Question 1

The key to international diversification is selecting foreign projects whose performance levels are highly correlated over time.

Accepted Answer

A) True 
 B)False

Question 2

Even if production costs are higher in a foreign country, a U.S. MNC may establish a manufacturing plant in the foreign country if the government of that country:

Accepted Answer

A)  eliminates all quotas. 
B)  reduces all quotas. 
C)  imposes restrictive quotas. 
D)  eliminates all tariffs. 
A)  eliminates all quotas. 
B)  reduces all quotas. 
C)  imposes restrictive quotas. 
D)  eliminates all tariffs.

Question 3

Which of the following is a reason to consider international business?

Accepted Answer

A)  economies of scale 
B)  exploit monopolistic advantages 
C)  diversification 
D)  All of these are correct.
Answer Key 
A)  economies of scale 
B)  exploit monopolistic advantages 
C)  diversification 
D)  All of these are correct.
Answer Key

Question 4

When a foreign currency is perceived by an MNC to be undervalued, the MNC may consider direct foreign investment in that country, as the initial outlay should be relatively low.

Accepted Answer

A) True 
 B)False

Question 5

​When a firm perceives that a foreign currency is ____, the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively ____.

Accepted Answer

A)  ​overvalued; high 
B)  ​overvalued; low 
C)  ​undervalued; high 
D)  ​undervalued; low 
A)  ​overvalued; high 
B)  ​overvalued; low 
C)  ​undervalued; high 
D)  ​undervalued; low

Question 6

Once a decision to establish a foreign subsidiary has been made, it is irreversible. Therefore, no periodic monitoring of the project is necessary.

Accepted Answer

A) True 
 B)False

Question 7

An MNC's cash flows are likely to be less volatile if its percentage of foreign sales is ____ and the number of foreign countries it sells products to is ____.

Accepted Answer

A)  high; large 
B)  high; small 
C)  low; small 
D)  high; large. 
A)  high; large 
B)  high; small 
C)  low; small 
D)  high; large.

Question 8

​Assume a U.S. firm initiates direct foreign investment in Italy. If the euro is expected to depreciate against the dollar, the dollar value of earnings remitted to the parent should ____. The parent may request that the subsidiary ____.

Accepted Answer

A)  ​increase; postpone remitting earnings until the euro weakens 
B)  ​decrease; postpone remitting earnings until the euro weakens 
C)  ​decrease; remit earnings immediately before the euro weakens 
D)  ​increase; remit earnings immediately before the euro weakens 
A)  ​increase; postpone remitting earnings until the euro weakens 
B)  ​decrease; postpone remitting earnings until the euro weakens 
C)  ​decrease; remit earnings immediately before the euro weakens 
D)  ​increase; remit earnings immediately before the euro weakens

Question 9

Along the frontier of efficient project portfolios, exactly one portfolio can be singled out as "optimal" for all MNCs.

Accepted Answer

A) True 
 B)False

Question 10

​To diversify internationally for the purpose of reducing risk, which strategy is appropriate?

Accepted Answer

A)  ​Establish subsidiaries in markets whose business cycles are the same as those where existing subsidiaries are based. 
B)  ​Establish a subsidiary in a market that has relatively low cost of labor or land. 
C)  ​Establish a subsidiary in a market where the local currency is weak but is expected to appreciate over time. 
D)  ​Establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based. 
A)  ​Establish subsidiaries in markets whose business cycles are the same as those where existing subsidiaries are based. 
B)  ​Establish a subsidiary in a market that has relatively low cost of labor or land. 
C)  ​Establish a subsidiary in a market where the local currency is weak but is expected to appreciate over time. 
D)  ​Establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based.

Question 11

Direct foreign investment is commonly considered by MNCs because it allows the MNC to:

Accepted Answer

A)  attract new sources of demand. 
B)  enter profitable markets. 
C)  react to exchange rate movements. 
D)  react to trade restrictions. 
E)  All of these are correct. 
A)  attract new sources of demand. 
B)  enter profitable markets. 
C)  react to exchange rate movements. 
D)  react to trade restrictions. 
E)  All of these are correct.

Question 12

​From the concept of an "efficient frontier," the point on a frontier that is optimal for all firms:

Accepted Answer

A)  ​is the top point. 
B)  ​is the point closest to the vertical axis. 
C)  ​is the point halfway between the two end points. 
D)  ​cannot be determined since firms vary in their willingness to accept risk. 
A)  ​is the top point. 
B)  ​is the point closest to the vertical axis. 
C)  ​is the point halfway between the two end points. 
D)  ​cannot be determined since firms vary in their willingness to accept risk.

Question 13

Although direct foreign investment is sometimes conducted, benefits are rarely realized.

Accepted Answer

A) True 
 B)False

Question 14

Direct foreign investment (DFI) represents investment in real assets (such as land, buildings, or even existing plants) in foreign countries.

Accepted Answer

A) True 
 B)False

Question 15

A country presently has a high level of unemployment because of weak economic conditions, and its income levels are very low. This country would most likely be an attractive target for direct foreign investment by MNCs as a result of the motive to:

Accepted Answer

A)  enter markets where superior profits are possible. 
B)  react to trade restrictions. 
C)  diversify internationally. 
D)  use foreign factors of production. 
A)  enter markets where superior profits are possible. 
B)  react to trade restrictions. 
C)  diversify internationally. 
D)  use foreign factors of production.

Question 16

Procedural and documentation requirements imposed by a foreign government on an MNC pursuing DFI are referred to as:

Accepted Answer

A)  economic barriers. 
B)  industry barriers. 
C)  protective barriers. 
D)  "red tape" barriers. 
A)  economic barriers. 
B)  industry barriers. 
C)  protective barriers. 
D)  "red tape" barriers.

Question 17

​____ is not a revenue-related motive for direct foreign investment.

Accepted Answer

A)  ​Attracting new sources of demand 
B)  ​Fully benefiting from economies of scale 
C)  ​Exploiting monopolistic advantages 
D)  ​Entering profitable markets 
A)  ​Attracting new sources of demand 
B)  ​Fully benefiting from economies of scale 
C)  ​Exploiting monopolistic advantages 
D)  ​Entering profitable markets

Question 18

Direct foreign investment is normally completed first, and then capital budgeting can be applied later.

Accepted Answer

A) True 
 B)False

Question 19

Direct foreign investment would typically be welcomed if:

Accepted Answer

A)  the products to be produced are substitutes for other locally produced products. 
B)  people from the country of the company's headquarters are transferred to the foreign country to work at the subsidiary. 
C)  the products to be produced are going to be exported. 
D)  All of these are correct. 
A)  the products to be produced are substitutes for other locally produced products. 
B)  people from the country of the company's headquarters are transferred to the foreign country to work at the subsidiary. 
C)  the products to be produced are going to be exported. 
D)  All of these are correct.

Question 20

The ____ the variability of a project's cash flows, and the ____ the positive correlation between the project's cash flow and the MNC's cash flow, the lower the risk of the project.

Accepted Answer

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

Exam 13: Direct Foreign Investment

The key to international diversification is selecting foreign projects whose performance levels are highly correlated over time.

Even if production costs are higher in a foreign country, a U.S. MNC may establish a manufacturing plant in the foreign country if the government of that country:

Which of the following is a reason to consider international business?

When a foreign currency is perceived by an MNC to be undervalued, the MNC may consider direct foreign investment in that country, as the initial outlay should be relatively low.

​When a firm perceives that a foreign currency is ____, the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively ____.

Once a decision to establish a foreign subsidiary has been made, it is irreversible. Therefore, no periodic monitoring of the project is necessary.

An MNC's cash flows are likely to be less volatile if its percentage of foreign sales is ____ and the number of foreign countries it sells products to is ____.

​Assume a U.S. firm initiates direct foreign investment in Italy. If the euro is expected to depreciate against the dollar, the dollar value of earnings remitted to the parent should ____. The parent may request that the subsidiary ____.

Along the frontier of efficient project portfolios, exactly one portfolio can be singled out as "optimal" for all MNCs.

​To diversify internationally for the purpose of reducing risk, which strategy is appropriate?

Direct foreign investment is commonly considered by MNCs because it allows the MNC to:

​From the concept of an "efficient frontier," the point on a frontier that is optimal for all firms:

Although direct foreign investment is sometimes conducted, benefits are rarely realized.

Direct foreign investment (DFI) represents investment in real assets (such as land, buildings, or even existing plants) in foreign countries.

A country presently has a high level of unemployment because of weak economic conditions, and its income levels are very low. This country would most likely be an attractive target for direct foreign investment by MNCs as a result of the motive to:

Procedural and documentation requirements imposed by a foreign government on an MNC pursuing DFI are referred to as:

​____ is not a revenue-related motive for direct foreign investment.

Direct foreign investment is normally completed first, and then capital budgeting can be applied later.

Direct foreign investment would typically be welcomed if:

The ____ the variability of a project's cash flows, and the ____ the positive correlation between the project's cash flow and the MNC's cash flow, the lower the risk of the project.

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Capital Structure and Cost of Capital

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

When a firm perceives that a foreign currency is , the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively .

An MNC's cash flows are likely to be less volatile if its percentage of foreign sales is and the number of foreign countries it sells products to is .

Assume a U.S. firm initiates direct foreign investment in Italy. If the euro is expected to depreciate against the dollar, the dollar value of earnings remitted to the parent should . The parent may request that the subsidiary .

To diversify internationally for the purpose of reducing risk, which strategy is appropriate?

From the concept of an "efficient frontier," the point on a frontier that is optimal for all firms:

____ is not a revenue-related motive for direct foreign investment.

The the variability of a project's cash flows, and the the positive correlation between the project's cash flow and the MNC's cash flow, the lower the risk of the project.