Exam 13: Direct Foreign Investment

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

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.

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

Assume that the government of Krusho requires bribes to approve certain projects. MNCs that attempt to do business in Krusho must deal with:

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

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.

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.

Procedural and documentation requirements imposed by the foreign government are referred to as:

Consider Firm A and Firm B that both produce the same product. Firm A would more likely have more stable cash flows if its percentage of foreign sales were ____ and the number of foreign countries it sold products to was ____.

According to information in 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:

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

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

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

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

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.

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

A firm will likely benefit most from diversifying if:

To fully benefit from economies of scale, an MNC should:

Assume the British pound appreciates against the dollar while the Japanese yen depreciates against the dollar. Which of the following is true?

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