to investment regulations, making it difficult to reach a consensus. As a result, comprehensive rules have not been established on an international level.

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17.

Historically, international rules advocated by developed countries and governing FDI have been based on the following legal principles:
- A.
  
  Foreign investments are private property and should be treated less favorably than domestic private property.
- B.
  
  Governments must compensate the owner for the fair value of the expropriated property.
- C.
  
  Governments have the right to expropriate but only for public purposes
- D.
  
  Foreign investors cannot appeal to their home governments when they have disputes with the host government
- E.
  
  Expropriation, like foreign loan defaults, must be punished with no new investment in the defaulting country for seven years
Correct Answer
C. Governments have the right to expropriate but only for public purposes

Explanation
The given answer states that governments have the right to expropriate, but only for public purposes. This means that governments can seize private property, including foreign investments, but they can only do so if it is necessary for the public good. This principle is based on the idea that governments have the authority to prioritize the interests and welfare of their own citizens over foreign investors. It also implies that governments should provide compensation to the owners of the expropriated property, ensuring that they are fairly compensated for their loss.

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18.

The Multilateral Agreement on Investment (MAI) began to be negotiated in the OECD in May 1995 to further liberalize FDI and provide greater security to MNCs. It was based on two central principles
- A.
  
  National treatment and most favored nation
- B.
  
  Domestic favoritism and most favored nation
- C.
  
  National treatment and least favored nation
- D.
  
  Fair compensation and remittance rights
- E.
  
  National treatment and fair compensation
Correct Answer
A. National treatment and most favored nation

Explanation
The correct answer is national treatment and most favored nation. The Multilateral Agreement on Investment (MAI) aimed to promote further liberalization of foreign direct investment (FDI) and provide multinational corporations (MNCs) with greater security. The principle of national treatment means that foreign investors should be treated no less favorably than domestic investors. The principle of most favored nation ensures that foreign investors are granted the same treatment as the most favored foreign investor. These principles aim to create a level playing field and prevent discrimination against foreign investors.

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19.

A fixed exchange rate system refers to a relationship between currencies which is unchanging because it is backed by:
- A.
  
  Prevailing market conditions
- B.
  
  Government guarantees to maintain currency exchange rates
- C.
  
  Government fixing the price of gold
- D.
  
  Government basing the exchange rate on world productivity
- E.
  
  Government laws making currency speculation illegal
Correct Answer
B. Government guarantees to maintain currency exchange rates

Explanation
A fixed exchange rate system refers to a relationship between currencies that remains constant because it is supported by government guarantees to maintain currency exchange rates. This means that the government ensures that the value of its currency remains fixed in relation to another currency or a basket of currencies. By providing this guarantee, the government aims to promote stability in international trade and investment by reducing uncertainty in exchange rates. This can be achieved through various measures such as buying and selling foreign currencies, adjusting interest rates, or implementing capital controls.

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20.

In a flexible or floating exchange-rate system
- A.
  
  Governments must commit themselves to maintaining a specific fixed price against other currencies
- B.
  
  Governments must allow their currencies to float freely with no government intervention
- C.
  
  Governments can intervene in the foreign exchange market to influence the value of their currencies
- D.
  
  Currency speculation is prohibited
- E.
  
  The market alone determines the value of currencies.
Correct Answer
C. Governments can intervene in the foreign exchange market to influence the value of their currencies

Explanation
In a flexible or floating exchange-rate system, governments have the ability to intervene in the foreign exchange market in order to influence the value of their currencies. This means that they can take actions such as buying or selling their own currency in order to increase or decrease its value relative to other currencies. This intervention allows governments to have some control over the exchange rate and can be used as a tool to manage their economy and promote their national interests.

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21.

The current account of the balance of payments accounting system has several subcategories. Which of the following IS NOT one of the subcategories?
- A.
  
  The trade account
- B.
  
  The service account
- C.
  
  The income account
- D.
  
  The foreign direct investment account
- E.
  
  Unilateral transfers account
Correct Answer
D. The foreign direct investment account

Explanation
The foreign direct investment account is not one of the subcategories of the current account. The current account includes the trade account, which records the value of imports and exports of goods, the service account, which records the value of services provided and received, the income account, which records income earned from investments abroad and income earned by foreign investors in the domestic economy, and the unilateral transfers account, which records transfers of money or goods between countries without expecting anything in return. Foreign direct investment is a separate category that falls under the capital account of the balance of payments.

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22.

Imports and Exports of activities such as banking, insurance, transportation, and tourism are registered in
- A.
  
  The trade account
- B.
  
  The service account
- C.
  
  The income account
- D.
  
  The expense account
- E.
  
  Unilateral transfers account
Correct Answer
B. The service account

Explanation
The correct answer is the service account. Imports and exports of activities such as banking, insurance, transportation, and tourism are registered in the service account. This account records the value of services provided by one country to another, including transportation, tourism, banking, and insurance services. It is a component of the balance of payments, which tracks all economic transactions between a country and the rest of the world.

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23.

Oatley claims that fixed exchange rates procide exchange rate stability but they also prevent governments from using monetary policy to manage domestic economic activity
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
The statement is true because fixed exchange rates do provide stability in the exchange rate between two currencies. However, it also restricts governments from using monetary policy to manage their domestic economy. With fixed exchange rates, the value of a currency is fixed in relation to another currency, and this limits the ability of governments to adjust interest rates or manipulate their currency to control inflation or stimulate economic growth. Therefore, while fixed exchange rates offer stability, they also limit the flexibility of governments in managing their domestic economic activity.

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24.

Because the dollar served as the Bretton Wood's system's primary reserve asset, reducing the number of dollars circulating in the globaal economy would reduce the liquidity that financed world trade
- A.
  
  True
- B.
  
  False
Correct Answer
A. True

Explanation
The explanation for the given correct answer is that the dollar was the main reserve asset in the Bretton Woods system. This means that many countries held dollars as a form of international payment and to maintain stability in their own currencies. If the number of dollars in circulation were reduced, it would decrease the liquidity available to finance global trade. This could potentially disrupt international trade and hinder economic growth. Therefore, the statement is true.

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25.

In the 1985 Plaza Accord, the U.S., German, British, French and Japanese governments agreed to:
- A.
  
  Increase the value of the dollar against the European Monetary System currencies
- B.
  
  Reduce the value of the dollar against the Japanese yen and the German mark by 10-12 percent
- C.
  
  Reduce the value of the dollar against gold
- D.
  
  Reduce the value of the dollar against Special Drawing Rights
- E.
  
  Increase the value of the dollar against the British pound and French Franc
Correct Answer
B. Reduce the value of the dollar against the Japanese yen and the German mark by 10-12 percent

Explanation
In the 1985 Plaza Accord, the U.S., German, British, French, and Japanese governments agreed to reduce the value of the dollar against the Japanese yen and the German mark by 10-12 percent. This was done to address the issue of trade imbalances and promote economic stability. By reducing the value of the dollar against these currencies, it made exports from the U.S. more competitive and helped to correct the trade deficit with Japan and Germany. This agreement aimed to stimulate economic growth and improve the global economy.

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26.

Skip this shit
- A.
  
  Blah.
- B.
  
  Blah.
Correct Answer
A. Blah.
27.

Members of the European Union were required to meet a number of convergence criteria in order to adopt the "Euro" as their currency when it was launched in 2002. Which of the following is NOT one of the criterion members had to meet before they could adopt the Euro.
- A.
  
  Fiscal/monetary policies that required inflation rates no more than 1.5% above the three best performing members' inflation rates
- B.
  
  A government debt to GDP ratio of 60% of GDP
- C.
  
  No devaluation of currency for two years prior to adoption of the Euro
- D.
  
  Long-term interest rates not to exceed 2% of the three lowest inflation rate members
- E.
  
  A Balance of Payments capital account surplus for three years prior to adoption of the Euro
Correct Answer
E. A Balance of Payments capital account surplus for three years prior to adoption of the Euro

Explanation
The question asks for the criterion that is NOT required for adopting the Euro. The correct answer, "A Balance of Payments capital account surplus for three years prior to adoption of the Euro," is the criterion that is not required. The other criteria mentioned in the question, such as fiscal/monetary policies, government debt to GDP ratio, no devaluation of currency, and long-term interest rates, were all necessary for adopting the Euro.

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28.

Which of the following is not one of the three goals pursued by the International Monetary System
- A.
  
  Adjustment of Short-term balance of payments problems
- B.
  
  Growth of liquidity to finance growth in world trade
- C.
  
  Foreign aid
- D.
  
  Confidence in stable currency exchange rates
Correct Answer
C. Foreign aid

Explanation
The International Monetary System has three main goals: adjustment of short-term balance of payments problems, growth of liquidity to finance growth in world trade, and confidence in stable currency exchange rates. Foreign aid, however, is not one of the goals pursued by the system. Foreign aid refers to the provision of assistance or resources from one country to another for various purposes such as economic development, humanitarian aid, or political support. While foreign aid can be an important aspect of international relations, it is not directly related to the goals of the International Monetary System.

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29.

The most complete definition of the balance of payments is the:
- A.
  
  Net result of a nation's trade relations with the rest of the world
- B.
  
  Net result of a nations investment relations with the rest of the world
- C.
  
  Net result of a nation's returns on investments
- D.
  
  Net recorded results, in monetary terms, of a nation's total economic relations with the rest of the world
- E.
  
  Net result of one nation's exchange of goods and services with the rest of the world.
Correct Answer
D. Net recorded results, in monetary terms, of a nation's total economic relations with the rest of the world

Explanation
The balance of payments refers to the net recorded results, in monetary terms, of a nation's total economic relations with the rest of the world. This includes not only trade relations, but also investment relations and returns on investments. It provides a comprehensive view of a nation's economic transactions with other countries, taking into account both inflows and outflows of money. By considering all aspects of economic relations, the balance of payments gives a more complete understanding of a nation's overall economic position in the global market.

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30.

In the post-World War II fixed exchange rate system, the value of each nation's currency was initially based on:
- A.
  
  An assessment of the nation's productive capabilities relative to the productive capabilities of other IMF member states
- B.
  
  The board of governors of the IMF
- C.
  
  The quota system
- D.
  
  The political power of members of the IMF
- E.
  
  The nation's share in total world investment
Correct Answer
A. An assessment of the nation's productive capabilities relative to the productive capabilities of other IMF member states

Explanation
In the post-World War II fixed exchange rate system, the value of each nation's currency was initially based on an assessment of the nation's productive capabilities relative to the productive capabilities of other IMF member states. This means that the value of a nation's currency was determined by how productive and economically strong it was compared to other countries in the IMF. This assessment helped to ensure that the exchange rates were fair and balanced, taking into account each nation's economic capabilities.

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31.

A fixed exchange rate system refers to a relationship between currencies which is unchanging because it is backed by:
- A.
  
  Prevailing market conditions
- B.
  
  Government guarantees to maintain currency exchange rates
- C.
  
  Commercial banking behavior
- D.
  
  International political organizations like the U.N.
Correct Answer
B. Government guarantees to maintain currency exchange rates

Explanation
A fixed exchange rate system refers to a relationship between currencies that remains constant due to government guarantees to maintain currency exchange rates. In this system, the government intervenes in the foreign exchange market to ensure that the value of its currency does not fluctuate significantly against other currencies. This is achieved through various measures such as buying or selling foreign currency reserves, implementing capital controls, or adjusting interest rates. These government guarantees provide stability and confidence in the currency, allowing businesses and individuals to engage in international trade and investment with more certainty.

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32.

When a country devalues its currency and all counteracting forces do not change, which of the following will occur:
- A.
  
  The volume of its exports will increase
- B.
  
  Consumers of the country's exported goods will pay more to purchase the imports
- C.
  
  Those retailing the good will always make more profit from the imports
- D.
  
  The balance of payments of the country devaluing its currency will not be affected
Correct Answer
A. The volume of its exports will increase

Explanation
When a country devalues its currency, the price of its exports becomes relatively cheaper compared to other countries. This makes its exports more competitive in the international market, leading to an increase in the volume of exports. As a result, foreign consumers are more likely to purchase the country's goods, increasing the demand and revenue from exports. This can potentially improve the country's trade balance and boost economic growth. However, it is important to note that other factors such as demand elasticity, competitiveness, and global economic conditions can also influence the impact of currency devaluation on exports.

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33.

Which of the following illustrated the devaluation of the United States dollar in relation to the German Mark?
- A.
  
  $1.00 = 4DM to $1.00 = 3DM
- B.
  
  $1.00 = 4DM to $1.00 = 5DM
- C.
  
  $1.00 = 4DM to $1.00 = 4DM
- D.
  
  $1.00 = 4DM to $0.80 = 4DM
Correct Answer
A. $1.00 = 4DM to $1.00 = 3DM

Explanation
The correct answer is "$1.00 = 4DM to $1.00 = 3DM". This answer illustrates the devaluation of the United States dollar in relation to the German Mark because it shows that the exchange rate has changed from 4DM to 3DM per $1.00. This means that the value of the dollar has decreased in relation to the German Mark, as it now takes fewer dollars to buy the same amount of German Marks.

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34.

In a fixed exchange rate system, if a Japanese automobile company establishes a foreign investment in the production of automobiles in the United States, the Capital Account of the United States will:
- A.
  
  Move towards a surplus
- B.
  
  Move toward a deficit
- C.
  
  Not be affected
- D.
  
  Automatically be offset by a corresponding movement in the United States' current account
Correct Answer
A. Move towards a surplus

Explanation
If a Japanese automobile company establishes a foreign investment in the production of automobiles in the United States, the Capital Account of the United States will move towards a surplus. This is because the Japanese company will be investing money in the United States, which will increase the capital inflow into the country. A surplus in the capital account indicates that the United States is receiving more capital from foreign investments than it is investing abroad.

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35.

The term "convertable currencies" refers to
- A.
  
  Currencies of the IMF member states
- B.
  
  Currencies that can be converted into gold
- C.
  
  Currencies that can be exchanged for SDRs
- D.
  
  Currencies that are "hard"
- E.
  
  Currencies that can only be devalued
Correct Answer
A. Currencies of the IMF member states

Explanation
The term "convertible currencies" refers to currencies of the IMF member states. This means that these currencies can be easily exchanged or converted into other currencies without any restrictions. Convertible currencies are widely accepted in international trade and finance, allowing for smooth transactions between different countries. The IMF member states collectively agree to maintain the convertibility of their currencies to promote economic stability and facilitate global economic cooperation.

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36.

Under the Bretton Woods system, until 1971:
- A.
  
  Only the dollar was convertible into gold
- B.
  
  The IMF's sole purpose was to provide liquidity with which to finance trade
- C.
  
  The currencies of all nations were backed by gold
- D.
  
  The IMF could force nations to eliminate barriers to trade
- E.
  
  SDRs were the sole source of liquidity
Correct Answer
A. Only the dollar was convertible into gold

Explanation
Under the Bretton Woods system, until 1971, only the dollar was convertible into gold. This means that countries could exchange their US dollars for gold at a fixed rate. The other statements are incorrect. The IMF's purpose was not solely to provide liquidity for trade, but also to promote global monetary cooperation. The currencies of all nations were not backed by gold, only the US dollar was. The IMF did not have the power to force nations to eliminate trade barriers. Lastly, SDRs (Special Drawing Rights) were not the sole source of liquidity, as countries could also use gold to settle international transactions.

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37.

The voting power of each IMF member is determined by:
- A.
  
  A one nation/one vote procedure
- B.
  
  The amount of SDRs each nation possessed
- C.
  
  The amount of reserves each nation held
- D.
  
  The quotas each nation paid to the IMF
- E.
  
  The size of each nation's exports
Correct Answer
D. The quotas each nation paid to the IMF

Explanation
The correct answer is the quotas each nation paid to the IMF. The quotas represent the financial contribution of each member country to the IMF and determine their voting power. The higher the quota a country pays, the greater its voting power within the organization. This system ensures that countries with larger economies have a greater say in decision-making processes, reflecting their greater financial commitment to the IMF. The amount of SDRs, reserves, and the size of exports may be factors that influence a country's quota, but they are not directly responsible for determining the voting power.

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38.

Which of the following was not a part of the official reserves of nation-states who joined the IMF between 1945 and 1965?
- A.
  
  Dollars
- B.
  
  Special Drawing Rights (SDRs)
- C.
  
  IMF quotas
- D.
  
  Foreign exchange
- E.
  
  Gold
Correct Answer
B. Special Drawing Rights (SDRs)

Explanation
Special Drawing Rights (SDRs) were not a part of the official reserves of nation-states who joined the IMF between 1945 and 1965. The official reserves of nation-states during this period included dollars, IMF quotas, foreign exchange, and gold. SDRs were introduced by the IMF in 1969 as a supplementary international reserve asset.

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39.

The Euromarket began in the 1950s. It refers to all currencies:
- A.
  
  Owned by the IMF
- B.
  
  Held outside the country issuing the currency and outside that country's regulatory authority
- C.
  
  Held outside the country issuing the currency but still withing the regulatory authority of the country issuing the currency
- D.
  
  Included in the official reserve assets of the IMF member states
Correct Answer
B. Held outside the country issuing the currency and outside that country's regulatory authority

Explanation
The correct answer is "Held outside the country issuing the currency and outside that country's regulatory authority." This answer accurately describes the concept of the Euromarket, which refers to the trading of currencies outside the jurisdiction and regulatory control of the country that issues the currency. The Euromarket allows for international currency trading and financial transactions to occur outside of national regulations and control.

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40.

Special Drawing Rights were created in the late 1960s to:
- A.
  
  Eliminate the US dollar as a foreign exchange currency
- B.
  
  Create an additional source of liquidity to facilitate transactions
- C.
  
  Give countries without convertible currencies an asset to use in trading with IMF member states
- D.
  
  Eliminate gold as a basis of the international monetary system
Correct Answer
B. Create an additional source of liquidity to facilitate transactions

Explanation
Special Drawing Rights (SDRs) were created in the late 1960s to create an additional source of liquidity to facilitate transactions. SDRs are a type of international reserve asset, created and allocated by the International Monetary Fund (IMF), which member countries can use to supplement their official reserves. By providing an additional source of liquidity, SDRs help to support global trade and financial stability. They serve as a supplement to traditional reserve currencies like the US dollar, providing countries with more flexibility in conducting international transactions. Therefore, the creation of SDRs was aimed at enhancing the efficiency and effectiveness of the international monetary system.

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41.

In August 1971, Nixon made which of the following announcements:
- A.
  
  US dollar was no longer convertable at a fixed rate of exchange
- B.
  
  US would eliminate all tariffs on imports into the US
- C.
  
  US would adopt wage/price controls to contain inflation
- D.
  
  All of the above
- E.
  
  Only a and c
Correct Answer
E. Only a and c

Explanation
In August 1971, Nixon made the announcement that the US dollar was no longer convertible at a fixed rate of exchange. This meant that the US dollar was no longer tied to the value of gold, which had significant implications for the global economy. Additionally, Nixon also announced that the US would adopt wage/price controls to contain inflation. This decision was made in response to rising inflation rates during that time. Therefore, the correct answer is "Only a and c" as both of these announcements were made by Nixon in August 1971.

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42.

In April 1973, the IMS adopted:
- A.
  
  A flexible or floating exchange rate system
- B.
  
  Eliminated the use of SDRs to settle official blance of payments transactions
- C.
  
  Imposed controls on foreign direct investments
- D.
  
  A new system of assigning quotas to its member states
Correct Answer
A. A flexible or floating exchange rate system

Explanation
In April 1973, the International Monetary System (IMS) adopted a flexible or floating exchange rate system. This means that the value of a country's currency is determined by market forces of supply and demand, rather than being fixed to a specific value. This system allows for fluctuations in currency values and allows countries to adjust their exchange rates to reflect economic conditions. This decision was likely made to increase flexibility and adaptability in the global economy, as well as to reduce the need for currency interventions and stabilize international trade.

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43.

In a flexible exchange rate system, a Japanese balance of payments deficit means that the yen is overvalued and the government must buy yen in the international market to reduce their availability in the international monetary system.
- A.
  
  True
- B.
  
  False
Correct Answer
B. False

Explanation
The explanation for the given answer is that in a flexible exchange rate system, a balance of payments deficit does not necessarily mean that the currency is overvalued. It could be due to other factors such as a decrease in exports or an increase in imports. Additionally, the government does not need to buy its own currency in the international market to reduce its availability.

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44.

"Conditionality" refers to:
- A.
  
  Preferential trade arrangements
- B.
  
  IMF authority to guide member states concerning what macroeconomic policies to adopt
- C.
  
  International private finance lending terms to developing countries
- D.
  
  Terms on which IMF member states are given SDRs
Correct Answer
B. IMF authority to guide member states concerning what macroeconomic policies to adopt

Explanation
"Conditionality" refers to the authority of the IMF to guide member states on the adoption of macroeconomic policies. This means that when a country seeks financial assistance from the IMF, it must agree to certain conditions or policy reforms set by the IMF in order to receive the funds. These conditions may include implementing fiscal austerity measures, structural reforms, or monetary policy adjustments. The purpose of conditionality is to ensure that the borrowing country takes necessary steps to address its economic imbalances and promote sustainable growth.

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45.

SKIP THIS SHIT
- A.
  
  Hi
- B.
  
  Hi
- C.
  
  Hi
- D.
  
  Hi
Correct Answer
A. Hi
46.

SKIP
- A.
  
  A
- B.
  
  B
- C.
  
  C
Correct Answer
C. C
47.

SKIP
- A.
  
  Hi
- B.
  
  Hi
- C.
  
  Hi
- D.
  
  Hi
Correct Answer
A. Hi
48.

SKIP
- A.
  
  A
- B.
  
  B
- C.
  
  C
Correct Answer
A. A
49.

The major monetary governance problem of the 21st century is:
- A.
  
  Lack of confidence in SDRs
- B.
  
  Refusal of China to join the IMF
- C.
  
  Wide dispersal of monetary power among several states
- D.
  
  The IMFs lack of resources
Correct Answer
C. Wide dispersal of monetary power among several states

Explanation
The correct answer is wide dispersal of monetary power among several states. This refers to the problem of having multiple countries with significant influence over the global monetary system. When power is dispersed among several states, it becomes challenging to coordinate and make effective decisions regarding monetary policies and regulations. This can lead to conflicts of interest, lack of cooperation, and difficulties in addressing global economic challenges.

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50.

Moral hazard refers to:
- A.
  
  Increased willingness to take risks if all of ones losses are insured
- B.
  
  Lack of basing monetary policies on ethical considerations
- C.
  
  The failure to consider cultural preservation in adopting macroecon. policies
- D.
  
  Government willingness to reduce taxes for the rich and raise taxes for the poor
Correct Answer
A. Increased willingness to take risks if all of ones losses are insured

Explanation
Moral hazard refers to the increased willingness to take risks if all of one's losses are insured. This means that when individuals or organizations are protected from the negative consequences of their actions, they are more likely to engage in risky behavior because they do not bear the full cost of their actions. This concept is often applied in the insurance industry, where individuals may take more risks or engage in reckless behavior knowing that they will be fully compensated for any losses.

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SKIP

SKIP

SKIP

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