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?

They guarantee an exchange rate for a future date. Signup and view all the answers

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

They possess substantial financial resources and networks. Signup and view all the answers

What characterizes an oligopoly?

Each firm takes the market price as given. Signup and view all the answers

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

Higher indifference curves are preferred to lower ones. Signup and view all the answers

What is a primary characteristic of a monopoly firm?

The seller offers a good for which there are no close substitutes. Signup and view all the answers

Which of the following statements is true regarding indifference curves?

Indifference curves slope downward. Signup and view all the answers

Which scenario indicates barriers to entry in a market?

High startup costs prevent new firms from entering. Signup and view all the answers

Which situation would likely lead to an increase in demand?

A rise in the price of substitutes. Signup and view all the answers

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

Monopoly firms can set prices while competitive firms cannot. Signup and view all the answers

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

There is a single seller in the market. Signup and view all the answers

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

One seller in the market. Signup and view all the answers

Which company exemplifies a natural resource-seeking strategic goal?

A company searching for a location where there is an abundance of oil Signup and view all the answers

What occurs when a monopoly maximizes profit?

Marginal revenue is less than its price. Signup and view all the answers

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

First mover Signup and view all the answers

What defines the market structure of monopolistic competition?

A large number of sellers with differentiated products. Signup and view all the answers

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

Targeting markets with several innovative companies Signup and view all the answers

When do competitive firms experience price-taking behavior?

In a perfectly competitive market with identical goods. Signup and view all the answers

Which statement best describes a first mover's advantage?

They set the market standards that all must follow. Signup and view all the answers

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

Perfectly competitive market. Signup and view all the answers

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

Identifying urban areas with a high tech workforce Signup and view all the answers

What best defines opportunity cost?

The lost potential from pursuing one activity at the expense of another activity, given the alternatives Signup and view all the answers

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

Internalization advantages Signup and view all the answers

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

The government interventions in market pricing Signup and view all the answers

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

Reduction of transaction costs Signup and view all the answers

In economic terms, what typically results from opportunity cost?

A trade-off between mutually exclusive choices Signup and view all the answers

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

Unique resources and capabilities Signup and view all the answers

Which of these is a common misconception about opportunity cost?

It only applies to financial decisions Signup and view all the answers

What describes a potential disadvantage of foreign direct investment?

Exposure to political and economic instability Signup and view all the answers

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

The aggregate-demand curve shifts to the right. Signup and view all the answers

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

By purchasing government bonds. Signup and view all the answers

Which statement correctly describes consumer surplus?

It measures the difference between what consumers are willing to pay and what they actually pay. Signup and view all the answers

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

The aggregate-demand curve will shift leftwards. Signup and view all the answers

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

Increased efficiency in markets. Signup and view all the answers

What effect does an increase in consumer surplus typically promote?

An increase in economic welfare. Signup and view all the answers

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

They will significantly decrease. Signup and view all the answers

Which of the following statements about aggregate demand is false?

Higher interest rates usually stimulate aggregate demand. Signup and view all the answers

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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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.