The Theory of Comparative Advantage

question 113

Multiple Choice

The theory of comparative advantage

• A) provides a strong rationale for encouraging international trade.
• B) provides a strong rationale for discouraging international trade.
• C) neither encourages nor discourages international trade.
• D) provides a weak rationale for discouraging international trade.
• E) is considered wrong by many.

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Definitions:

Liquidity

The ability of an asset to be quickly converted into cash without significantly affecting its price.

Default Risk

The possibility that a borrower will fail to meet the obligations of a loan agreement.

Interest Rate Risk Premiums

Additional returns demanded by investors to compensate for the risk of fluctuating interest rates.

D Credit Rating

A rating indicating that an entity is in default, having failed to fulfill its credit obligations, the lowest possible rating in assessments of credit risk.