MCQ for CA Intermediate FMECO - SECTION B - ECONOMICS FOR FINANCE - Chapter 4 - INTERNATIONAL TRADE

Sample Multiple Choice Questions (MCQ's) for CA Intermediate - Paper 8 - FINANCIAL MANAGEMENT & ECONOMICS FOR FINANCE - SECTION B - ECONOMICS FOR FINANCE Chapter 4: INTERNATIONAL TRADE - For Practice relevant for May/November 23 Examinations

 

UNIT 1: THEORIES OF INTERNATIONAL TRADE

Q1. Which of the following does not represent a difference between internal trade and international trade?

  1. transactions in multiple currencies
  2. homogeneity of customers and currencies
  3. differences in legal systems
  4. none of the above

Answer: 2

Q2. The theory of absolute advantage states that

  1. national wealth and power are best served by increasing exports and decreasing imports
  2. nations can increase their economic well-being by specializing in the production of goods they produce more efficiently than anyone else.
  3. that the value or price of a commodity depends exclusively on the amount of labour going into its production and therefore factor prices will be the same  
  4. differences in absolute advantage explains differences in factor endowments in different countries

Answer: 2

Q3. Which of the following theories advocates that countries should produce those goods for which it has the greatest relative advantage?

  1. Modern theory of international trade
  2. The factor endowment theory
  3. The Heckscher-Ohlin Theory
  4. None of the above 

Answer: 4

Q4. Which of the following holds that a country can increase its wealth by encouraging exports and discouraging imports

  1. Capitalism
  2. Socialism
  3. Mercantilism
  4. Laissez faire 

Answer: 3

Q5. According to the theory of comparative advantage

  1. trade is a zero-sum game so that the net change in wealth or benefits among the participants is zero.  
  2. trade is not a zero-sum game so that the net change in wealth or benefits among the participants is positive
  3. nothing definite can be said about the gains from trade 
  4. gains from trade depends upon factor endowment and utilization

Answer: 2

 

UNIT 2: THE INSTRUMENTS OF TRADE POLICY

Q1. A specific tariff is

  1. a tax on a set of specified imported good 
  2. an import tax that is common to all goods imported during a given period
  3. a specified fraction of the economic value of an imported good
  4. a tax on imports defined as an amount of currency per unit of the good

Answer: 4

Q2. A tariff on imports is beneficial to domestic producers of the imported good because

  1. they get a part of the tariff revenue 
  2. it raises the price for which they can sell their product in the domestic market
  3. it determines the quantity that can be imported to the country
  4. it reduces their producer surplus, making them more efficient

Answer: 2

Q3. A tax applied as a percentage of the value of an imported good is known as 

  1. preferential tariff
  2. ad valorem tariff
  3. specific tariff
  4. mixed or compound tariff

Answer: 2

Q4. Escalated tariff refers to

  1. nominal tariff rates on raw materials which are greater than tariffs on manufactured products 
  2. nominal tariff rates on manufactured products which are greater than tariffs on raw materials  
  3. a tariff which is escalated to prohibit imports of a particular good to protect domestic industries
  4. none of the above

Answer: 2

Q5. Voluntary export restraints involve:

  1. an importing country voluntarily restraining the quantity of goods that can be exported into the country during a specified period of time
  2. domestic firms agreeing to limit the quantity foreign products sold in their domestic markets 
  3. an exporting country voluntarily restraining the quantity of goods that can be exported out of a country during a specified period of time
  4. quantitative restrictions imposed by the importing country's government. 

Answer: 3

Q6. Anti-dumping duties are

  1. additional import duties so as to offset the effects of exporting firm's unfair charging of prices in the foreign market which are lower than production costs.
  2. additional import duties so as to offset the effects of exporting firm's increased competitiveness due to subsidies by government 
  3. additional import duties so as to offset the effects of exporting firm's unfair charging of lower prices in the foreign market 
  4. Both (a) and (c) above 

Answer: 4

 

UNIT 3: TRADE NEGOTIATIONS

Q1. Which of the following culminated in the establishment of the World Trade Organization?

  1. The Doha Round
  2. The Tokyo Round
  3. The Uruguay Round
  4. The Kennedy Round 

Answer: 3

Q2. Choose the correct statement

  1. The GATT was meant to prevent exploitation of poor countries by richer countries  
  2. The GATT dealt with trade in goods only, while, the WTO covers services as well as intellectual property.  
  3. All members of the World Trade Organization are required to avoid tariffs of all types
  4. All the above 

Answer: 2

Q3. The ‘National treatment’ principle stands for  

  1. the procedures within the WTO for resolving disagreements about trade policy among countries
  2. the principle that imported products are to be treated no worse in the domestic market than the local ones
  3. exported products are to be treated no worse in the domestic market than the local ones
  4. imported products should have the same tariff, no matter where they are imported from

Answer: 2

Q4. ‘Bound tariff’ refers to

  1. clubbing of tariffs of different commodities into one common measure
  2. the lower limit of the tariff below which a nation cannot be taxing its imports
  3. the upper limit on the tariff that a country can levy on a particular good, according to its commitments under the GATT and WTO.
  4. the limit within which the country’s export duty should fall so that there are cheaper exports

Answer: 3

Q5. The essence of ‘MFN principle’ is

  1. equality of treatment of all member countries of WTO in respect of matters related to trade
  2. favour one, country, you need to favour all in the same manner
  3. every WTO member will treat all its trading partners equally without any prejudice and discrimination
  4. all the above  

Answer: 4

Q6. The World Trade Organization (WTO)

  1. has now been replaced by the GATT
  2. has an inbuilt mechanism to settle disputes among members
  3. was established to ensure free and fair trade internationally.
  4. (b) and c) above

Answer: 4

 

UNIT 4: EXCHANGE RATE AND ITS ECONOMIC EFFECTS

Q1. Based on the supply and demand model of determination of exchange rate, which of the following ought to cause the domestic currency of Country X to appreciate against dollar?

  1. The US decides not to import from Country X
  2. An increase in remittances from the employees who are employed abroad to their families in the home country
  3. Increased imports by consumers of Country X
  4. Repayment of foreign debts by Country X

Answer: 2

Q2. All else equal, which of the following is true if consumers of India develop taste for imported commodities and decide to buy more from the US?

  1. The demand curve for dollars shifts to the right and Indian Rupee appreciates 
  2. The supply of US dollars shrinks and, therefore, import prices decrease
  3. The demand curve for dollars shifts to the right and Indian Rupee depreciates 
  4. The demand curve for dollars shifts to the left and leads to an increase in exchange rate 

Answer: 3

Q3. ‘The nominal exchange rate is expressed in units of one currency per unit of the other currency. A real exchange rate adjusts this for changes in price levels’. The statements are 

  1. wholly correct
  2. partially correct
  3. wholly incorrect
  4. None of the above

Answer: 1

Q4. At any point of time, all markets tend to have the same exchange rate for a given currency due to

  1. Hedging
  2. Speculation
  3. Arbitrage
  4. Currency futures

Answer: 1

Q5. ‘Vehicle Currency’ refers to 

  1. a currency that is widely used to denominate international contracts made by parties because it is the national currency of either of the parties  
  2. a currency that is traded internationally and, therefore, is in high demand 
  3. a type of currency used in euro area for synchronization of exchange rates 
  4. a currency that is widely used to denominate international contracts made by parties even when it is not the national currency of either of the parties  

Answer: 3

 

UNIT 5: INTERNATIONAL CAPITAL MOVEMENTS

Q1. Which of the following statements is incorrect?

  1. Direct investments are real investments in factories, assets, land, inventories etc. and involve foreign ownership of production facilities.
  2. Foreign portfolio investments involve flow of ‘financial capital’
  3. Foreign direct investment (FDI) is not concerned with either manufacture of goods or with provision of services.
  4. Portfolio capital moves to a recipient country which has revealed its potential for higher returns and profitability.

Answer: 3

Q2. Which of the following is a component of foreign capital?

  1. Direct inter government loans  
  2. Loans from international institutions (e.g. World Bank, IMF, ADB)
  3. Soft loans for e.g. from affiliates of World Bank such as IDA
  4. All the above

Answer: 4

Q3. Which of the following would be an example of foreign direct investment from Country X?

  1. A firm in Country X buys bonds issued by a Chinese computer manufacturer. 
  2. A computer firm in Country X enters into a contract with a Malaysian firm for the latter to make and sell to it processors  
  3. Mr. Z a citizen of Country X buys a controlling share in an Italian electronics firm
  4. None of the above 

Answer: 3

Q4. Which of the following types of FDI includes creation of fresh assets and production facilities in the host country?

  1. Brownfield investment
  2. Merger and acquisition
  3. Greenfield investment
  4. Strategic alliances

Answer: 3

Q5. Which is the leading country in respect of inflow of FDI to India?

  1. Mauritius
  2. USA
  3. Japan
  4. USA 

Answer: 1

 

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