Question

1. One of the expected advantages of economic integration for firms of member countries is:
   1. The support they receive from special interest groups
   2. It reduces the level of competition from firms within the bloc
   3. It discourages MNCs from nonmember countries from locating within the bloc
   4. Efficiency gains from competition within the bloc enable them to compete more effectively outside the bloc
   5. It forces firms in member countries to sell only within the bloc
2. All else equal, a strong currency of country X relative to that country Y’s currency will:
   1. Have no consequences
   2. Lower the price of Country X’s exports into Country Y, and make their FDI into country Y cheaper
   3. Raise the price of both exports from, and imports into, Country X
   4. Raise the price of Country X’s exports but have no impact on the price of its imports
   5. Raise the price of Country X’s exports into Country Y and make their FDI into Country Y relatively cheaper.

Answer 1

1. Option D is correct!!.

Option A. Incorrect, support is quite vague in terms of understandability without referring to which area it is mentioned. Hence this option is incomplete and incorrect.

Option B. Incorrect, it increases competition among block members.

Option C. Incorrect, it opens up bloc for more competitions, hence MNC's from outside bloc are welcomed.

Option D. Correct, comeptition will lead to effeciency gains which will let firms to compete globally.

Option E. Incorrect, they can sell and export outside block.

2. Option E is correct.

Stronger currency will make exports of strong nation costly in weak nation and FDI will flow to weak nation because of lower exchange rate.

Option A, Incorrect, it will make imports into country Y costly.

Option B, Incorrect, price of Country X exports will increase due to currency appreciation.

Option C. Incorrect, Imports into country X will become less costly.

Option D. Incorrect, price of imports into country X will fall down.

Option E. Correct, as explained above.

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