Archive for September 2017

Leigh contracts with Klausen, a financial planner who is required by the state to have a license. Klausen does not have a license. Their contract is enforceable if

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Leigh contracts with Klausen, a financial planner who is required by the state to have a license. Klausen does not have a license. Their contract is enforceable if



a) leigh does not know that Klausen is required to have a license
b) Klausen does not know that he is required to have a license
c) the purpose of the statute is to protect the public from unlicense practitioners
d) the purpose of the statue is to raise government revenue



Answer: D

Luke is an unlicensed contractor in a state that requires a license to protect the public from unauthorized contractors. Kirkpatrick hires Luke to build an office building. This contract is

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Luke is an unlicensed contractor in a state that requires a license to protect the public from unauthorized contractors. Kirkpatrick hires Luke to build an office building. This contract is



a)enforceable only after Kirkpatrick learns of Lukes status
b) enforceable only before Kirkpatrick learns of Lukes status
c) enforceable only if no problems arise
d) unenforceable



Answer: D

Jaime sells his business to Isabella and, as a part of the agreement, promises not to engage in a business of the same kind within thirty miles for one year. This promise is

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Jaime sells his business to Isabella and, as a part of the agreement, promises not to engage in a business of the same kind within thirty miles for one year. This promise is




a) an unreasonable restraint of trade
b) unreasonable in terms of geographic area and time
c) unreasonable in terms of Isabellas "goodwill" and "reputation"
d) valid and enforceable





Answer: D

Bosley bets Finster on the outcome of the SuperBowl. Gab=mbling on sports events is illegal in their state. Before the game is over, Bosley's attempt to withdraw from the bet is

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Bosley bets Finster on the outcome of the SuperBowl. Gab=mbling on sports events is illegal in their state. Before the game is over, Bosley's attempt to withdraw from the bet is



a) invalid if it comes in the second half
b) invalid unless bosleys team was ahead at the time of the withdrawal
c) invalid without Finsters consent
d) valid



Answer: D

Ewa, a sixteen year old minor, buys a car from Downtown Autos and wrecks it. To disaffirm the contract and satisfy a duty of restitution, Ewa must

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Ewa, a sixteen year old minor, buys a car from Downtown Autos and wrecks it. To disaffirm the contract and satisfy a duty of restitution, Ewa must



a) return the car without paying for the damage
b) pay for the damage without returning the car
c) return the car and pay for the damage
d) keep the car and not pay for the damage




Answer: C

Vincenzo is adjudged mentally incompetent. Sophia is appointed to act as Vincenzo's guardian. Vincenzo signs a contract to sell his house. The contract is

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Vincenzo is adjudged mentally incompetent. Sophia is appointed to act as Vincenzo's guardian. Vincenzo signs a contract to sell his house. The contract is



a) enforceable if Vincenzo comprhended the consquences
b) enforceale if Vincenzo knew he was entering into a contract
c) enforceable if the house was entirely paid for
d) void



Answer: D

Tom is a minor who enters into a contract with Dinane. All of the following are effective methods for Tom to ratify the contract EXCEPT

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Tom is a minor who enters into a contract with Dinane. All of the following are effective methods for Tom to ratify the contract EXCEPT



a) expressly ratifying the contract after Tom reaches the age of majority
b) failing to disaffirm the contract within a reasonable time after Tom reaches the age of majority
c) ratifying the contract before Tom reaches the age of majority
d)impliedly ratifying the contract after Tom reaches the age of majority



Answer: C

Blakely has a cause to sue Carly in a tort action, but agrees not to sue her if Carly will pay for the damage. If Carly fails to pay, Blakely can bring an action against her for breach of contract. This is

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Blakely has a cause to sue Carly in a tort action, but agrees not to sue her if Carly will pay for the damage. If Carly fails to pay, Blakely can bring an action against her for breach of contract. This is



a) a covenant not to sue
b) an accord and satisfaction
c) an unenforceable contract
d) a release



Answer: A

Mikayla promises to pay Lauren to work for her. Lauren agrees and quits her job, but Mikayla does not hire her. Mikayla is liable to Lauren based on

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Mikayla promises to pay Lauren to work for her. Lauren agrees and quits her job, but Mikayla does not hire her. Mikayla is liable to Lauren based on



a) the concept of accord and satisfaction
b) the doctrine of promissory estoppel
c) the preexisting duty rule
d) the principle of rescission




Answer: B

Sawyer causes an accident in which Reese is injured. Reese accept Sawyers offer of $5,000 to release Sawyer from further liability. Later, Reese learns that his injuries are more serious than he realized. The release will

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Sawyer causes an accident in which Reese is injured. Reese accept Sawyers offer of $5,000 to release Sawyer from further liability. Later, Reese learns that his injuries are more serious than he realized. The release will




a) bar further recovery from Sawyer
b) not bar further recovery from Sawyer if Sawyer is insured
c) not bar further recovery from Sawyer if Reese is insured
d) not bar further recovery from Sawyer under any circumstances





Answer: A

Idle Contractor corporation begins constructing a building for Haute Apartments, Inc. In midproject, Idle asks for $150,000 more, claiming an increase in ordinary business expenses. Haute agrees. This agreement is

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Idle Contractor corporation begins constructing a building for Haute Apartments, Inc. In midproject, Idle asks for $150,000 more, claiming an increase in ordinary business expenses. Haute agrees. This agreement is



a) enforceable as an accord and satisfaction
b) enforceable beacause of unforeseen difficulties
c) unenforceable as an illusory promise
d) unenforceable due to the preexisting duty role



Answer: D

Delite Pastires, Inc., contracts with Elron to deliver its products. Later, the parties decide to cancel their contract. They

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Delite Pastires, Inc., contracts with Elron to deliver its products. Later, the parties decide to cancel their contract. They


a) may rescind their entire contract
b) may rescind their contact to the extent that it is executory
c) must perform their entire contract
d) must perform the part of their contract that is executory




Answer: B

Hillcrest Office Company promises to pay Gerard $1,000 to repair the roof on Hillcrest's building Gerard fixes the roof. The act of fixing the roof

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Hillcrest Office Company promises to pay Gerard $1,000 to repair the roof on Hillcrest's building Gerard fixes the roof. The act of fixing the roof



a) imposes a moral obligation on Hillcrest to pay Gerard
b) imposes no obligation on Hillcrest unless it is satisfied with the job
c) is not sufficient consideration because it is not goods or money
d) is the consideration that creates Hiillcrest's obligation to pay Gerard




Answer: D

Jay is seeking to avoid performing a promise to pay Karen $150. Jay is claiming a lack of consideration on Karen's part. Jay will win if he can show that

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Jay is seeking to avoid performing a promise to pay Karen $150. Jay is claiming a lack of consideration on Karen's part. Jay will win if he can show that



a) Before Jay's promise, Karen had already performed the requested act
b) Karen's only claim of consideration was the relinquishment of a legal right
c) Karen's asserted consideration is only worth $50
d) The consideration to be performed by Karen will be perofrmed by a third party



Answer: A

Dave offers to buy a book owned by Lee for $40. Lee accepts and hands the book to Dave. The transfer and delivery of the book constitute performance. Is this performance consideration for Daves promise?

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Dave offers to buy a book owned by Lee for $40. Lee accepts and hands the book to Dave. The transfer and delivery of the book constitute performance. Is this performance consideration for Daves promise?



a) No, because Lee already had a duty to hand the book to Dave
b) No, because performance never constitutes consideration
c) Yes, Because Dave sought it in exchange for his promise, and Lee gave it in exchange for that promise
d) Yes, because performance always constitutes performances



Answer: C

Gayla questions whether there is consideration for her contract with Julius. Consideration has two elements- there must be a bargained-for exchange and the value of whatever is exchanged must be.

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Gayla questions whether there is consideration for her contract with Julius. Consideration has two elements- there must be a bargained-for exchange and the value of whatever is exchanged must be.




a) economically fair
b) grossly inadequate
c) legally sufficient
d) reasonable reliable




Answer: C

Quantum Footwear is an MNE that manufactures inexpensive shoes. Quantum outsources portions of its production to independent companies located in Bangladesh and India where child labor is common. Other clothing and footwear firms have recently faced criticism regarding the use of child labor, and Quantum executives want to avoid similar problems. Which of the following guidelines enforced by Quantum would LEAST likely be supported by the International Labor Organization?

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Quantum Footwear is an MNE that manufactures inexpensive shoes. Quantum outsources portions of its production to independent companies located in Bangladesh and India where child labor is common. Other clothing and footwear firms have recently faced criticism regarding the use of child labor, and Quantum executives want to avoid similar problems. Which of the following guidelines enforced by Quantum would LEAST likely be supported by the International Labor Organization? 



A) establishing bridge schools
B) monitoring workplace safety
C) allowing children ages 10-15 to work a maximum of 4 hours per day
D) prohibiting abusive labor conditions



Answer: C

Quantum Footwear is an MNE that manufactures inexpensive shoes. Quantum outsources portions of its production to independent companies located in Bangladesh and India where child labor is common. Other clothing and footwear firms have recently faced criticism regarding the use of child labor, and Quantum executives want to avoid similar problems. Which of the following would be the best approach for Quantum?

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Quantum Footwear is an MNE that manufactures inexpensive shoes. Quantum outsources portions of its production to independent companies located in Bangladesh and India where child labor is common. Other clothing and footwear firms have recently faced criticism regarding the use of child labor, and Quantum executives want to avoid similar problems. Which of the following would be the best approach for Quantum?



A) improving conditions at the subcontract facilities
B) developing an external ethics code for foreign partners and letting them worry about compliance
C) requiring local governments to alter their labor policies
D) leaving the market and focusing on domestic production



Answer: A

Which of the following is most important to the effectiveness of an internal code of conduct?

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Which of the following is most important to the effectiveness of an internal code of conduct? 



A) ensuring that employees understand the code by requiring confirmation in writing
B) paying bonuses to suppliers and distributors that agree to the code
C) relying on nonprofit NGOs to develop guidelines
D) adhering to industry standards and norms


Answer: A

Which of the following is NOT a likely reason for companies to act more ethically?

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Which of the following is NOT a likely reason for companies to act more ethically?



A) Consumer boycotts may result from unethical corporate behavior.
B) Irresponsible and unethical actions may lead to legal problems for MNEs.
C) Unethical or irresponsible behavior can negatively impact employee morale.
D) The U.N. Global Compact enforces fines on global firms that fail to act ethically.



Answer: D

Which of the following best supports the idea that MNEs should remain in countries that allow child labor?

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Which of the following best supports the idea that MNEs should remain in countries that allow child labor?



A) MNEs have a positive influence on government employment policies in most foreign countries.
B) Many MNEs have substantially improved the working conditions of their foreign plants.
C) MNEs are required to pay child workers more than local companies.
D) Most MNEs employ local managers to handle cultural differences.



Answer: B

According to the Ethical Trading Initiative (ETI), ________.

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According to the Ethical Trading Initiative (ETI), ________.



A) child labor cannot be used unless there are no suitable alternatives
B) employment need not be freely chosen in order to be acceptable
C) no harsh or inhumane treatment of workers should be allowed
D) MNEs are not responsible for establishing codes of conduct



Answer: C

The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) ________.

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The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) ________.



A) allows rich countries to produce generic versions of patented drugs without having to pay royalties to the patent holder
B) permits developing countries to import generic products from other countries if they don't have the capacity to produce generic drugs
C) requires pharmaceutical companies to provide low-cost vaccines and HIV/AIDS medications to developing countries
D) requires tiered pricing for most essential drugs




Answer: B

Some countries reverse engineer pharmaceutical products ________.

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Some countries reverse engineer pharmaceutical products ________.



A) because they know that generic products are inherently better than branded products
B) to lower the cost of certain drugs to the domestic market
C) as a way to charge higher prices in domestic markets
D) to comply with international patent laws



Answer: B

Medco Pharmaceuticals charges a market price for heart medication to distributors in Italy and a discounted price for the same medication to distributors in Bangladesh. Medco is most likely using ________.

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Medco Pharmaceuticals charges a market price for heart medication to distributors in Italy and a discounted price for the same medication to distributors in Bangladesh. Medco is most likely using ________.



A) discounted pricing
B) skimmed pricing
C) penetrated pricing
D) tiered pricing



Answer: D

How has the Kyoto Protocol affected U.S. companies operating in Europe?

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How has the Kyoto Protocol affected U.S. companies operating in Europe?



A) U.S. companies are changing the way they do business in order to comply with new emissions standards in Europe.
B) The Kyoto Protocol has not affected U.S. companies with subsidiaries in Europe because the U.S. has not signed the Kyoto Protocol.
C) Before U.S. companies can open any more European subsidiaries, the U.S. government must sign the Kyoto Protocol.
D) Because the United States is not a party to the Kyoto Protocol, U.S. companies may not operate in European countries that have signed the Kyoto Protocol.


Answer: A

The 1997 Kyoto Protocol is best described as an agreement that requires ________.

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The 1997 Kyoto Protocol is best described as an agreement that requires ________. 



A) all members of the United Nations to reduce their greenhouse gas emissions by 5.2 percent
B) the United States and Japan to control greenhouse gas emissions by 8% below 1995 levels
C) the signatory countries to cut greenhouse gas emissions to 5.2 percent below 1990 levels
D) the signatory countries to reduce greenhouse gas emissions by 80% by 2050



Answer: C

The OECD Convention against bribery is an example of a(n) ________.

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The OECD Convention against bribery is an example of a(n) ________.



A) bilateral agreement developed for the EU
B) agreement that targets the demand side of bribery
C) agreement that targets the supply side of bribery
D) UN Convention dominated by developing countries


Answer: C

Which of the following is permitted by the Foreign Corrupt Practices Act?

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Which of the following is permitted by the Foreign Corrupt Practices Act?



A) a bribe paid by foreign firms operating in U.S. territories
B) a bribe paid by U.S. firms operating in a foreign country that permits bribes to be paid
C) a payment to a foreign government official to influence a customs official
D) a payment to a customs official to clear legitimate merchandise



Answer: D

Which of the following statements describes an inconsistency of the FCPA?

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Which of the following statements describes an inconsistency of the FCPA?



A) Facilitation payments are classified as bribery.
B) Facilitation payments are excluded from the FCPA's definition of bribery.
C) Payments to officials who are not directly responsible for carrying out the law are legal.
D) Payments to foreign officials who carry out the law are considered illegal by provisions of the FCPA.



Answer: B

What is the primary argument against extraterritoriality?

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What is the primary argument against extraterritoriality?



A) increases opportunities for corporate bribery
B) contradicts demands for increased globalization
C) requires oversight by nongovernmental organizations
D) prohibits firms from expanding into foreign territories



Answer: B

Which of the following is an example of extraterritoriality?

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Which of the following is an example of extraterritoriality?




A) a U.S. subsidiary operating in China that is forced to follow some U.S. laws, even though China has no comparable laws
B) a U.S. sweatshop operating in Thailand that does not follow U.S. labor laws but allows children to work 60 hours a week
C) an MNE manager who, after working in the host country, tries to implement foreign practices in the home-country office
D) a British subsidiary operating in Indonesia that maintains the same health and safety standards for its foreign factories that are required in Great Britain, even though the British government does not require it to use those standards




Answer: A

Which of the following is a reason for an MNE to base its standards for ethical behavior on a country's laws?

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Which of the following is a reason for an MNE to base its standards for ethical behavior on a country's laws?



A) The law embodies many of a country's moral beliefs but is an inadequate guide for proper conduct.
B) The law contains unenforceable rules that are impossible for society to follow.
C) The law represents a consensus derived from significant deliberation.
D) The law is based on precisely defined moral concepts.


Answer: C

Why is the argument that "anything legal is ethical" most likely insufficient?

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Why is the argument that "anything legal is ethical" most likely insufficient?




A) Everything that is unethical is also illegal.
B) The law is an extremely efficient way to solve ethical dilemmas.
C) Laws are frequently based on imprecisely defined moral concepts.
D) Laws can never be changed; thus, rules for all possible ethical dilemmas are found in the law.



Answer: C

A manager who refuses to bribe customs officials in a foreign country, even though it is morally acceptable in that country, is most likely to believe in which of the following perspectives on ethics?

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A manager who refuses to bribe customs officials in a foreign country, even though it is morally acceptable in that country, is most likely to believe in which of the following perspectives on ethics?



A) relativism
B) normativism
C) humanism
D) existentialism


Answer: B

A manager practicing relativism would most likely ________.

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A manager practicing relativism would most likely ________.



A) adapt to local conditions instead of implementing home-country practices
B) enforce home-country laws on host-country employees and suppliers
C) refuse to change company policies and procedures to comply with local norms
D) apply universal laws to each country despite local customs and traditions



Answer: A

Bantam Enterprises, a multi-national enterprise, makes significant efforts to avoid being perceived as socially irresponsible. What is the most likely reason for this?

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Bantam Enterprises, a multi-national enterprise, makes significant efforts to avoid being perceived as socially irresponsible. What is the most likely reason for this?



A) Social irresponsibility can lead to labor strikes by international unions.
B) Socially irresponsible companies usually have fewer exports and more imports.
C) Cultural barriers increase for companies that are socially irresponsible, which hinders expansion into additional countries.
D) Social irresponsibility can lead to negative publicity from nongovernmental organizations, which could hurt a company's reputation.



Answer: D

Which of the following statements is most likely true about the postconventional level of moral development?

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Which of the following statements is most likely true about the postconventional level of moral development? 



A) Individuals learn what is moral but not why such behavior is moral.
B) Individuals behave morally because they fear negative repercussions.
C) Individuals learn how to conform to society's values through observation.
D) Individuals behave morally because they believe such actions are right.



Answer: D

Monique has recently been hired as an accounts supervisor at Ballston Enterprises. She wants to understand Ballston values and its expectations for employee behavior. Which of the following would most likely provide Monique with this information?

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Monique has recently been hired as an accounts supervisor at Ballston Enterprises. She wants to understand Ballston values and its expectations for employee behavior. Which of the following would most likely provide Monique with this information?



A) mission statement
B) code of conduct
C) vision statement
D) employee contract



Answer: B

Which of the following statements is most likely true regarding relationships between MNEs and stakeholders?

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Which of the following statements is most likely true regarding relationships between MNEs and stakeholders?



A) An MNE typically serves all stakeholder groups equally at any given time.
B) No individual stakeholder group is powerful enough to cause the demise of an MNE.
C) All stakeholders of an MNE have the same short-term and long-term goals and interests.
D) The inability to adequately meet the long-term needs of all stakeholders increases the probability of an MNE failing.



Answer: D

Which of the following statements about GE and its "Green is Green" movement is true?

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Which of the following statements about GE and its "Green is Green" movement is true?



A) GE is responding in part to the fact that it is operating in many countries which require compliance with higher environmental standards than exist in the United States.
B) GE has decided to develop new products that are environmentally friendly rather than adopt internal policies to reduce greenhouse gas emissions.
C) GE has moved aggressively to reduce greenhouse gas usage internally but has not been able to develop commercially viable "clean" technologies.
D) GE considered joining the U.S. Climate Action Partnership but decided the group was too radical in its approach to reducing greenhouse gas emissions.



Answer: A

General Electric has focused on being more "green" in recent years most likely because ________.

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General Electric has focused on being more "green" in recent years most likely because ________.




A) the industry has always looked to GE as a trend setter in green technology
B) GE executives believe the firm can strategically align investor and environmental interests
C) GE executives realize that the firm can save significant money through the use of solar technology
D) the U.S. government has decided to use GE as a test case to see if the adoption of the Kyoto Protocol can actually work for a U.S. firm



Answer: B

Which of the following most accurately describes the economic situation in El Salvador?

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Which of the following most accurately describes the economic situation in El Salvador?




A) It is facing significant competition from neighboring countries that are not tied to the dollar.
B) It relies exclusively on the United States as a market for its products.
C) It now has the same exchange rate as other members of CACM.
D) It is putting more resources into industries that have a history of earning profits.



Answer: A

If the euro continues to remain strong against the U.S. dollar, which of the following strategies would make the most sense for BMW?

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If the euro continues to remain strong against the U.S. dollar, which of the following strategies would make the most sense for BMW?




A) It might be advantageous for them to consider exporting from Germany to the U.S. to take advantage of cheaper costs.
B) It might increase its manufacturing capacity in the United States to take advantage of the cheaper dollar.
C) It might consider raising prices in the United States to earn more profits for BMW.
D) It really doesn't make any difference to BMW since consumers will buy the cars no matter what they cost.



Answer: B

Which of the following accurately explains how producers are affected by exchange rate changes?

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Which of the following accurately explains how producers are affected by exchange rate changes?



A) To save money, a manufacturer may decide to relocate production to a country with a stronger currency.
B) A manufacturing firm relocating to a country with a weak currency can make a cheap initial investment.
C) Goods manufactured in a country with a weak currency may be relatively expensive in world markets.
D) A manufacturer with high operating expenses would likely relocate production to a country with a currency that is gaining value.




Answer: B

Tanya is a manager at a global firm that has operations located in Brazil, India, and Japan. Tanya is in the process of making a fundamental analysis in order to forecast exchange rates in each country. Which of the following is a confidence factor that Tanya should consider in trying to predict exchange rate movements in each country?

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Tanya is a manager at a global firm that has operations located in Brazil, India, and Japan. Tanya is in the process of making a fundamental analysis in order to forecast exchange rates in each country. Which of the following is a confidence factor that Tanya should consider in trying to predict exchange rate movements in each country?




A) What are the expectations of the market with respect to the political environment?
B) Have there been significant national events that have appeared in the news lately?
C) At what rates do there appear to be buy and sell orders?
D) What trends do the charts show?


Answer: A

Tanya is a manager at a global firm that has operations located in Brazil, India, and Japan. Tanya is in the process of making a fundamental analysis in order to forecast exchange rates in each country. Which of the following questions is most relevant to Tanya?

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Tanya is a manager at a global firm that has operations located in Brazil, India, and Japan. Tanya is in the process of making a fundamental analysis in order to forecast exchange rates in each country. Which of the following questions is most relevant to Tanya?



A) What is the cyclical situation in terms of employment and inflation?
B) Are the government's intervention practices sustainable?
C) What level of credibility does the government have?
D) What is the possibility of a national crisis?




Answer: A

Craig, a manager at a global firm, is studying the cyclical nature of growth and employment as a part of the process to forecast exchange rates. Which factor is Craig most likely monitoring?

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Craig, a manager at a global firm, is studying the cyclical nature of growth and employment as a part of the process to forecast exchange rates. Which factor is Craig most likely monitoring?



A) the institutional setting
B) fundamental analyses
C) cultural analyses
D) circumstances




Answer: B

Sarah, a manager at Farley Enterprises, an MNE with operations in Asia, Europe, and North America, is using past trends in exchange rate movements to spot future trends. Which type of forecasting approach is Sarah most likely using?

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Sarah, a manager at Farley Enterprises, an MNE with operations in Asia, Europe, and North America, is using past trends in exchange rate movements to spot future trends. Which type of forecasting approach is Sarah most likely using?



A) fundamental
B) technical
C) application
D) economic




Answer: B

Ted, a manager at Global Manufacturing, is analyzing trends in economic variables to predict future exchange rates that might affect the MNE's international operations. Which of the following is Ted most likely doing?

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Ted, a manager at Global Manufacturing, is analyzing trends in economic variables to predict future exchange rates that might affect the MNE's international operations. Which of the following is Ted most likely doing? 



A) fundamental forecasting
B) technical forecasting
C) resource forecasting
D) economic forecasting



Answer: A

If the real interest rate is 5%, the rate of inflation in the United States is 6%, and the rate of inflation in the United Kingdom is 3%, which of the following statements would NOT be true?

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If the real interest rate is 5%, the rate of inflation in the United States is 6%, and the rate of inflation in the United Kingdom is 3%, which of the following statements would NOT be true?



A) The nominal rate of interest in the U.S. would be greater than the nominal interest rate in the U.K.
B) The difference between the U.K. and U.S. interest rates is a function of the difference between their inflation rates.
C) The nominal rate of interest in the United States and the United Kingdom would be the same because of purchasing power parity.
D) Investors would get a higher return on their money in the United States.





Answer: C

The International Fisher Effect implies that ________.

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The International Fisher Effect implies that ________.




A) the country with the higher interest rate should have lower inflation
B) the currency of the country with the lower interest rate will strengthen in the future
C) the currency of the country with the higher interest rate will strengthen in the future
D) interest rates and inflation are not linked at all



Answer: B

The International Fisher Effect ________.

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The International Fisher Effect ________.



A) links interest rates and inflation
B) implies that the currency of the country with the lower interest rate will weaken in the future
C) implies that the country with the higher interest rate should have lower inflation
D) links interest rates and exchange rates





Answer: D

If a Big Mac costs $3.41 in the United States and $2.67 in Argentina (the price of a Big Mac in Argentine pesos converted into dollars at the spot exchange rate), which of the following is most likely true?

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If a Big Mac costs $3.41 in the United States and $2.67 in Argentina (the price of a Big Mac in Argentine pesos converted into dollars at the spot exchange rate), which of the following is most likely true?





A) The peso is overvalued against the dollar.
B) The dollar is overvalued against the peso.
C) It should be harder for a U.S. tourist to buy a leather coat in Buenos Aires because the dollar won't go very far.
D) It will be cheap for Argentine companies to invest in the United States because the dollar is relatively weak.



Answer: B

According to purchasing power parity, if the domestic inflation rate is ________ than that in the foreign country, the domestic currency should be ________ than that of the foreign country.

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According to purchasing power parity, if the domestic inflation rate is ________ than that in the foreign country, the domestic currency should be ________ than that of the foreign country.




A) lower; weaker
B) higher; higher
C) lower; stronger
D) higher; stronger



Answer: C

Which of the following statements best describes a limitation of the Big Mac Index?

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Which of the following statements best describes a limitation of the Big Mac Index?




A) Profit margins vary by the strength of competition, which affect relative prices.
B) The theory of PPP incorrectly assumes that there are barriers to trade.
C) The Big Mac represents all possible commodities and services.
D) Taxes have no effect on Big Mac prices.


Answer: A

According to purchasing power parity theory, if Brazilian inflation was 6 percent and inflation in Argentina was 12 percent, the Brazilian real would be expected to ________.

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According to purchasing power parity theory, if Brazilian inflation was 6 percent and inflation in Argentina was 12 percent, the Brazilian real would be expected to ________.




A) rise by the difference in inflation rates
B) fall by the difference in inflation rates
C) rise by 4.5 percent
D) stay the same



Answer: A

The purchasing power parity theory claims that a change in relative ________ between two countries must cause a change in ________ in order to keep the prices of goods in two countries fairly similar.

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The purchasing power parity theory claims that a change in relative ________ between two countries must cause a change in ________ in order to keep the prices of goods in two countries fairly similar.




A) exchange rates; inflation
B) inflation; exchange rates
C) interest rates; inflation
D) interest rates; exchange rates




Answer: B

Thomas is planning a vacation to Country X. On a tourism Web site, he reads that the government of Country X limits the amount of money a tourist may convert into the country's currency. Country X most likely uses which of the following?

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Thomas is planning a vacation to Country X. On a tourism Web site, he reads that the government of Country X limits the amount of money a tourist may convert into the country's currency. Country X most likely uses which of the following? 




A) import deposit requirements
B) multiple exchange rates
C) import licensing
D) quantity controls




Answer: D

A black market exists when ________.

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A black market exists when ________.



A) a country closely monitors and adjusts the foreign-exchange rate
B) people pay more for hard currency than the official rate
C) a country is running a budget surplus
D) a country is experiencing a recession




Answer: B

A country's central bank is responsible for ________.

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A country's central bank is responsible for ________.



A) distributing money to foreign countries that are in a debt crisis
B) encouraging disorderly conditions in foreign-exchange markets
C) the policies affecting the value of its country's currency
D) establishing foreign-exchange markets




Answer: C

Given the daily volume of foreign-exchange transactions, it is most accurate to say which of the following?

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Given the daily volume of foreign-exchange transactions, it is most accurate to say which of the following?



A) It is impossible for a government's interventions in the foreign-exchange market to affect market psychology.
B) A government's intervention in the foreign-exchange market can reverse a currency's slide for the long term.
C) A government's intervention cannot force the foreign-exchange market to move in a determined direction.
D) A government should focus more on intervening in foreign-exchange markets than on correcting economic fundamentals.




Answer: C

If inflation in the United States is relatively higher than inflation in Japan, and the Japanese government wants to keep the exchange rate fixed between the yen and the dollar, it should most likely ________.

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If inflation in the United States is relatively higher than inflation in Japan, and the Japanese government wants to keep the exchange rate fixed between the yen and the dollar, it should most likely ________.



A) allow its currency to rise against the dollar
B) allow its currency to fall against the dollar
C) increase the supply of yen in the market
D) decrease the supply of yen in the market




Answer: C

Why is China most likely considering a greater reliance on the SDR?

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Why is China most likely considering a greater reliance on the SDR? 



A) gains in the foreign-exchange market
B) concerns about the value of the U.S. dollar
C) demands to replace the dollar with the euro for reserves
D) requirements by the IMF to make China's currency more flexible




Answer: B

The global financial crisis has pushed China closer to ________.

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The global financial crisis has pushed China closer to ________.




A) operating independently from the central banks of other countries
B) discontinuing its relationship with the Bank for International Settlements
C) liberalizing its currency
D) controlling its currency




Answer: C

The major objective of the European Central Bank is to ________.

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The major objective of the European Central Bank is to ________.



A) set monetary policy for EU countries that adopt the euro
B) ensure that EU interest rates are equal to U.S. rates
C) control taxes as a means of monitoring EU debt
D) reduce spending by EU countries




Answer: A

Which of the following was part of the stability and growth pact that was required for countries to be part of the European Monetary Union?

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Which of the following was part of the stability and growth pact that was required for countries to be part of the European Monetary Union?




A) The annual government budget must be no greater than 3% of GDP.
B) The annual inflation rate must remain within 1.5% of the three best-performing EU countries.
C) The annual government budget deficit could be no greater than 60% of GDP.
D) The annual inflation rate must remain within 5.5% of the four best-performing EU countries.



Answer: B

Which of the following best describes the special drawing right?

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Which of the following best describes the special drawing right?




A) an international reserve asset created to supplement members' existing reserve assets
B) the official currency for international trade established by the World Bank
C) a substitute for the fixed value of gold as determined by currency rates
D) a contribution made by countries to join the IMF



Answer: A

An investor sells Japanese yen which is yielding a low interest rate and uses the proceeds to buy Swiss francs that yield a higher interest rate. Which term best describes the investor's actions?

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An investor sells Japanese yen which is yielding a low interest rate and uses the proceeds to buy Swiss francs that yield a higher interest rate. Which term best describes the investor's actions? 



A) forward discount spread
B) interbank transaction
C) strike price option
D) carry trade





Answer: D

How does arbitrage differ from speculation?

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How does arbitrage differ from speculation?



A) Speculation, unlike arbitrage, is never used to protect against risk.
B) A speculator buys or sells foreign currency with the hope that that currency will either weaken or strengthen in the future, resulting in a profit.
C) Speculation is the purchase of foreign currency on one market for the immediate resale on another market.
D) Arbitrage is another way to speculate for profit or protect against risk.


Answer: B

Which of the following is an example of interest arbitrage?

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Which of the following is an example of interest arbitrage?



A) investing in debt instruments in different currencies or different countries
B) selling U.S. dollars for Swiss francs, then selling Swiss francs for British pounds, then selling British pounds for U.S. dollars
C) investigating different commercial banks to find the best exchange rate
D) an American investing in a London-based company




Answer: A

Ryan, a foreign-exchange dealer, sold U.S. dollars for Swiss francs in the U.S., then sold Swiss francs for Japanese yen in Switzerland, and then sold the Japanese yen for U.S. dollars in the U.S. Ryan hopes that he will end up with more U.S. dollars than when he began. Which term best describes Ryan's actions?

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Ryan, a foreign-exchange dealer, sold U.S. dollars for Swiss francs in the U.S., then sold Swiss francs for Japanese yen in Switzerland, and then sold the Japanese yen for U.S. dollars in the U.S. Ryan hopes that he will end up with more U.S. dollars than when he began. Which term best describes Ryan's actions?




A) arbitrage
B) speculation
C) spot transaction
D) outright forward




Answer: A

Which of the following best describes arbitrage?

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Which of the following best describes arbitrage?




A) using foreign exchange to fund new foreign direct investments
B) purchasing foreign currency in anticipation of long-term trends
C) using foreign-exchange instruments to speculate for profit
D) purchasing foreign currency on one market for immediate resale on another market



Answer: D

Anita, an employee at ABX Partners, a hedge fund firm, has purchased euros because she believes that the euro will strengthen against other currencies. Which term best describes Anita's activities?

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Anita, an employee at ABX Partners, a hedge fund firm, has purchased euros because she believes that the euro will strengthen against other currencies. Which term best describes Anita's activities?




A) arbitrage
B) speculation
C) spot transaction
D) outright forward



Answer: B

A speculator is someone who ________.

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A speculator is someone who ________.



A) trades foreign exchange illegally
B) deals in the black market in currency
C) takes positions in foreign-exchange markets to earn a profit
D) works for OTC financial institutions rather than nonfinancial corporations






Answer: C

An irrevocable letter of credit ________.

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An irrevocable letter of credit ________.




A) is issued by a global credit agency
B) is the basis for multilateral credit netting
C) can be amended only if all parties involved agree
D) obligates the exporter's bank to pay interest to the importer



Answer: C

Gomez Enterprises, a firm based in Mexico City, exported 1,000 circuit boards to Taylor Industries, a firm based in Chicago. Taylor received a document from Gomez that requests immediate payment for the goods. Gomez has most likely sent a ________.

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Gomez Enterprises, a firm based in Mexico City, exported 1,000 circuit boards to Taylor Industries, a firm based in Chicago. Taylor received a document from Gomez that requests immediate payment for the goods. Gomez has most likely sent a ________.



A) time draft
B) sight draft
C) spot draft
D) futures draft





Answer: B

Which of the following is NOT a reason a company would deal in foreign exchange?

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Which of the following is NOT a reason a company would deal in foreign exchange?




A) to pay or receive dividends in a foreign currency
B) to speculate on possible future movements in a currency
C) to buy and sell merchandise denominated in a foreign currency
D) to import merchandise denominated in its currency rather than the currency of the exporter




Answer: D

If a company from Country A decides to sell merchandise to a company from Country B, then the company from Country A ________.

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If a company from Country A decides to sell merchandise to a company from Country B, then the company from Country A ________.




A) will denominate the sale in its own currency since it is too hard to convert foreign currency
B) will denominate the sale in the currency of the buyer since it is too hard for them to convert foreign currency
C) can denominate the sale in either currency and use the foreign-exchange market to convert currency
D) can use the OTC market to convert receipts in the future and the exchange markets to convert receipts in the spot market




Answer: C

Stella, who works and lives in San Diego, wants to send money to her mother who lives in a small village south of Puerto Vallarta, Mexico. Stella typically uses Western Union to handle the transaction. Which of the following is the most likely reason that Stella uses Western Union?

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Stella, who works and lives in San Diego, wants to send money to her mother who lives in a small village south of Puerto Vallarta, Mexico. Stella typically uses Western Union to handle the transaction. Which of the following is the most likely reason that Stella uses Western Union? 



A) no fees
B) convenience
C) low exchange rates
D) cross rate capability


Answer: B

Why are options most likely so attractive to companies?

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Why are options most likely so attractive to companies?



A) The writer of the option does not charge the company any fee for writing the option.
B) Options provide companies with more flexibility than a forward contract.
C) Options are usually cheaper than forward contracts.
D) Options can be used for only foreign-exchange deals.



Answer: B

Which of the following is most likely true regarding options?

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Which of the following is most likely true regarding options?




A) An option can only be purchased from a commercial bank.
B) Options are never used with foreign currency.
C) An option is a right to sell foreign currency.
D) Options do not provide firms with flexibility.



Answer: C

If a foreign currency is quoted in American terms (the direct quote) and the forward rate for a foreign currency is less than the spot rate, the foreign currency is selling at a ________.

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If a foreign currency is quoted in American terms (the direct quote) and the forward rate for a foreign currency is less than the spot rate, the foreign currency is selling at a ________.



A) forward premium
B) backward discount
C) backward premium
D) forward discount




Answer: D

As a center for foreign-exchange trading, London ________.

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As a center for foreign-exchange trading, London ________.



A) actually trades more U.S. dollars than are traded in the United States
B) usually opens up for business as trades are winding down in the United States
C) deals primarily in European currencies and is not as active in trading U.S. dollars
D) deals primarily in spot rather than forward trades





Answer: A

Why is London most likely the top market for trading foreign exchange?

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Why is London most likely the top market for trading foreign exchange?



A) The British pound is the world's top trading currency.
B) Most multinational firms are headquartered in London.
C) London is uniquely positioned geographically in terms of time zones.
D) British traders have always been the most sophisticated in the world.




Answer: C

As a trading currency, the euro is ________.

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As a trading currency, the euro is ________.






A) more widely traded than the U.S. dollar in seven of the top ten currency markets in the world
B) widely traded in London but not in any other major foreign-exchange markets in the world
C) becoming more popular than the U.S. dollar because of its global acceptance
D) gaining ground against the U.S. dollar in Eastern European countries



Answer: D

Albert, an employee at Morgan Stanley, has been given the task of handling the foreign exchange for a customer who is moving from Brazil to Switzerland in one week. Which of the following should Albert most likely use when exchanging the client's Brazilian real for Swiss francs?

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Albert, an employee at Morgan Stanley, has been given the task of handling the foreign exchange for a customer who is moving from Brazil to Switzerland in one week. Which of the following should Albert most likely use when exchanging the client's Brazilian real for Swiss francs?




A) spot rate
B) cross rate
C) currency option
D) current U.S. rate



Answer: B

The U.S. dollar is most likely traded widely because it is ________.

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The U.S. dollar is most likely traded widely because it is ________.



A) a reserve currency held by many central banks
B) one of the oldest and most stable currencies in the world
C) monitored by the Bank of International Settlements and the U.S. Federal Reserve
D) based on prices of the NYSE, which is the world's largest foreign-exchange center





Answer: A

A foreign-exchange contract that is an agreement between two parties to buy or sell a particular currency at a particular price at a particular date in the future as specified in a standardized contract to all participants in the specified market is known as a(n) ________.

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A foreign-exchange contract that is an agreement between two parties to buy or sell a particular currency at a particular price at a particular date in the future as specified in a standardized contract to all participants in the specified market is known as a(n) ________.




A) spot contract
B) forward contract
C) futures contract
D) equity currency contract




Answer: C

In foreign-exchange markets, reporting dealers ________.

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In foreign-exchange markets, reporting dealers ________.



A) work extensively with nonfinancial institutions, such as the regional banks
B) trade more foreign exchange with other financial institutions than with any other category of users
C) trade more currency with governments and corporations than with other reporting dealers
D) are prohibited from trading currencies with other reporting dealers





Answer: B

In foreign-exchange markets, reporting dealers are ________.

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In foreign-exchange markets, reporting dealers are ________.



A) financial institutions that actively participate in local and global foreign-exchange markets
B) located primarily in New York City since U.S. dollars are the most widely traded currency
C) controlled by the Bank for International Settlements located in Switzerland
D) hedge funds and pension funds monitored by the World Bank




Answer: A

If Toranaga-san, who works for a Japanese trading company that operates in Japanese yen, wanted to purchase Spanish castanets from a company in Barcelona and needed Euros to complete the transaction, he would use the ________ to gain access to spot Euros.

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If Toranaga-san, who works for a Japanese trading company that operates in Japanese yen, wanted to purchase Spanish castanets from a company in Barcelona and needed Euros to complete the transaction, he would use the ________ to gain access to spot Euros.





A) stock market
B) foreign-exchange market
C) New York Stock Exchange
D) international export market



Answer: B

A major challenge faced by Western Union in wiring money between the United States and Mexico is that ________.

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A major challenge faced by Western Union in wiring money between the United States and Mexico is that ________.



A) it can only transfer funds in one direction
B) it is facing competition from some commercial banks
C) Mexican citizens do not like to use its services because it does not have strong ties with Mexican banks
D) Mexican citizens trust the banks but do not trust Western Union due to its heritage as a Western bank




Answer: B

Western Union's role in foreign-exchange trading is best described as ________.

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Western Union's role in foreign-exchange trading is best described as ________.



A) setting a fair exchange rate in multiple currencies
B) transferring currency from one country to another
C) transferring Mexican pesos from the United States to Mexico
D) handling all money transfers that occur between North and South America




Answer: B
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