PANNASASTRA UNIVERSITY OF CAMBODIA NAME: KROEM Kiri

FACULTY OF BUSINESS AND ECONOMIC

COURSE: FUNDAMENTALS OF GLOBAL BUSINESS MANAGEMENT
TEACHING SCHEDULE: TIME: 5:30-8:300 AM (FRIDAY)
INSTRUCTOR: PROF. PICH BUNROEUN

TIME ALLOWED: 15 minutes DATE: November 24, 2023

TEST 2
Section 1: Gap filling & multiple questions (10 marks)

A. Fill out the missing words in the passage below with the word given in the box. (5 marks)

A. Makes B. exports C. undermine D. imports E. global

Exchange rates are critically important in the (1) _______E____________ global economy. They affect the
price of every country’s (2) _________D__________ imports and (3) ______B_____________ exports,
companies’ foreign direct investment, and—directly or indirectly— people’s spending behaviors. In recent
years, disagreements among countries over exchange rates have become much more widespread. Some
government officials and analysts even suggest that there is a “currency war” among certain countries. The
main issue is whether or not some countries are using exchange rate policies to (4) _________C__________
undermine free currency markets and whether they intentionally, in essence, devalue their currency to gain a
trade advantage at the expense of other countries. A weaker currency (5) _________A__________ makes
exports inexpensive (or at least cheaper) to foreigners, which can lead to higher exports and job creation in the
export sector.

B. Choose the best answer for the following statements ( 5 marks)

1. The price of one country’s currency in terms of another country’s currency is the?

A. exchange rate
B. balance of trade
C. terms of trade
D. currency valuation

2. Currency speculation is _____ if speculators bet against market forces that cause exchange fluctuations, thus
moderating such fluctuations?

A. destabilizing
B. stabilizing
C. inflationary
D. deflationary

3. The rise in value of one currency relative to another is?

A. a weakening of a currency
B. A depreciation of a currency

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C. An appreciation of a currency
D. a debasement of a currency

4. Under a system of floating exchange rates there is a general tendency for?

A. exchange rates to be insensitive to the differential rates of inflation between countries

B. the currencies of relatively high-inflation countries to depreciate
C. the currencies of relatively high inflation countries to appreciate
D. the currencies of relatively low inflation countries to depreciate

5. Under a system of floating exchange rates the pound would depreciate in value if there occurs?

A. Price inflation in the United States

B. an increase in U.S real income
C. a decrease in the British money supply
D. falling interest rates in Britain

Write your answer here

1 2 3 4 5
A B C B D

Section 2: Answering the questions (10 marks)

1. What causes a country’s inflation rates? Elaborate ( 2 marks)

2. Explain the problem of non-convertibility of a currency in the country, and how to overcome this
difficulty. (4 marks)
3. What does the regional economic integration attempt to achieve? ( 2 marks)
4. In what case, does the regional integration not increase economic welfare? Explain ( 2 marks)

Answers
1. A country's inflation rates are influenced by various factors, including:

 Demand-pull inflation: Occurs when aggregate demand for goods and services exceeds aggregate
supply, leading to an increase in prices.
 Cost-push inflation: Arises when the costs of production, such as wages and raw materials, increase,
and businesses pass these costs on to consumers in the form of higher prices.
 Built-in inflation: Results from a self-perpetuating cycle where workers demand higher wages to
cope with rising prices, leading to increased production costs and further inflation.
 Monetary policy: Central banks can influence inflation through the control of money supply. An
increase in the money supply may lead to demand-pull inflation.
 Supply shocks: Sudden and significant changes in the availability of goods or services, often due to
natural disasters or geopolitical events, can impact prices.

2. The problem of non-convertibility of a currency refers to restrictions or limitations imposed by a country

on the ability to exchange its currency for another currency or for goods and services in the international

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market. This limitation can hinder international trade and investment. Overcoming this difficulty involves
several strategies:

 Gradual liberalization: Countries can gradually ease restrictions on currency convertibility.

 Strengthening economic fundamentals: Improving a country’s economic stability, reducing inflation,
and maintaining a stable exchange rate can enhance confidence in the currency.
 Trade and investment reforms: Implementing reforms that promote international trade and
investment can contribute to currency convertibility.
 Building foreign exchange reserves: Accumulating an adequate level of foreign exchange reserves
provides a cushion against external shocks and can instill confidence in the currency.
 International cooperation: Engaging in dialogue and cooperation with other countries and
international financial institutions can help address concerns related to currency convertibility.
 Phasing in reforms: Implementing gradual reforms and closely monitoring their impact allows
policymakers to make adjustments as needed.

3. Regional economic integration aims to enhance economic cooperation among countries within a specific
geographic area. By reducing or eliminating trade barriers, such as tariffs and quotas, integration promotes
increased trade and economic efficiency. It encourages cross-border investments, harmonizes standards, and
coordinates macroeconomic policies, fostering stability and growth. Additionally, integration can enhance
political cooperation, providing member countries with a collective bargaining power in international
forums. It serves not only economic goals, such as job creation and industry development, but also broader
objectives, including peace, security, and cultural exchange within the integrated region. The various forms
of integration, from free trade areas to political unions, offer different levels of cooperation to achieve these
multifaceted objectives.

4. Regional integration may not increase economic welfare if it results in trade diversion, uneven
distribution of benefits among member countries, loss of policy autonomy, macroeconomic imbalances,
failure to address structural issues, or vulnerability to external shocks. Trade diversion, where members
trade at higher costs internally instead of with more efficient non-members, can lead to economic
inefficiencies. If benefits are distributed unevenly or if integration exacerbates macroeconomic disparities,
overall welfare may not improve. Loss of policy autonomy and failure to address structural issues can
hinder economic growth, and vulnerability to external shocks can affect member countries adversely.
Effective policies and considerations addressing these challenges are essential to ensure that regional
integration fosters positive economic outcomes for all participants.