Question 1

____ is not a cost-related motive for direct foreign investment (DFI).

Accepted Answer

A)  Using foreign factors of production 
B)  Using foreign raw materials 
C)  Using foreign technology 
D)  Reacting to trade restrictions 
E)  Fully benefiting from economies of scale 
A)  Using foreign factors of production 
B)  Using foreign raw materials 
C)  Using foreign technology 
D)  Reacting to trade restrictions 
E)  Fully benefiting from economies of scale D

Question 2

Assume a U.S. firm initiates direct foreign investment in the U.K. 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 A

Question 3

According to the text, a firm may be able to achieve a "more efficient" project portfolio if it:

Accepted Answer

A)  focuses solely on one product. 
B)  focuses solely on one location to market what it produces. 
C)  A and B 
D)  none of the above 
A)  focuses solely on one product. 
B)  focuses solely on one location to market what it produces. 
C)  A and B 
D)  none of the above D

Question 4

When economic conditions of two countries are ____, then a firm would ____ its risk by operating in both countries instead of concentrating just in one.

Accepted Answer

A)  highly correlated; reduce 
B)  not highly correlated; not reduce 
C)  not highly correlated; reduce 
D)  none of the above 
A)  highly correlated; reduce 
B)  not highly correlated; not reduce 
C)  not highly correlated; reduce 
D)  none of the above

Question 5

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

Accepted Answer

A)  There is exactly one point on the efficient frontier that is optimal for every MNC, regardless of its degree of risk aversion. 
B)  The efficient frontier for international projects will probably lie to the left of the efficient frontier for domestic projects. 
C)  Each point on the efficient frontier represents a portfolio of projects as opposed to an individual project. 
D)  All of the above are true. 
E)  A and C are false. 
A)  There is exactly one point on the efficient frontier that is optimal for every MNC, regardless of its degree of risk aversion. 
B)  The efficient frontier for international projects will probably lie to the left of the efficient frontier for domestic projects. 
C)  Each point on the efficient frontier represents a portfolio of projects as opposed to an individual project. 
D)  All of the above are true. 
E)  A and C are false.

Question 6

The ____ the correlation in project returns is over time, the ____ will be the project portfolio risk as measured by the portfolio variance.

Accepted Answer

A)  lower; lower 
B)  higher; lower 
C)  lower; higher 
D)  none of the above 
A)  lower; lower 
B)  higher; lower 
C)  lower; higher 
D)  none of the above

Question 7

Developing countries are mostly targeted because they have advanced technology.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not true regarding host government attitudes towards 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 9

Based on the text, it should be obvious that markets are ____ in reality, and consequently, monopolistic advantages ____ be exploited.

Accepted Answer

A)  perfect; may possibly 
B)  perfect; cannot 
C)  imperfect; may possibly 
D)  imperfect; cannot 
A)  perfect; may possibly 
B)  perfect; cannot 
C)  imperfect; may possibly 
D)  imperfect; cannot

Question 10

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 11

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 12

Constraints pertaining to taxes, currency convertibility, earnings remittance, and employee rights are best described as:

Accepted Answer

A)  ethical differences. 
B)  regulatory barriers. 
C)  quota barriers. 
D)  "Red Tape" barriers. 
A)  ethical differences. 
B)  regulatory barriers. 
C)  quota barriers. 
D)  "Red Tape" barriers.

Question 13

MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The best means of using direct foreign investment (DFI) to fully benefit from cheap foreign factors of production is probably to:

Accepted Answer

A)  acquire a competitor that has controlled its local market. 
B)  establish a subsidiary in a new market that can sell products produced elsewhere; this allows for increased production and possibly greater production efficiency. 
C)  establish a subsidiary in a market that has relatively low costs of labor and land; sell the finished product to countries where the cost of production is higher. 
D)  establish a subsidiary in a market in which raw materials are cheap and accessible; sell the finished product to countries in which the raw materials are more expensive. 
A)  acquire a competitor that has controlled its local market. 
B)  establish a subsidiary in a new market that can sell products produced elsewhere; this allows for increased production and possibly greater production efficiency. 
C)  establish a subsidiary in a market that has relatively low costs of labor and land; sell the finished product to countries where the cost of production is higher. 
D)  establish a subsidiary in a market in which raw materials are cheap and accessible; sell the finished product to countries in which the raw materials are more expensive.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

A country with high unemployment could best increase its employment by:

Accepted Answer

A)  encouraging foreign firms to establish subsidiaries that produce the same products local firms produce. 
B)  encouraging foreign firms to establish licensing arrangements for products local firms produce. 
C)  encouraging foreign firms to establish subsidiaries that produce products local firms do not produce. 
D)  none of the above would reduce employment. 
A)  encouraging foreign firms to establish subsidiaries that produce the same products local firms produce. 
B)  encouraging foreign firms to establish licensing arrangements for products local firms produce. 
C)  encouraging foreign firms to establish subsidiaries that produce products local firms do not produce. 
D)  none of the above would reduce employment.

Question 19

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 20

The best means to accomplish the revenue-related motive of attracting new sources of demand is to:

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.

____ is not a cost-related motive for direct foreign investment (DFI).

Assume a U.S. firm initiates direct foreign investment in the U.K. 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.

According to the text, a firm may be able to achieve a "more efficient" project portfolio if it:

When economic conditions of two countries are , then a firm would its risk by operating in both countries instead of concentrating just in one.

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

The the correlation in project returns is over time, the will be the project portfolio risk as measured by the portfolio variance.

Developing countries are mostly targeted because they have advanced technology.

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

Based on the text, it should be obvious that markets are in reality, and consequently, monopolistic advantages be exploited.

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

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

Constraints pertaining to taxes, currency convertibility, earnings remittance, and employee rights are best described as:

MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth.

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

The best means of using direct foreign investment (DFI) to fully benefit from cheap foreign factors of production is probably to:

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

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

A country with high unemployment could best increase its employment by:

The best means to accomplish the revenue-related motive of attracting new sources of demand is to:

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

____ is not a cost-related motive for direct foreign investment (DFI).

According to the text, a firm may be able to achieve a "more efficient" project portfolio if it:

When economic conditions of two countries are ____, then a firm would ____ its risk by operating in both countries instead of concentrating just in one.

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

The ____ the correlation in project returns is over time, the ____ will be the project portfolio risk as measured by the portfolio variance.

Developing countries are mostly targeted because they have advanced technology.

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

Based on the text, it should be obvious that markets are ____ in reality, and consequently, monopolistic advantages ____ be exploited.

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

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

Constraints pertaining to taxes, currency convertibility, earnings remittance, and employee rights are best described as:

MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth.

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

The best means of using direct foreign investment (DFI) to fully benefit from cheap foreign factors of production is probably to:

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

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

A country with high unemployment could best increase its employment by:

The best means to accomplish the revenue-related motive of attracting new sources of demand is to:

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

When economic conditions of two countries are , then a firm would its risk by operating in both countries instead of concentrating just in one.

The the correlation in project returns is over time, the will be the project portfolio risk as measured by the portfolio variance.

Based on the text, it should be obvious that markets are in reality, and consequently, monopolistic advantages be exploited.