Question 1

Due to market imperfections, the cost of factors of production (such as labor) may differ substantially across countries

Accepted Answer

A) True 
 B)False

Question 2

Managers of MNCs may attempt to expand their divisions internationally if their compensation may be increased as a result of expansion. This goal is consistent with the goals of shareholders.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not true regarding the efficient frontier considered by MNCs?

Accepted Answer

A)  There is only one point on the efficient frontier that is optimal for all MNCs, regardless of their degree of risk aversion. 
B)  The efficient frontier for portfolios of domestic and international projects will probably lie to the left of the efficient frontier for portfolios of purely domestic projects. 
C)  Most points on the efficient frontier represent a portfolio of projects as opposed to an individual project. 
D)  All of these are true. 
A)  There is only one point on the efficient frontier that is optimal for all MNCs, regardless of their degree of risk aversion. 
B)  The efficient frontier for portfolios of domestic and international projects will probably lie to the left of the efficient frontier for portfolios of purely domestic projects. 
C)  Most points on the efficient frontier represent a portfolio of projects as opposed to an individual project. 
D)  All of these are true.

Question 4

The overall variability of a firm's returns depends on the expected return of each individual project, the percentage of funds invested in each individual project, and the correlation coefficient of returns between the investments.

Accepted Answer

A) True 
 B)False

Question 5

Assume the correlation coefficient between the return on the existing project and the return on a proposed foreign project is 1. Also assume the returns on the existing project and the new project are equal, and that the existing project has a lower standard deviation than the proposed project. Under this scenario, undertaking the proposed project will ____ the variance of the firm's overall returns.

Accepted Answer

A)  decrease 
B)  increase 
C)  decrease or increase (depending on the exact size of the returns and standard deviations) 
D)  None of these are correct. 
A)  decrease 
B)  increase 
C)  decrease or increase (depending on the exact size of the returns and standard deviations) 
D)  None of these are correct.

Question 6

____ is not a disadvantage of direct foreign investment.

Accepted Answer

A)  The expense of establishing a foreign subsidiary 
B)  The uncertainty of inflation and exchange rate movements 
C)  Political risk 
D)  All of these are disadvantages of direct foreign investment. 
A)  The expense of establishing a foreign subsidiary 
B)  The uncertainty of inflation and exchange rate movements 
C)  Political risk 
D)  All of these are disadvantages of direct foreign investment.

Question 7

Which of the following is not true regarding host government attitudes toward direct foreign investment (DFI)?

Accepted Answer

A)  Host governments may offer incentives to MNCs in the form of subsidies in certain circumstances. 
B)  Host governments generally perceive DFI as a remedy to eliminate a country's political problems. 
C)  The ability of a host government to attract DFI is dependent on the country's markets and resources. 
D)  Some types of DFI will be more attractive to some governments than to others. 
E)  All of these are true. 
A)  Host governments may offer incentives to MNCs in the form of subsidies in certain circumstances. 
B)  Host governments generally perceive DFI as a remedy to eliminate a country's political problems. 
C)  The ability of a host government to attract DFI is dependent on the country's markets and resources. 
D)  Some types of DFI will be more attractive to some governments than to others. 
E)  All of these are true.

Question 8

MNCs often attempt to set up production in locations where land and labor are expensive, because expensive factors of production indicate high demand.

Accepted Answer

A) True 
 B)False

Question 9

Countries in Eastern Europe are more appealing to MNCs that seek relatively low costs of land and labor than countries in Western Europe.

Accepted Answer

A) True 
 B)False

Question 10

Developing countries are mostly targeted for direct foreign investment because they have advanced technology.

Accepted Answer

A) True 
 B)False

Question 11

To fully benefit from use of foreign raw materials:

Accepted Answer

A)  establish a subsidiary in a market where raw materials are cheap and accessible. 
B)  sell the finished product to countries where raw materials are more expensive. 
C)  establish a subsidiary in a new market that can sell products produced elsewhere. 
D)  establish a subsidiary in a market where raw materials are cheap and accessible AND sell the finished product to countries where raw materials are more expensive. 
A)  establish a subsidiary in a market where raw materials are cheap and accessible. 
B)  sell the finished product to countries where raw materials are more expensive. 
C)  establish a subsidiary in a new market that can sell products produced elsewhere. 
D)  establish a subsidiary in a market where raw materials are cheap and accessible AND sell the finished product to countries where raw materials are more expensive.

Due to market imperfections, the cost of factors of production (such as labor) may differ substantially across countries

Managers of MNCs may attempt to expand their divisions internationally if their compensation may be increased as a result of expansion. This goal is consistent with the goals of shareholders.

Which of the following is not true regarding the efficient frontier considered by MNCs?

The overall variability of a firm's returns depends on the expected return of each individual project, the percentage of funds invested in each individual project, and the correlation coefficient of returns between the investments.

____ is not a disadvantage of direct foreign investment.

Which of the following is not true regarding host government attitudes toward direct foreign investment (DFI)?

MNCs often attempt to set up production in locations where land and labor are expensive, because expensive factors of production indicate high demand.

Countries in Eastern Europe are more appealing to MNCs that seek relatively low costs of land and labor than countries in Western Europe.

Developing countries are mostly targeted for direct foreign investment because they have advanced technology.

To fully benefit from use of foreign raw materials:

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

Exam 13: Direct Foreign Investment

Due to market imperfections, the cost of factors of production (such as labor) may differ substantially across countries

Managers of MNCs may attempt to expand their divisions internationally if their compensation may be increased as a result of expansion. This goal is consistent with the goals of shareholders.

Which of the following is not true regarding the efficient frontier considered by MNCs?

The overall variability of a firm's returns depends on the expected return of each individual project, the percentage of funds invested in each individual project, and the correlation coefficient of returns between the investments.

____ is not a disadvantage of direct foreign investment.

Which of the following is not true regarding host government attitudes toward direct foreign investment (DFI)?

MNCs often attempt to set up production in locations where land and labor are expensive, because expensive factors of production indicate high demand.

Countries in Eastern Europe are more appealing to MNCs that seek relatively low costs of land and labor than countries in Western Europe.

Developing countries are mostly targeted for direct foreign investment because they have advanced technology.

To fully benefit from use of foreign raw materials:

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