International Trade Flashcards
7 cards from real CBE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 International Trade flashcards as text
Which type of foreign direct investment involves a company acquiring or building facilities in a different stage of the production chain?
Answer: Vertical FDI
Vertical FDI occurs when a multinational firm invests in different stages of the supply chain across countries, such as owning raw material extraction facilities abroad.
The 'gravity model' of trade predicts that bilateral trade flows are positively related to the size of the two economies and negatively related to:
Answer: The distance between them
The gravity model of trade, analogous to Newton's gravity law, predicts that trade between two countries increases with their economic size but decreases as the geographic (and economic) distance between them grows.
A currency board arrangement differs from a standard fixed exchange rate because it:
Answer: Requires full backing of domestic currency by foreign reserves
A currency board commits to backing every unit of domestic currency in circulation with a corresponding amount of foreign reserve currency, eliminating discretionary monetary policy.
Transfer pricing in multinational corporations primarily refers to the prices set for:
Answer: Transactions between affiliated entities within the same corporate group
Transfer pricing refers to the prices at which goods, services, or intellectual property are exchanged between different entities within the same multinational group, often used for tax planning.
Which WTO principle requires that any trade advantage granted to one member country be extended to all other WTO members?
Answer: Most-favored-nation (MFN)
The most-favored-nation (MFN) principle is a cornerstone of WTO rules requiring that trade concessions given to any one member must be unconditionally extended to all other members.
Intra-industry trade, where countries simultaneously import and export goods in the same industry, is best explained by:
Answer: Economies of scale and product differentiation
Intra-industry trade arises from economies of scale and consumer demand for variety, allowing countries to specialize in differentiated product varieties even within the same industry.
The 'Dutch Disease' in international trade refers to the phenomenon where:
Answer: A resource boom causes manufacturing sector decline via currency appreciation
Dutch Disease describes how a natural resource export boom leads to currency appreciation, which undermines the competitiveness of the manufacturing and tradable goods sectors.