Question 1

Direct foreign investment is perceived by foreign governments to:

Accepted Answer

A)  be a cause of national problems. 
B)  be a remedy for national problems. 
C)  either A or B is possible. 
D)  have no impact on national problems. 
A)  be a cause of national problems. 
B)  be a remedy for national problems. 
C)  either A or B is possible. 
D)  have no impact on national problems.

Question 2

If countries are highly influential upon each other, the correlations of their economic growth levels would likely be ____. A firm would benefit ____ by diversifying sales among these countries relative to another set of countries that were not influential upon each other.

Accepted Answer

A)  high and positive; more 
B)  close to zero; more 
C)  high and positive; less 
D)  close to zero; less 
A)  high and positive; more 
B)  close to zero; more 
C)  high and positive; less 
D)  close to zero; less

Question 3

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 4

When a foreign currency is perceived by a firm to be ____, the firm will probably ____ direct foreign investment in that country.

Accepted Answer

A)  undervalued; consider 
B)  undervalued; not consider 
C)  overvalued; not consider 
D)  A and C 
E)  B and C 
A)  undervalued; consider 
B)  undervalued; not consider 
C)  overvalued; not consider 
D)  A and C 
E)  B and C

Question 5

To use foreign factors of production, an MNC should:

Accepted Answer

A)  establish a subsidiary in a new market that can sell products produced elsewhere. 
B)  establish a subsidiary in a market that has relatively low costs of labor or land. 
C)  establish a subsidiary in a market where raw materials are cheap and accessible. 
D)  participate in a joint venture in order to learn about a production process or other operations. 
A)  establish a subsidiary in a new market that can sell products produced elsewhere. 
B)  establish a subsidiary in a market that has relatively low costs of labor or land. 
C)  establish a subsidiary in a market where raw materials are cheap and accessible. 
D)  participate in a joint venture in order to learn about a production process or other operations.

Question 6

Consider a country that presently has a high level of unemployment because of weak economic conditions. Its income levels are very low. This country may be an attractive target as a result of ____ motives by U.S. firms that engage in direct foreign investment.

Accepted Answer

A)  revenue-related 
B)  cost-related 
C)  A and B 
D)  none of the above 
A)  revenue-related 
B)  cost-related 
C)  A and B 
D)  none of the above

Question 7

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 8

____ 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 the above 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 the above are disadvantages of direct foreign investment

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)  Exploiting monopolistic advantages 
B)  Fully benefiting from economies of scale 
C)  Using foreign factors of production 
D)  Using foreign raw materials 
A)  Exploiting monopolistic advantages 
B)  Fully benefiting from economies of scale 
C)  Using foreign factors of production 
D)  Using foreign raw materials

Question 11

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 for their national 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 for their national 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 12

According to your text, ____ is a country that has been perceived as one of the most attractive sources of new demand.

Accepted Answer

A)  Paraguay 
B)  Morocco 
C)  Sweden 
D)  China 
A)  Paraguay 
B)  Morocco 
C)  Sweden 
D)  China

Question 13

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 14

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 the above 
A)  attract new sources of demand. 
B)  enter profitable markets. 
C)  react to exchange rate movements. 
D)  react to trade restrictions. 
E)  all of the above

Question 15

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 16

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 17

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

Accepted Answer

A) True 
 B)False

Question 18

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 19

A firm 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 20

Even if production costs are higher in a foreign country, a U.S. firm may establish a manufacturing plant in the foreign country now if:

Accepted Answer

A)  the host government of that country eliminates all quotas. 
B)  the host government of that country reduces all quotas. 
C)  the host government of that country increases all quotas. 
D)  the host government of that country eliminates all tariffs. 
A)  the host government of that country eliminates all quotas. 
B)  the host government of that country reduces all quotas. 
C)  the host government of that country increases all quotas. 
D)  the host government of that country eliminates all tariffs.

Exam 13: Direct Foreign Investment

Direct foreign investment is perceived by foreign governments to:

If countries are highly influential upon each other, the correlations of their economic growth levels would likely be ____. A firm would benefit ____ by diversifying sales among these countries relative to another set of countries that were not influential upon each other.

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

When a foreign currency is perceived by a firm to be ____, the firm will probably ____ direct foreign investment in that country.

To use foreign factors of production, an MNC should:

Consider a country that presently has a high level of unemployment because of weak economic conditions. Its income levels are very low. This country may be an attractive target as a result of ____ motives by U.S. firms that engage in direct foreign investment.

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

____ is not a disadvantage of direct foreign investment.

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

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

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

According to your text, ____ is a country that has been perceived as one of the most attractive sources of new demand.

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

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

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.

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

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

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

A firm will likely benefit most from diversifying if:

Even if production costs are higher in a foreign country, a U.S. firm may establish a manufacturing plant in the foreign country now if:

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

If countries are highly influential upon each other, the correlations of their economic growth levels would likely be . A firm would benefit by diversifying sales among these countries relative to another set of countries that were not influential upon each other.

When a foreign currency is perceived by a firm to be , the firm will probably direct foreign investment in that country.