FINA 385 Midterm questions and
correct answers.
What factors are affecting international.l trade? - Ans✔✔cost of labor
inflation
national income (GDP)
exchange rates
Cost of labor - Ans✔✔current account decreases if domestic labor
costs are relatively higher and imports will rise as foreign goods are
cheaper
Inflation - Ans✔✔current account decreases if domestic inflation
increases relative to trade partners and imports will rise
-higher domestic inflation (due to higher labor costs) will lead to more
imports due to cheaper prices of foreign goods and services
National Income (GDP) - Ans✔✔current account decreases if domestic
income increases relative to other countries (imports will rise)
-higher domestic income will lead to more imports due to more general
consumption activities
Exchange rate - Ans✔✔current account decreases if domestic currency
appreciates relative to other currencies
, J-Curve Effect - Ans✔✔depreciation will initially deteriorate the trade
balance due to higher payments for imported goods
Factors affecting DFI - Ans✔✔-changes in restrictions
-privatization
-potential economic growth
-tax rates
-exchange rates
Why do firms do business across the countries? - Ans✔✔more
productions with lower production costs
Comparative advantage theory - Ans✔✔-specialization increases
production efficiency
-more productions with lower production costs
Product Cycle Theory - Ans✔✔as a firm matures, it recognizes
opportunities outside its domestic market
Expansion of Market Shares - Ans✔✔due to limitations for further
growth in domestic market
What does the valuation model for domestic MNC - Ans✔✔valuation
(based on future revenue) at present time
correct answers.
What factors are affecting international.l trade? - Ans✔✔cost of labor
inflation
national income (GDP)
exchange rates
Cost of labor - Ans✔✔current account decreases if domestic labor
costs are relatively higher and imports will rise as foreign goods are
cheaper
Inflation - Ans✔✔current account decreases if domestic inflation
increases relative to trade partners and imports will rise
-higher domestic inflation (due to higher labor costs) will lead to more
imports due to cheaper prices of foreign goods and services
National Income (GDP) - Ans✔✔current account decreases if domestic
income increases relative to other countries (imports will rise)
-higher domestic income will lead to more imports due to more general
consumption activities
Exchange rate - Ans✔✔current account decreases if domestic currency
appreciates relative to other currencies
, J-Curve Effect - Ans✔✔depreciation will initially deteriorate the trade
balance due to higher payments for imported goods
Factors affecting DFI - Ans✔✔-changes in restrictions
-privatization
-potential economic growth
-tax rates
-exchange rates
Why do firms do business across the countries? - Ans✔✔more
productions with lower production costs
Comparative advantage theory - Ans✔✔-specialization increases
production efficiency
-more productions with lower production costs
Product Cycle Theory - Ans✔✔as a firm matures, it recognizes
opportunities outside its domestic market
Expansion of Market Shares - Ans✔✔due to limitations for further
growth in domestic market
What does the valuation model for domestic MNC - Ans✔✔valuation
(based on future revenue) at present time
