International Trade and Finance Flashcards
7 cards from real CEA 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 and Finance flashcards as text
Which of the following best describes 'Dutch disease' in international economics?
Answer: Currency appreciation from a resource boom crowding out manufacturing exports
Dutch disease refers to the deindustrialization that occurs when a natural resource boom appreciates the exchange rate, making other exports less competitive.
The 'impossible trinity' (trilemma) in international finance states that a country cannot simultaneously maintain:
Answer: A fixed exchange rate, free capital mobility, and independent monetary policy
The Mundell-Fleming trilemma holds that only two of three goals—fixed exchange rate, capital mobility, and monetary autonomy—can be achieved at the same time.
Intra-industry trade is best explained by which theory?
Answer: New Trade Theory emphasizing economies of scale and product differentiation
New Trade Theory explains intra-industry trade (exporting and importing similar goods) through increasing returns to scale and consumer demand for variety.
A country imposes a countervailing duty. This trade measure targets:
Answer: Imports subsidized by a foreign government
Countervailing duties are imposed to offset the competitive advantage gained by foreign producers who receive government subsidies.
Under a currency board arrangement, the domestic money supply is:
Answer: Fully backed by foreign exchange reserves at a fixed rate
A currency board ties the domestic money supply directly to foreign reserve holdings, leaving no discretion for independent monetary policy.
The Transfer Pricing problem in multinational corporations arises because MNCs may manipulate prices on intra-firm transactions to:
Answer: Shift profits to lower-tax jurisdictions
MNCs can manipulate transfer prices on goods and services traded between subsidiaries to shift taxable profits to low-tax countries.
The 'home bias' puzzle in international finance refers to the observation that:
Answer: Investors hold far more domestic assets than international diversification theory predicts
The home bias puzzle is the empirical finding that investors hold a disproportionately large share of domestic assets despite the gains from international portfolio diversification.