PART 1:

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.

Answer
- Explain the statement “that even low-productivity countries with an absolute disadvantage in
all
goods can benefit from trade”.
 • Trade is conducted based on comparative advantage rather than absolute advantage •

Low-productivity countries can benefit from trade by exporting their products of least •

absolute disadvantage.

• Give numerical examples

- It is certainly concerned because of

• The need to change comparative advantage pattern to keep up with changes in the world •

economy

• The need to increase added value of product to raise production efficiency as well as
wellbeings

• The need to take part in the higher value part of the global supply chain. •

Productivity is related to income and standard living of a nation

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

Economic Costs
● Expenditures for transportation
● Loss of wages during the time of relocating and searching for a job in a new nation ● Other
unquantifiable costs: Separation from family, relatives, friends; have to learn and adapt to
new customs and new language; risk in finding job, housing …in a foreign countr
- Economic Benefits
● The higher real wages and income during worker’s remaining working life
abroad - Non-economic costs
Separation from relatives, friends, and familiar surroundingsThe need to learn new
customs and languagesThe risk in a new land: risk to find a job, housing…Unable
to adapt to new life in a foreign country, risk to migrants’ children
Non-economic benefits
The greater educational and job opportunities for the migrants’ childrenBetter
working condition and living standard
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.

Answer:
To hedge the receivable in € => He will buy a put option with ER: $1 = €1
Option premium: $1 = 0.01€
After x day, he will exercise the contract option, let it expired depending on which one is one is
favorable by comparing ER and SR
Option market: 0.01 * €100.000 =1000$
Sell: $1 * €100.000 = 100.000
Net receipt = 100.000 – 1000 = 99.000 $