solution

True/false questions

1. Radical writers argue that the multinational enterprise (MNE) is an instrument of imperialist domination. According to the radical view, FDI by the MNEs of advanced capitalist nations keeps the less developed countries of the world relatively backward and dependent on advanced capitalist nations for investment, jobs, and technology. Thus, according to the extreme version of this view, no country should ever permit foreign corporations to undertake FDI, because they can never be instruments of economic development, only of economic domination. Where MNEs already exist in a country, they should be immediately nationalized
2. The carry trade involves borrowing in one currency where interest rates are low and then using the proceeds to invest in another currency where interest rates are high. The speculative element of the carry trade is that its success is based upon a belief that there will be no adverse movement in exchange rates (or interest rates for that matter) that will make the trade unprofitable
3. The interdependence between firms in an oligopoly leads to trade wars
4. The idea behind multipoint competition is to ensure that a rival does not dominate one market and use the profits from there to drive competitive attacks elsewhere
5. Dunning’s theory helps explain how location factors does not affect the direction of FDI
6. Import quotas benefit domestic consumers by limiting import competition
7. The purchasing power parity (PPP) exchange rate could be found from any individual set of prices, If the law of one price were true for all goods and services.
8. Tariffs improve the overall efficiency of the world economy
9. Import tariffs are far more common than export tariffs
10. Capital flight is most likely to occur when the value of the domestic currency is appreciating rapidly because of hyperinflation or when a country’s economic prospects are shaky in other respects
11. Adam Smith’s theory of comparative advantage was the first to explain why free trade is beneficial to a country
12. Smith, Ricardo, and Heckscher-Ohlin suggested that a country’s economy would gain only if its citizens buy products that are not made in that country
13. New trade theory stresses that in some cases countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries the world market can support only a limited number of firms
14. As rival global firms follow each other across countries, they bring with them their brand names, products, and marketing strategies from other national markets, thus creating homogeneity across markets
15. Outsourcing production to foreign countries increases the chance for companies to gain significant orders for their products from those countries
16. Your company is going to have a loss of $50,000 if your company converts $500,000 into euros when the exchange rate is $1 = €0.85. After three months, the company converts this back into dollars when the exchange rate is $1 = €1