Business Decision Making in Global Markets
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Questions and Answers

What happens to a country's currency exchange rate when inflation decreases?

  • It decreases.
  • It remains the same.
  • It increases. (correct)
  • It changes, but in an unknown direction.

Which type of foreign exchange transaction involves immediate delivery of the currency?

  • Spot transactions. (correct)
  • Forward transactions.
  • Futures transactions.
  • Swap transactions.

Who are the main participants in the foreign exchange market?

  • Large international banks. (correct)
  • Local businesses.
  • Retail investors.
  • Government institutions.

What is a characteristic of forward transactions in foreign exchange?

<p>They guarantee an exchange rate for a future date. (C)</p> Signup and view all the answers

In the context of currency exchange, what is one reasons large international banks dominate the market?

<p>They possess substantial financial resources and networks. (A)</p> Signup and view all the answers

What characterizes an oligopoly?

<p>Each firm takes the market price as given. (B)</p> Signup and view all the answers

Which are true properties of an indifference curve? Choose two.

<p>Higher indifference curves are preferred to lower ones. (A), Indifference curves are bowed outward. (B)</p> Signup and view all the answers

What is a primary characteristic of a monopoly firm?

<p>The seller offers a good for which there are no close substitutes. (D)</p> Signup and view all the answers

Which of the following statements is true regarding indifference curves?

<p>Indifference curves slope downward. (A)</p> Signup and view all the answers

Which scenario indicates barriers to entry in a market?

<p>High startup costs prevent new firms from entering. (B)</p> Signup and view all the answers

Which situation would likely lead to an increase in demand?

<p>A rise in the price of substitutes. (C)</p> Signup and view all the answers

Which statement describes a key difference between monopoly and competitive firms?

<p>Monopoly firms can set prices while competitive firms cannot. (D)</p> Signup and view all the answers

What is an example of a characteristic that is NOT true for an oligopoly?

<p>There is a single seller in the market. (B)</p> Signup and view all the answers

Which of the following is NOT a characteristic of monopolistic competition?

<p>One seller in the market. (B)</p> Signup and view all the answers

Which company exemplifies a natural resource-seeking strategic goal?

<p>A company searching for a location where there is an abundance of oil (B)</p> Signup and view all the answers

What occurs when a monopoly maximizes profit?

<p>Marginal revenue is less than its price. (D)</p> Signup and view all the answers

What type of mover is best positioned to create significant barriers for other entrants in a market?

<p>First mover (B)</p> Signup and view all the answers

What defines the market structure of monopolistic competition?

<p>A large number of sellers with differentiated products. (C)</p> Signup and view all the answers

Which of the following strategies is least likely to focus on resource acquisition?

<p>Targeting markets with several innovative companies (C)</p> Signup and view all the answers

When do competitive firms experience price-taking behavior?

<p>In a perfectly competitive market with identical goods. (C)</p> Signup and view all the answers

Which statement best describes a first mover's advantage?

<p>They set the market standards that all must follow. (B)</p> Signup and view all the answers

Which of the following indicates a market with many buyers and sellers?

<p>Perfectly competitive market. (D)</p> Signup and view all the answers

Which scenario does not indicate a natural resource-seeking strategy?

<p>Identifying urban areas with a high tech workforce (A)</p> Signup and view all the answers

What best defines opportunity cost?

<p>The lost potential from pursuing one activity at the expense of another activity, given the alternatives (B)</p> Signup and view all the answers

What is one reason firms pursue foreign direct investment according to John Dunning's OLI advantages?

<p>Internalization advantages (B)</p> Signup and view all the answers

Which choice does NOT relate to the concept of opportunity cost?

<p>The government interventions in market pricing (A)</p> Signup and view all the answers

Which of the following is an advantage pertinent to internalization, as outlined in Dunning's framework?

<p>Reduction of transaction costs (D)</p> Signup and view all the answers

In economic terms, what typically results from opportunity cost?

<p>A trade-off between mutually exclusive choices (C)</p> Signup and view all the answers

According to the OLI model, which characteristic is emphasized under 'Ownership' advantages?

<p>Unique resources and capabilities (A)</p> Signup and view all the answers

Which of these is a common misconception about opportunity cost?

<p>It only applies to financial decisions (A)</p> Signup and view all the answers

What describes a potential disadvantage of foreign direct investment?

<p>Exposure to political and economic instability (D)</p> Signup and view all the answers

What is a result of the Federal Reserve increasing the money supply?

<p>The aggregate-demand curve shifts to the right. (B)</p> Signup and view all the answers

How does the Federal Reserve indirectly affect the economy by lowering the federal funds rate?

<p>By purchasing government bonds. (A)</p> Signup and view all the answers

Which statement correctly describes consumer surplus?

<p>It measures the difference between what consumers are willing to pay and what they actually pay. (C)</p> Signup and view all the answers

What is likely to happen if the Federal Reserve sells government bonds?

<p>The aggregate-demand curve will shift leftwards. (A)</p> Signup and view all the answers

Which of the following is not a consequence of an increased money supply?

<p>Increased efficiency in markets. (B)</p> Signup and view all the answers

What effect does an increase in consumer surplus typically promote?

<p>An increase in economic welfare. (B)</p> Signup and view all the answers

What ultimately happens to long-term interest rates if the Fed pursues an expansionary monetary policy?

<p>They will significantly decrease. (B)</p> Signup and view all the answers

Which of the following statements about aggregate demand is false?

<p>Higher interest rates usually stimulate aggregate demand. (D)</p> Signup and view all the answers

Flashcards

Monopoly Characteristics

A market structure with one seller offering a unique good with no close substitutes, and high barriers to entry.

Monopoly Marginal Revenue

In a monopoly, the marginal revenue is less than the price.

Monopoly Profit Maximization

Monopoly maximizes profit when marginal revenue equals marginal cost.

Monopolistic Competition Characteristics

A market structure with many sellers, product differentiation, and free entry and exit.

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Product Differentiation

Products that are similar but not identical.

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Free Entry

Easy for new businesses to enter the market and compete.

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Price Takers

Businesses that charge different prices which are determined by other businesses in the market.

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Many sellers in a market

Competition in the market is abundant with many sellers.

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Opportunity Cost

The value of the next best alternative forgone when making a choice.

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OLIs

A theory that explains why firms become multinational enterprises by engaging in foreign direct investment.

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Internalization Advantages

Advantages that arise when a firm controls its own activities to better manage coordination and minimize transaction costs.

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Factors of production

Resources used in the production process, such as labor, land, and capital.

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Foreign Direct Investment

Investment made by a company in another country.

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Government Payment

Money provided by a government to a firm or individual.

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Economic loss due to tariffs

A decline in overall economic well-being caused by taxes on imports.

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Litigation advantage

A made-up term in the context of provided data.

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Currency Appreciation

A country's currency becomes stronger against other currencies, meaning it buys more foreign currency.

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Inflation's Effect on Exchange Rates

Decreasing inflation can lead to a stronger currency because it signifies a stable economy, attracting foreign investment.

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Spot Transactions

Foreign exchange transactions where currencies are exchanged immediately at the current market rate.

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Who Dominates Forex?

Large international banks are the biggest players in the foreign exchange market, handling huge amounts of currency transfers.

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What is the Foreign Exchange Market (Forex)?

A global marketplace where currencies are bought and sold, enabling international trade and investment.

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Strategic Goal: Natural Resource Seeking

A company's objective to locate and secure access to resources such as oil or minerals, essential for its operations or product development.

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First Mover Advantage

A company's competitive advantage gained by being the first to enter a market or introduce a new product or service.

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Barriers to Entry

Obstacles or challenges that prevent new companies from easily entering a market and competing with established businesses.

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What hinders new competitors?

Barriers to entry are obstacles that make it difficult for new businesses to enter a market. Barriers can include high start-up costs, patents, regulatory hurdles, or established brand loyalty.

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First Mover: Significant Barriers

A first mover can often establish significant barriers to entry by securing key resources, building brand loyalty, or establishing industry standards.

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Oligopoly Feature

In an oligopoly, the pricing of goods isn't determined by supply and demand alone, but by the interaction of a few dominant firms. Each firm is aware of the others' actions and reacts accordingly, leading to a complex game of strategy.

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Indifference Curve Property

Higher indifference curves represent greater satisfaction for a consumer. As you move to higher curves, the consumer is better off, achieving a more desirable combination of goods.

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Indifference Curve Property 2

Indifference curves cannot intersect. This is because if they did, it would imply that a consumer is indifferent between two different bundles of goods, which contradicts the idea of preference consistency.

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Demand Increase

Demand for a good increases when consumers are willing and able to buy more of it at every price. This can be caused by factors like rising incomes, falling prices of complements, or rising prices of substitutes.

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What increases demand?

Several factors can increase demand for a good. These include rising incomes, falling prices of complementary goods, rising prices of substitute goods, changes in tastes and preferences, and expectations of future price increases.

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Money Supply Increase

When the Federal Reserve (Fed) increases the money supply, it leads to a shift in the aggregate demand curve to the right. This means that at every price level, people are now willing to buy more goods and services.

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Federal Funds Rate

The federal funds rate is the interest rate at which banks lend reserves to each other overnight. The Fed can lower this rate by purchasing government bonds. This increases the money supply, making it easier for banks to borrow from each other and lowering the federal funds rate.

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Consumer Surplus

Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay. It's a good measure of economic well-being because it reflects the satisfaction buyers get from their purchases.

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Economic Well-being

Economic well-being refers to the overall financial and material prosperity of individuals and societies. It includes factors like income, wealth, employment, and access to essential goods and services.

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Foreign Direct Investment (FDI)

FDI is an investment made by a company in another country. This can involve building a factory, buying a controlling interest in a local company, or creating a new subsidiary.

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Study Notes

Business Decision Making in the Global Environment

  • Competent level assessment (30%)
  • International Trade and Foreign Exchange Market
  • Globalization
    • One view of globalization claims that human civilization has always seen globalization. This is known as the long-run historical view.

Key Terms and Concepts

  • First-mover advantage: The benefit attributed to firms that enter a market before others in the same segment.
  • Opportunity cost: The lost potential from pursuing one activity at the expense of another.
  • Internalization advantages: One of John Dunning's OLI advantages for firms becoming multinational enterprises through foreign direct investment.
  • Dodger strategy: A strategy appropriate for responding to multinational enterprises (MNEs) in specific situations.
  • Collusion: Industries primed for collusion have a small number of rivals, homogeneous products, and low or no entry barriers.
  • Mercantilism: The theory of mercantilism has weaknesses, such as inefficient allocation of resources.
  • Bandwagon effect: The movement of investors in the same direction at the same time.
  • Currency Exchange Rate Change: A country experiencing lower inflation sees its currency's exchange rate decrease.
  • Foreign Exchange Transactions: Spot transactions are a primary type.
  • Foreign Exchange Market Participants: Large international banks are primary participants.
  • Strategic Goal - Natural Resources: Companies search for locations with abundant resources like oil.
  • Barriers to Entry: Lead to monopolies; examples include a single firm owning a key resource, economies of scale, and government regulations.

Monopoly and Monopolistic Competition

  • Monopoly: A market with one seller offering a unique product with no close substitutes, barriers to entry.
  • Monopolistic Competition: Characterized by many sellers, product differentiation, free entry and exit into the market.

Oligopoly

  • Key Feature: Prisoner's dilemma, where each firm makes decisions based on the potential actions of its competitors, with the aim to maximize total profit.

Market Surpluses and Inefficiencies

  • Market Surplus: Quantity supplied exceeds quantity demanded, pressuring prices upward.
  • Market Efficiency: Optimum distribution of goods and services, maximizing total surplus and minimizing market inefficiencies.

Indifference Curves

  • Properties: Higher indifference curves are preferred, curves don't cross, are bowed outward, slope downward.

Microeconomics and Macroeconomics

  • Demand Increase Indicators: Factors that lead to increased demand include a decrease in the price of a complement, expectation of future lower prices for a normal good, decrease in prices for a substitute.
  • Market Economy Characteristics: Private ownership of production factors, supply and demand, pricing determination by the market.
  • Market Surplus: When the quantity supplied exceeds demanded.
  • Market Surplus and Price Pressure: Market surpluses create upward pressure on prices.
  • Inelastic Demand: The quantity demanded responds relatively little to price changes.
  • Cross-Price Elasticity of Demand: Negative cross-price elasticity exists between complementary goods.
  • Marginal Cost: Increase in cost from producing an additional unit.
  • Consumer Surplus: Reflects consumers' well-being when prices are lower.
  • Producer Surplus: Represents producers' well-being when prices are higher.
  • Gross Domestic Product (GDP): Measurement of the market value of all final goods/services produced in an economy over a period.
  • Import Tariffs and Revenue: Import tariffs increase government revenue.

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Related Documents

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Description

This quiz evaluates your understanding of business decision-making within the context of international trade and the foreign exchange market. Explore key concepts like opportunity cost, first-mover advantage, and collusion as they relate to globalization and multinational enterprises.

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