Exam 2 - Short Answers(3 points each 1 According to...

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Short Answers (3 points each) 1. According to Bergsten (“New Imbalances Will Threaten the Global Recovery”), who has become the consumer/ borrower of last resort and why? 2. According to the article by Wong (“China Faces Obstacles in Bid to Rebalance Its Economy”), what is China’s growth model based on today? 3. Give one reason why the US refused to ratify the Kyoto Protocol according to the textbook. 4. What are two ways a currency futures contract differs from a forward contract according to the textbook?
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5. What is a collective action clause and why is it important? 6. What are two proposals from the textbook to reduce the frequency of financial crises? 7. Why do most economists oppose a return to the gold standard? 8. What are two inherent disadvantages of MNEs according to the textbook?
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9. What would explain a situation where a country has a positive current account balance and a negative goods and services balance? Multiple Choice Section (3 points each) 1. Assume you are a Chinese importer who must pay 700,000 Pesos at the end of 30 days when you receive 100,000 cases of Corona Beer at your warehouse in Shanghai. If you do not hedge this transaction, you face exchange rate risk. The best way to remove the risk of loss due to currency fluctuations is to: a. Sell 700,000 Pesos in the forward market for delivery after 30 days. b. Buy 700,000 Pesos in the forward market for delivery in 30 days. c. Sell 700,000 Pesos now in the spot market. d. Buy 700,000 Pesos now, hold them for 30 days, and then sell them at the current spot rate. e. None of the above. 2. U.S. imports of goods and services will create a __________ foreign currency and a __________ U.S. dollars. a. Demand for; supply of b. Supply of; demand for c. Shortage of; demand for d. Supply of; shortage of 3. In 2002, which of the following countries defaulted on its international debts? a. Brazil. b. Argentina. c. Thailand. d. Mexico. e. Russia. f. Korea. g. Greece. h. Indonesia i. 4. Foreign Direct Investment from the parent company generally provides a small percentage of foreign affiliates total funding because: a. Foreign governments prohibit foreign investment in their domestic firms. b. Domestic governments prohibit investment in foreign firms by their domestic firms. c. The returns on such investment are taxed at too high a rate. d. The parent firm wants to reduce the risks to which its foreign activities are exposed. e. All of the above.
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