FINAL TEST INTERNATIONAL ECONOMIC

PART 1: Multiple choice (5 point)

Question 1: Direct investments usually involve the transfer of

A. capital.
B. technology.
C. management skills.
D. (a), (b) and (c).
Question 2: International trade in goods and services is sometimes used as a substitute for
all of the following except:

A. International movements of capital.

B. International movements of labor.
C. International movements of technology
D. Domestic production of different goods and services
Question 3. In the classical model of Ricardo, the direction of trade is determined by:

A. absolute advantage
B. comparative advantage
C. physical advantage
D. which way the wind blows
Question 4. A country's balance of payment records all of the following items EXCEPT
_______.

A. international trading
B. international investment
C. international taxes
D. international lending and borrowing
Question 5. In autarky, when a community maximizes its standard of living, its production
point is:
A. below the production possibility frontier.
 B. on the production possibility frontier.
C. above the production possibility frontier.
D. can’t tell without more information.
Question 6. The price at which units within a single Multinational Corporation sell goods
and services to other units within the MNE is the ____________price.

A. foreign exchange
B. international
C. arms-length
D. transfer.

Question 7. The accounting procedure in which each international transaction of a nation

is recorded twice in its balance of payment is known as

A. matching bookkeeping.
B. double-entry bookkeeping.
C. reliable bookkeeping.
D. consistent bookkeeping.
Question 8. According to Ricardo, a country will have comparative profits in terms of
products in which it is locate
A. Low corresponds to labor productivity.
B. high corresponding to labor productivity.
C. Low interaction of labor mobility.
D. the high to move transition.
Question 9. A country’s openness to international trade can be measured by the formula

A. Exports + Imports + GDP

B. Exports – Imports – GDP
C. (Exports + Imports) / GDP
D. (Exports + Imports) X GDP
Question10. In the period before World War I, the exchange rate system that existed was the

A. Limited Anarchy System.

 B. Bretton Woods System.
C. Gold Standard.
D. British Imperial Standard.
Question 11. In a world of two countries and two goods (X and Y), if country A has a
comparative advantage in X then country B must have

A. An absolute advantage in Y
B. An absolute disadvantage in Y
C. A comparative advantage in Y
D. A comparative disadvantage in Y

Question 12. In theory, international labor movement will

A. reduce labor force and increase real wage in the Host country.
B. raise labor force and real wage in the Host country.
C. reduce labor force and raise real wage in the Home country.
D. reduce labor force and reduce real wage in the Home country

Question 13. International economic transactions with *

A. policies aimed at regulating the flow of goods, services and payments

B. flow of goods, services and payments between countries.

C. the effects of policies on the welfare of the nation.
D. All these answers
Question 14. A company needs to buy 10 million euros. The quote is 0.950 euros/dollar -
0.980 euros/dollar. How much does it cost the company to buy the Euros?

A. 9,500,500 dollars
B. 9,800,000 dollars
C. 10,204,082 dollars
D. 10,526,316 dollars
Question 15. Which of the following is NOT a beneficial effect or direct investment on the
Home country?

A. Transfer technology.
B. Higher profits.
C. Risk diversification
D. Avoid the possible loss of export markets.

Question 16. Which trade policy results in the government levying both a specific tariff and
an ad-valorem tariff on imported goods:

A. Compound tariff
B. Nominal tariff
C. Effective tariff
D. Revenue tariff
Question 17. What is/are the major problem(s) of the present International Monetary
System?

A. Large exchange rate fluctuations.

B. Large and persistent exchange rate misalignment.
C. Failures to promote international coordination of economic policies.

D. (a), (b) and (c).

Question 18. The balance of payments account used to record payments for imported goods
and services is the

A. bank account.
B. current account.
C. capital account.
D. import account.
Question 19. Ad valorem tariffs are collected as
A. fixed amounts of money per unit traded
B. a percentage of the price of the product
 C. a percentage of the quantity of imports
D. all of the above
Question 20. The organization that currently establishes rules of conduct for firms engaging
in international trade is the

A. World Bank
B. International Trade Commission
C. Department of Justice
D. World Trade Organization
Question 21. MNCs can …………………….. by artificially overpricing components
delivered to an affiliate in tax-high nation and underpricing products delivered from an
affiliate in tax-high nation MNCs

A. minimize tax bills

B. reduce prices
C. reduce production cost
D. increase production cost
Question 22. The _____ is the rate at which the market converts one currency into another.

A. swap rate
B. . exchange rate
C. fixed rate
D. interest rate
Question 23. Compared to what occurred under free trade, Mexico’s producer surplus
______ and consumer surplus ______ as a result of the subsidy. Use the figure that you have
plotted to calculate the amounts.

A. decreases, decreases
B. decreases, increases
C. increases, decreases
D. increases, increases
Question 24. A specification of a maximum amount of a foreign produced good that will be
allowed to enter the country over a given time period is referred to as a (an):

A. domestic subsidy
B. export subsidy
C. import quota
D. export quota
Question 25. In 2019, China had imports of 14.31 trillion yuan and exports of 17.23 trillion
yuan. China had ________ in that year.

A. a trade surplus of 2.92 trillion yuan

B. a current account surplus of 2.92 trillion yuan
C. a trade deficit of 2.96 trillion yuan
D. a current account deficit of 2.92 trillion yuan

PART 2: ESSAY

Question 26. (2 point) Ricardo pointed out that even low-productivity countries with an
absolute disadvantage in all goods can benefit from trade. Does this mean we do not have to
be concerned about countries whose labor productivity lags behind the rest of the world?
Explain briefly and illustrate your arguments with examples.

Question 27. (1 point) Please analyze what are the economic and non-economic reasons,
cost and benefits for migrants

Question 28. (2 point) A speculator expects the exchange rate of the euro will fall. He
purchases a put option to sell one million euros with the exercise rate of 1.2 dollars per euro.
The option premium is 0.1 dollars per euro. Calculate his gain or loss, if on the expiration
date, the spot rate of the euro reaches 1.25 dollars per euro.
ESSAY TEST 2

Question 26. (2 point) Assume Vietnam is small and has the supply and demand curves of
commodity X as bellows:
 Q = 150-P

Q = 10 + P

Q: million X and P: USD/X.

The world price of a commodity X is USD 100.

a. Analyze the market of commodity X in Vietnam in autarky case. b. Identify the price of
commodity X; and the quantity of commodity X consumed, produced and exported in
Vietnam in free trade.
c. Assume Vietnam subsidizes 30% on commodity X exported. Identify price of
commodity X, and the quantity of X consumed, produced and exported in Vietnam. d.
Given export subsidies of 30% on commodity X, identify:
Changes in total consumer surplus.

Changes in total producer surplus.

Efficiency loss due to production.

Efficiency loss consumption distortion.

Question 27. (1 point) Please explain why unskilled labor migration may result in positive
and negative impacts on countries of immigration?

Question 28. (2 point) A U.S exporter will receive €100,000 in 3 months. How can he hedge
the foreign exchange risk in the option market? Calculate the receipt in USD if the exercise
rate is 1.2 USD/EUR and the premium (option price) is 1% of the contract value?