Comparative Advantage Was Once the Cornerstone of International Trade Theory

question 25

True/False

Comparative advantage was once the cornerstone of international trade theory, but today it is archaic, simplistic, and irrelevant for explaining investment choices made by MNEs.

---

Definitions:

Leverage Ratios

The ratio of loans and other investments to the firm’s capital assets.

Mortgage-backed Securities

Financial instruments created by pooling mortgages and selling the rights to the cash flows from these mortgages to investors.

Secondary Mortgage Market

A market in which mortgages originated by a lender are sold to another financial institution. In recent years, the major buyers in this market have been Fannie Mae, Freddie Mac, and large investment banks.

Lending Standards

The criteria and guidelines used by financial institutions to determine the creditworthiness of prospective borrowers and to make decisions about loan applications.