Question 1

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 2

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

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

According to the text, a host government would be least likely to provide incentives for direct foreign investment (DFI) into its country if the firm planning DFI:

Accepted Answer

A) would compete with local firms of the host country. 
B) would produce a good not currently available in the host country. 
C) would produce a good and export it to other countries. 
D) B and C 
A) would compete with local firms of the host country. 
B) would produce a good not currently available in the host country. 
C) would produce a good and export it to other countries. 
D) B and C

Question 7

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 8

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 9

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 the above 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 the above are true.

Question 10

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

Question 11

In assessing the risk of an individual project, the expected correlation of the new project's returns with those of the prevailing business should be considered.

Accepted Answer

A) True 
 B)False

Question 12

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 13

An MNC will likely benefit most from diversifying if:

Accepted Answer

A) the correlations between country economies are high. 
B) the correlations between country economies are low. 
C) the variability of all country economy levels is high. 
D) B and C 
A) the correlations between country economies are high. 
B) the correlations between country economies are low. 
C) the variability of all country economy levels is high. 
D) B and C

Question 14

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 the above 
A) decrease 
B) increase 
C) decrease or increase, depending on the exact size of the returns and standard deviations 
D) none of the above

Question 15

Which of the following is not a cost-related motive of direct foreign investment?

Accepted Answer

A) International diversification. 
B) Low labor costs. 
C) Land can be purchased at a low price. 
D) Manufacturing plants can be built for a low price. 
A) International diversification. 
B) Low labor costs. 
C) Land can be purchased at a low price. 
D) Manufacturing plants can be built for a low price.

Question 16

To enter markets where superior profits are possible, an MNC should:

Accepted Answer

A) acquire a competitor that has controlled its local market. 
B) establish a subsidiary or acquire a competitor in a new market. 
C) establish a subsidiary in a market where tougher trade restrictions will adversely affect the firm's export volume. 
D) establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based. 
A) acquire a competitor that has controlled its local market. 
B) establish a subsidiary or acquire a competitor in a new market. 
C) establish a subsidiary in a market where tougher trade restrictions will adversely affect the firm's export volume. 
D) establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based.

Question 17

The most important cost-related motive for direct foreign investment is diversification across product markets.

Accepted Answer

A) True 
 B)False

Question 18

Assume a U.S. MNC initiates direct foreign investment in the United Kingdom. If the British pound is expected to appreciate against the dollar, the dollar value of earnings remitted to the parent should ____. The parent may request that the subsidiary ____ in order to benefit from the expectation about the pound.

Accepted Answer

A) increase; postpone remitting earnings until the pound strengthens 
B) decrease; postpone remitting earnings until the pound strengthens 
C) decrease; remit earnings immediately before the pound strengthens 
D) increase; remit earnings immediately before the pound strengthens 
A) increase; postpone remitting earnings until the pound strengthens 
B) decrease; postpone remitting earnings until the pound strengthens 
C) decrease; remit earnings immediately before the pound strengthens 
D) increase; remit earnings immediately before the pound strengthens

Question 19

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 20

Which of the following purchases does not represent direct foreign investment?

Accepted Answer

A) machinery to be used in manufacturing 
B) a tract of land 
C) bonds and other financial assets 
D) a manufacturing plant 
A) machinery to be used in manufacturing 
B) a tract of land 
C) bonds and other financial assets 
D) a manufacturing plant

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

To fully benefit from use of foreign raw materials:

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

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

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

According to the text, a host government would be least likely to provide incentives for direct foreign investment (DFI) into its country if the firm planning DFI:

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

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

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

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.

In assessing the risk of an individual project, the expected correlation of the new project's returns with those of the prevailing business should be considered.

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 _______________.

An MNC will likely benefit most from diversifying if:

Which of the following is not a cost-related motive of direct foreign investment?

To enter markets where superior profits are possible, an MNC should:

The most important cost-related motive for direct foreign investment is diversification across product markets.

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 .

Which of the following purchases does not represent direct foreign investment?

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 Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 13: Direct Foreign Investment

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

To fully benefit from use of foreign raw materials:

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

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

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

According to the text, a host government would be least likely to provide incentives for direct foreign investment (DFI) into its country if the firm planning DFI:

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

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

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

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.

In assessing the risk of an individual project, the expected correlation of the new project's returns with those of the prevailing business should be considered.

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 _______________.

An MNC will likely benefit most from diversifying if:

Which of the following is not a cost-related motive of direct foreign investment?

To enter markets where superior profits are possible, an MNC should:

The most important cost-related motive for direct foreign investment is diversification across product markets.

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 ____.

Which of the following purchases does not represent direct foreign investment?

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 Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

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.

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 .