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International Business 2nd Edition

Peng Test Bank


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Name: Class: Date:

Chapter 09—Global Integration and Multilateral Organizations


1. ‘Launch aid’ is a common but controversial forms of government support in industries with high R&D costs, such as
aircraft manufacturing.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

2. Airbus is benefitting from launch aid, while Boeing is not.


a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

3. Boeing is benefitting from government research contracts, while Airbus is not.


a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

4. The World Trade Organization was created after World War II as a multilateral trading system.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficult

5. General Agreement on Tariffs and Trade (GATT) expanded considerably into WTO.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

6. Global economic integration does not have political benefits.


a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

7. The multilateral trading system resolves disputes between two countries involved in global trade.
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Chapter 09—Global Integration and Multilateral Organizations


a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

8. The crucial principle of GATT/WTO is nondiscrimination, ensuring that countries do not discriminate among its
trading partners.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy

9. Upon establishment of GATT, there were many loopholes in the Multifibre Arrangement (MFA), designed to limit free
trade in textiles.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

10. With tariffs being restricted by international agreements, many governments use NTFs (nontariff barriers) to protect
their domestic market.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy

11. WTO has six main areas including trade of goods, services, intellectual property and banning governments from
protecting their agricultural industry.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy

12. The negotiations sponsored by WTO in Doha, Qatar, were aimed directly at the economic development of developing
countries.
a. True
b. False
ANSWER: True
POINTS: 1

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Chapter 09—Global Integration and Multilateral Organizations


DIFFICULTY: Easy

13. The 'stumbling block' of the Doha round turned out to be intellectual property.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy

14. The original objective of the IMF was to help countries maintain fixed exchange rates.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

15. The objective of the IMF is to help countries experiencing severe balance of payments problems.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

16. The IMF is helping developing countries, but is not involved with Western European countries.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

17. IMF conditionality often involves severe cuts in government budgets with the aim to enable countries to service their
external debt.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

18. The IMF is often unpopular in the countries that it tries to help.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
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Chapter 09—Global Integration and Multilateral Organizations

19. The IMF is responsible for the stability of the global banking system.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

20. The IMF acts as global financial sector supervisory agency.


a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

21. The IMF provided loans and loan guarantees for more than 10% of Hungarian GDP to Hungary during the financial of
2008/09.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

22. In the financial crisis, the IMF and the EU jointly designed a rescue packages in 2010 and 2012.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficult

23. After Russia joined the EU, the WTO has been able to prevent a trade war between the EU and Russia.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficult

24. In ASEAN, the richest country has a per capita GDP that is more than 50 times as high as the poorest country.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

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Chapter 09—Global Integration and Multilateral Organizations


25. A monetary union is a group of countries that use a common currency.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

26. ASEAN is an important trading partner of the EU: more than 10 per cent of EU exports go to ASEAN countries.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

27. Russia accounts for more than 10 per cent of exports in the case of several EU member countries.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

28. The WTO ruling in the controversy over hormone treated beef provided great support to consumer health advocates in
Europe.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

29. The WTO allows developing countries to subsidize their agriculture sectors, but sets a cap for the amount of such
subsidies.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

30. Countries have committed to using investor-state dispute settlement tribunals in the WTO treaties.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

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Chapter 09—Global Integration and Multilateral Organizations


31. NAFTA, a free trade agreement between Canada, Mexico and the United States, secured Mexico a preferential
treatment for 80% of its exports.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

32. Latin American countries launched negotiations with Canada and the US for a possible Free Trade Area of the
Americas.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

33. The ANZCERTA or CER, launched in 1983, turned historical rivalry between Australia and New Zealand into a
partnership.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy

34. The Basle Committee is advising governments on exchange rate policies.


a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate

35. Due to trade diversion effects, countries like Mexico and Australia may lose trade out if the EU and the USA sign
TTIP.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate

36. Which of the following statements regarding the Airbus-Boing subsidy conflict is correct?
a. Airbus made a formal complaint about Boeing in the WTO.
b. Boeing made a formal complaint about Airbus in the WTO.
c. The USA made a formal complaint about the EU in the WTO.
d. All of the above statements are correct.

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Chapter 09—Global Integration and Multilateral Organizations


ANSWER: c
POINTS: 1
DIFFICULTY: Difficult

37. In response to the EU’s complaint that preferential military R&D contracts unduly benefit Boeing, the USA argued
that
a. R&D contracts are not an issue of concern to the WTO.
b. R&D contracts to the military arm do create not benefits for Boeings civil aircraft manufacturing.
c. full transparency in military R&D contracts, as requested by the EU, would endanger US national security.
d. R&D contracts are regulated by a separate agreement under the WTO.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate

38. Which of the following institutions was established following World War II to regulate global trade between
countries?
a. WTO, World Trade Organization
b. GATT, General Agreement on Tariffs and Trade
c. UN, United Nations
d. EU, European Union
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate

39. Which of the following is an economic benefit of global economic integration?


a. Disputes are handled constructively.
b. Rules make life easier and discrimination impossible for all participating countries.
c. Free trade and investment raise incomes and stimulate economic growth.
d. All of these answers
ANSWER: d
POINTS: 1
DIFFICULTY: Difficult

40. The primary purpose of the International Monetary Fund is


a. to negotiate and implement stable exchange rates.
b. to monitor and enforce government budget constraint of member countries.
c. to coordinate international regulation of the financial service industry.
d. to promote monetary cooperation and provide temporary financial assistance to countries with balance of
payment problems.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy

41. A crucial principle in the multilateral trading system is


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Chapter 09—Global Integration and Multilateral Organizations


a. non-discrimination. b. low tariff.
c. no trade barrier. d. reciprocation.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

42. The most (in)famous loophole in merchandise trade created through GATT was
a. TRIPS. b. NTB.
c. MFA. d. technical approval procedures.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate

43. Which one of the following is NOT a NTB (nontariff barrier)?


a. Subsidies b. Local content requirements
c. Customs d. The WTO
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate

44. Which one of the following is NOT a function of WTO?


a. Regulation of subsidies on agricultural products
b. Dispute settlement
c. Trade policy reviews
d. Regulation of trade of goods, services, and intellectual property
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

45. Which of the following is an agreement regulating intellectual property?


a. GATT b. GATS
c. IPA d. TRIPS
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate

46. Which one of the following was NOT part of the agenda of the Doha round?
a. Reducing agricultural subsidies in developing countries
b. Slashing tariffs in the industries that developing countries might benefit from
c. Freeing up trade in services
d. Strengthening intellectual property protection
ANSWER: a
POINTS: 1

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Chapter 09—Global Integration and Multilateral Organizations


DIFFICULTY: Moderate

47. Which of the following is NOT a benefit of regional economic integration?


a. Promoting peace by fostering closer economic ties
b. Setting consistent rules to make discriminatory regulations impossible
c. Allowing free trade to raise incomes and create new jobs
d. Increasing sovereignty of integrated countries
ANSWER: d
POINTS: 1
DIFFICULTY: Difficult

48. NAFTA is an example of a(n)


a. free trade area. b. customs union.
c. common market. d. economic union.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

49. Former Soviet Union is an example of


a. free trade area. b. customs union.
c. common market. d. political union.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy

50. Which statement about the WTO dispute settlement mechanism is correct?
a. The WTO can impose financial penalties on countries found guilty.
b. The WTO can impose financial penalties on companies found guilty.
c. Losing a case in the WTO automatically triggers punitive tariffs for the offending country.
d. The WTO ruling may include permission for countries to impose punitive tariffs on the offending country.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy

51. The IMF was created


a. in the Bretton Woods agreement of 1944.
b. in the charter of the United Nations in 1949.
c. in the Copenhagen Accord of 1960.
d. in the Plaza Accord of 1985, when managed floats were established as main principle for global exchange
rates.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

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Chapter 09—Global Integration and Multilateral Organizations


52. IMF loans are normally
a. long-term to finance economic development projects.
b. long-term to finance persistent balance of payment imbalances.
c. short-term to finance economic reform projects.
d. short-term to finance severe balance of payment imbalances.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy

53. Which countries received the largest IMF bailout loans since the year 2000?
a. Argentina and Brazil b. Turkey and Ukraine
c. Greece and Portugal d. Hungary and Romania
ANSWER: c
POINTS: 1
DIFFICULTY: Easy

54. IMF conditionality always


a. is requiring recipient countries to cut their expenditures on social welfare.
b. is requiring recipient countries to postpone their infrastructure investments.
c. is requiring recipient countries to raise income taxes.
d. is negotiated on a case-by-case basis between the IMF and the government of the country.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy

55. Simon Johnson argued that the 'IMF specializes in telling its clients what they don’t want to hear'. What was he
referring to?
a. Business leaders don’t like to hear that their business practices are not socially responsible.
b. Political leaders of countries don’t like to hear that their economic policies are not economically sustainable.
c. Bankers don’t like to hear that they ought to give more loans to developing countries.
d. Academic economists don’t like to hear that the real world is more complex than their formal economic
models.
ANSWER: b
POINTS: 1
DIFFICULTY: Difficult

56. Which of the following regional integration agreements is NOT in Asia?


a. MERCOSUR b. ASEAN
c. GCC d. SAFTA
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate

57. Which regional integration agreement includes Singapore, Malaysia and Indonesia, among other members?
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Chapter 09—Global Integration and Multilateral Organizations


a. SAFTA b. FTAA
c. ANZCERTA d. ASEAN
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate

58. The conflict over hormone treated beef is lingering as an international trade dispute because
a. the WTO is not relevant for these sorts of conflicts.
b. the WTO ruling was invalid because of a bribery case.
c. the US withdrew from the process.
d. the scientific evidence is inconclusive.
ANSWER: d
POINTS: 1
DIFFICULTY: Difficult

59. The economic benefits of regional integration in Africa are limited because
a. the comparative advantages of African countries in the world economy are fairly similar.
b. many African countries have comparative advantages in extractive industries such as mining.
c. a large share of exports of African countries goes to countries outside Africa.
d. all of the above statements are correct.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy

60. TTIP is a treaty that is being negotiated between


a. the USA and China b. the EU and China.
c. the EU and Japan d. the USA and the EU.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate

61. The negative effect for countries left out of a system free trade agreements is called
a. trade diversion. b. trade creation.
c. trade liberalization . d. trade enhancement.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy

62. Which of the following makes regional trade agreement difficult to negotiate?
a. Interest groups are concerned about the loss of jobs.
b. Neighbouring countries may have historical tensions, or even wars.
c. Neighbouring countries often have similar industry structures.
d. All of the above.

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Chapter 09—Global Integration and Multilateral Organizations


ANSWER: b
POINTS: 1
DIFFICULTY: Moderate

63. NAFTA includes


a. Canada, Mexico and the United States. b. Canada and the United States.
c. Mexico, Brazil and Argentina. d. Brazil and Japan.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate

64. International investment agreements aim to protect the interest of


a. nation states. b. foreign direct investors.
c. trade unions. d. none of the above.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate

65. Rating agencies such as Moody’s and S&P are powerful because
a. they assess the environmental impact of World Bank-sponsored projects.
b. they assess the quality of national banking regulation.
c. they assess the riskiness of financial instruments held by banks.
d. they assess the triple bottom line commitments of MNEs.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate

66. Which of the following is the economic trade agreement between Australia and New Zealand?
a. ANZCERTA b. ASEAN
c. APEC d. ANZU
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate

67. Which of the following institutions has a similar role as the World Bank, but limited to a particular part of the world?
a. European Central Bank, Frankfurt b. Bank of International Settlements, Basle
c. Copenhagen Institute d. EBRD, London
ANSWER: d
POINTS: 1
DIFFICULTY: Difficult

68. The primary purpose of the World Bank is to finance which sort of projects?
a. Privatization projects in transition economies
b. Economic development projects in less developed countries
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Chapter 09—Global Integration and Multilateral Organizations


c. Balance of payment restoration projects in countries with a volatile macro-economy
d. Emergency relief projects after natural disasters
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate

69. What did the Copenhagen Accord of 2009 establish?


a. Criteria for candidates countries wishing to join the EU
b. Environmental performance standards for EU member countries
c. Firm commitments by countries around the world to reduce their greenhouse gas emissions to specified target
levels.
d. A general statement without firm commitments to greenhouse gas emission targets
ANSWER: d
POINTS: 1
DIFFICULTY: Easy

70. What is a black swan event?


a. An event that attracts major media attention
b. A summit of the world’s business leaders
c. A summit of the world’s political leaders
d. An event that occurs very rarely
ANSWER: d
POINTS: 1
DIFFICULTY: Easy

71. Explain possible benefits and/or obstacles of global economic integration.


ANSWER: The postwar urge for global economic integration grew out of painful lessons in the 1920s and 1930s. The
world's nation-state governments in the aftermath of World War II established most of today's
international regulatory and advisory institutions, such as the UN, WTO/GATT, World Bank and many
more, in order to promote peace by economic cooperation.
Economic integration benefits the world. Countries are less likely to declare war on each other
when there is faith in the dispute resolution system. The WTO represents an example of the expanding
membership's faith in the organization to solve trade disputes.
Global economic integration promotes non-discrimination and a leveled playing field in most cases.
The GATT/WTO system is called the multilateral trading system symbolizing the involvement of all
participants. Non-discrimination minimizes trade complications and the formation of different sets of
rules (withstanding bilateral or regional preferences, i.e. NAFTA, EU).
When capital is flowing freely around the globe, manufacturing is established in the areas most
suitable for production. Finally, when labor is flowing (moving) freely, individuals have freedom to
utilize their personal skills by working in the industry of their choice, regardless on geographic location.
The minimizing of trade barriers raises incomes, generates jobs and stimulates economic growth.
POINTS: 1
DIFFICULTY: Difficult

72. Discuss the formation of GATT and the issues that precipitated the formation of the WTO (Post GATT).
ANSWER: GATT was established in 1949. Unlike the WTO, GATT was technically an agreement but not an
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Chapter 09—Global Integration and Multilateral Organizations


organization. The major contribution from GATT was reducing the level of tariffs by sponsoring rounds
of multilateral negotiations. Average tariffs dropped from 40% in 1948 to 3% in 2005.
GATT was successful in bringing down tariff barriers. However, it was clear that other reforms
were necessary during the Uruguay Rounds. The reforms were triggered by three concerns.
GATT's focus on merchandise trade resulted in little focus on trade in services and intellectual
property. GATT policies presented loopholes. In the merchandise trade, there were loopholes creating
imbalances and limitations to the free trade. An example is the Multifibre Arrangement (MFA). The MFA
was designed to limit free trade in textiles, a direct violation of GATT.
The irony is that GATT's success in reducing trade barriers led to the formation and growth of non-
tariff barriers (NTBs). These NTBs included subsidies and local content to name a few. NTBs are
sometimes transparent and very difficult to challenge.
GATT's ability to ensure free trade was related to GATT's main challenge: the lack of a system or
process for dispute resolution. Member countries filing dispute complaints received a comprehensive
investigation and a recommendation. The weakness was that the final implementation recommendation
was completely dependent on the will of all the involved WTO members.
The WTO was established in 1995 as GATT's successor. This transformation turned the agency
from an agreement to a full-fledged international organization. GATT did not die, but was transformed
into the WTO. Although today's WTO has an established comprehensive enforcement mechanism, there
are still challenges to be resolved. The main challenge is the NTBs (non-trade barriers). Barriers to trade
include, but are not limited to, various subsidies and local content requirements. These trade barriers
affect free trade without violating general WTO rules and regulations.
POINTS: 1
DIFFICULTY: Moderate

73. Identify how the WTO addressed the former problems of the old GATT and how WTO executes their decisions.
ANSWER: The WTO addresses problems as follows:
Time limitations for panel discussion and decisions. The panel is three neutral countries whose
1.
role is reaching a judgment. This judgment is titled the panel recommendation.
Power is removed from the accusing country to block any unfavourable decision. The WTO
2.
decision is final.
The WTO is nicknamed the 'supreme court in trade'. However, the WTO does not have real
enforcement capabilities. The WTO executes the final decision by recommending that losing
countries change their laws or practices. They authorize the winning country to use tariff
3.
retaliation to compel the offending countries' compliance with the rulings. Fundamentally, the
WTO ruling is a recommendation and the country receiving the recommendation retains full
sovereignty on whether or not to implement the panel recommendation.
POINTS: 1
DIFFICULTY: Moderate

74. Why is the help provided by the IMF to countries facing a budget crisis often controversial in the country being
helped?
ANSWER: Key to the answer is conflict between the (short-term) objectives and interests of the citizens of the
country and the economic sustainability of the country, especially its ability to finance its deficits. [See
pages 275-277 plus In Focus 9.3]
POINTS: 1
DIFFICULTY: Easy

75. Why is a system of bilateral free trade arrangements creating fewer economic benefits than global trade liberalization?
ANSWER: The key to the answer is the concept of ‘trade diversion’ as trade is created within the FTA following
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comparative advantages within the FTA, even when greater comparative advantages could be exploited
by trading with countries outside the FTA. [See pages 284-286, especially In Focus 9.4.]
POINTS: 1
DIFFICULTY: Difficult

76. What challenges does regional integration among emerging economics face?
ANSWER:
Regional integration among emerging economics faces at least four major challenges. Firstly, neighbouring
countries often face historical conflicts; this inhibits commitments to opening borders and aligning regulatory
regimes. Secondly, the benefits of integration may be unequally distributed. For example, some local
production may be replaced by imports while other sectors may be expanded by the rising of exports.
However, it is not easy for workers moving from one sector to another. Thirdly, the economy structures of
countries are different. Therefore deeper integration may enable countries to lose their ability to resist external
shocks through economic policy. Lastly, many emerging economies share similar competitive advantages.
They would benefit most from access to developed markets rather than regional trade.
POINTS: 1

77. Discuss how the institution-based perspective accounts for the success of MNEs by focusing on regional
opportunities.
ANSWER: The slowdown of multilateralism and the acceleration of regionalism propelled managers to focus greater
attention on regional levels in comparison to a wider global focus. The majority of MNEs that continued
to grow their home regions through expansion recorded a greater amount of revenues from their regional
locations. Examples are firms that chose to focus on the EU or NAFTA. The larger MNEs continued to
have global presence. However, in analyzing their center of gravity (which is measured by revenues), the
home regions are responsible for this income generation.
Global strategies make good business sense. There are cultural, economic and geographic
similarities within a region. Understanding these dimensions may lower a firm's foreign expansion
liabilities.
Managers need to understand the rules of the game, who the players are and what the rules
represent at both global and regional expansion levels. Trade negotiations involve politics and
negotiations. Executives cannot ignore the institutions that govern the trade policies.
Successful international managers become skilled in developing corporate strategies, which shift
over time to meet changes in locations, consumer preferences and laws. By not assuming a 'we don't care
about global trade agreements' attitude, managers are strategically positioned to be in control and conduct
due diligence, allowing managers to better prepare for shifts in international business and to recognize
opportunities regionally and globally.
POINTS: 1
DIFFICULTY: Difficult

78. Why is it so difficult to agree on a policy regarding global warming?


ANSWER: Answer are likely to vary hugely.

This question really tests students’ ability of developing coherent yet balanced arguments that identify
conflicts of interests without blaming unduly one party for the failure of the negotiations in Copenhagen.
See pages 287-289 for some of the key arguments, but given the broad nature of the issue students may
come up with additional arguments.
POINTS: 1
DIFFICULTY: Difficult
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79. What is the role of the Basle Committee in the global financial system?
ANSWER:
This question aims to test students’ understanding of the need for global harmonization of banking
regulation, while pointing out difficulties of reaching an agreement on these matters. See pages 289-290
for a summary of the arguments.
POINTS: 1
DIFFICULTY: Difficult

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