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capital-intensive goods.
[5] Source: CMA 1281 1-16
In most recent years, the U.S. balance of payments has
registered a deficit. This balance of payments deficit is a
measure of the excess of
A. Exports over imports.
B. Imports over exports.
C. Imports, private capital outflows, grants, and
remittances over exports and private capital inflows.
D. Goods imports over services imports.
[6] Source: CMA 0682 1-12
Of the following transactions, the one that would result in a
debit entry in the U.S. balance of payments account is the
A. Receipt of dividends by an American corporation
from its German subsidiary.
B. Buying of IBM shares by a Kuwaiti investor.
C. U.S. export of military equipment to Saudi Arabia.
D. Expenditure of a U.S. resident vacationing in
France.
[7] Source: CMA 0682 1-13
Which one of the following transactions would result in a
credit entry in the U.S. balance of payments account?
A. A New York bank pays $5,000 in interest to
foreigners.
B. Volkswagen's U.S. subsidiary remits a dividend of
$1 million to its parent company in Germany.
C. A U.S. exporter buys marine insurance from a
British insurance company.
D. An Iowa farmer exports grain to Turkey.
[8] Source: CMA 1282 1-12
One may characterize the current international monetary
system developed by the industrialized countries as a
A. Clean float. Freely floating exchange rates are
determined solely by the forces of demand and
supply.
B. Managed or dirty float. Central banks intervene in
the foreign exchange market to influence the
exchange rates.
C. Stable-rate system.
D. Gold-based system.
[9] Source: CMA 1282 1-13
An overvalued currency can be considered as
A. A tax on exports and a subsidy to imports.
investments.
B. A tax on imports and a subsidy to exports.
C. A tax on both exports and imports.
C. Undervalued.
A. Pass "buy American" laws.
D. Overvalued.
B. Impose restrictions on U.S. exports to the
offending country.
[11] Source: CMA 1282 1-17
Disregarding demand for its factors of production, a
country's comparative advantage will lie in those goods
whose production requires comparatively large amounts of
its
C. Natural resources.
D. Capital.
[12] Source: CMA 1282 1-18
The difference between tariffs and quotas is
A. That the tariff is expressed as a percentage of
price and the quota is expressed as an amount per
unit.
B. That a tariff limits price and a quota limits
quantities.
C. That a tariff is a tax and a quota is a subsidy.
D. That a tariff is a duty, whereas a quota is a
limitation on quantities.
controls.
C. Curb inflation by increasing imports.
C. U.S. exports.
D. U.S. imports.
[20] Source: CMA 1285 1-32
Debt-servicing problems of less developed countries that
primarily sell raw materials to the United States would be
eased by
A. A recession in the United States with declines in
interest rates.
D. Comparative advantage.
[25] Source: CMA 1286 1-16
The balance of trade is the
A. 2.00 televisions.
B. 1.67 televisions.
C. 1.20 televisions.
D. 0.50 televisions.
[31] Source: CMA 1286 1-20
Given a spot exchange rate for the U.S. dollar against the
pound sterling of 1.4925 and a 90-day forward rate of
1.4775
today is the
D. U.S. imports raise living standards in the United
States.
C. Japanese yen.
D. Swiss franc.
C. Involved in hedging.
D. An exporter.
B. 721 pounds.
C. 757 pounds.
D. 745 pounds.
A. Balance of trade.
D. Higher in the short-run but lower in the long-run.
B. Diminishing returns.
C. Relative competition.
D. Comparative advantage.
List A
List B
--------------- --------------A.
Rise
B.
Fall
C.
Rise
D.
Remain constant
Depreciate
Depreciate
C. Increase by about 3%
D. Increase by about 17%.
List A List B
------ -----A.
More
More
More
Less
Less
More
B.
C.
D.
Less
Less
A. Tariffs.
B. Quotas.
C. Embargoes.
D. Exchange controls.
[79] Source: CIA 0594 IV-64
Which of the following is a tariff?
A. Licensing requirements.
A. 2.14%
B. Consumption taxes on imported goods.
B. 7.69%
C. Unreasonable standards pertaining to product
quality and safety.
C. 10.00%
D. 18.46%
Product A B C D E F
-- -- -- -- -- -Lard
0 4 8 12 16 20
Beef sides 40 32 24 16 8 0
Canada production possibilities table
------------------------------------Production Alternatives
----------------------Product
A B C D E F
-- -- -- -- -- -Lard
0 3 6 9 12 15
Beef sides 60 48 36 24 12 0
-------------------------------------Production Alternatives
------------------------------Product
A
B
C
D E
----- ----- ----- ----- --Cars
4,000 3,000 2,000 1,000 0
Tractors
0 200 400 600 800
[88] Source: Publisher
(Refers to Fact Pattern #4)
In Bulgaria, the comparative cost of
A. 1 car is 3 tractors.
B. 8 units of lard.
C. 6 units of lard and 8 beef sides.
D. 8 units of lard and 6 beef sides.
[87] Source: Publisher
(Refers to Fact Pattern #3)
Each nation produces only one product in accordance with
its comparative advantage, and the terms of trade are set at
3 beef sides for 1 unit of lard. In this case, the U.S. can
obtain a maximum combination of 8 units of lard and
A. 12 beef sides.
D. Less than 3 cars for 1 tractor.
B. 24 beef sides.
C. 36 beef sides.
D. 48 beef sides.
CMA PART 1 C
International Business Environment
ANSWERS
[1] Source: CMA 0676 1-34
Answer (A) is incorrect because increasing
productivity will lower the price of U.S. exports
which will increase the amount of exports demanded,
and thus reduce the balance of payments deficit.
Answer (B) is incorrect because as the rate of
inflation slows down, prices charged to overseas
buyers are reduced, which will increase exports (and
reduce the balance of payments deficit).
Answer (C) is incorrect because if more money were
given to countries the U.S. trades with, they would
buy more U.S. exports, thus correcting a balance of
payments deficit.
Answer (D) is correct. A balance of payments deficit
exists when the fixed or managed exchange rate is
too high. "Too high" is when the fixed price is higher
than the equilibrium price would be if market forces
were at work. To correct a balance of payments
deficit the price of dollars must decrease or other
means must be undertaken to raise the real value to
the fixed level. If the value of U.S. currency is
increased, the deficit will grow.
[2] Source: CMA 0680 1-17
Answer (A) is incorrect because the value of the
dollar is not formally tied to gold. While there may be
a long-term relationship between gold and the value
of the dollar, there are often inverse (or random)
short-term fluctuations.
Answer (B) is incorrect because an exchange rate set
by the government is called a fixed exchange rate.
The old international monetary system which used
fixed exchange rates collapsed because of its
inefficient handling of currency prices.
Answer (C) is incorrect because the International
Monetary Fund has little effect on the valuation of
currencies.
Answer (D) is correct. Exchange rates are
determined by the forces of supply and demand on
the exchange markets. Often other forces try to
intervene in this process of exchange rate
determination, but these reflect only short-run
policies. An example of this type of policy would be
government or central bank intervention in the
international money markets.
Americans.
Answer (B) is incorrect because it is a private capital
outflow and would appear as a debit in the balance of
payments account.
currencies.
Answer (D) is incorrect because the stability of the
U.S. government and its currency made the dollar a
secure store of value in the eyes of many foreigners;
these foreigners therefore acquired dollars to hold as
a safeguard against inflation in their own countries.
[61] Source: CMA 1293 1-27
18.46%.
[84] Source: CIA 1196 IV-78
Answer (A) is incorrect because the inclusion of the
tariff increases the domestic price.
Answer (B) is incorrect because foreign sales in the
domestic market decline from ad to bc.
Answer (C) is incorrect because domestic production
increases from Oa to Ob.
Answer (D) is correct. Without the tariff, domestic
production is determined by the intersection of the
Pw line with the domestic supply curve at the quantity
Oa. Domestic production increases from Oa to Ob
as a result of the introduction of the tariff. Supply
intersects the Pt line at a higher price and at a greater
domestic quantity, Ob.