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

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

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

Question 4

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 5

Which of the following is a reason to consider international business?

Accepted Answer

A)  economies of scale. 
B)  exploit monopolistic advantages. 
C)  diversification. 
D)  all of the above 
A)  economies of scale. 
B)  exploit monopolistic advantages. 
C)  diversification. 
D)  all of the above

Question 6

____ 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

Question 7

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 8

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 9

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.

Question 10

From the concept of an "efficient frontier," the point on a frontier that is optimal for all firms:

Accepted Answer

A)  is the top point. 
B)  is the point closest to the vertical axis. 
C)  is the point half way between the two end points. 
D)  cannot be determined since firms vary in their willingness to accept risk. 
A)  is the top point. 
B)  is the point closest to the vertical axis. 
C)  is the point half way between the two end points. 
D)  cannot be determined since firms vary in their willingness to accept risk.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

____ 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 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

Direct foreign investment would typically be welcomed if:

Accepted Answer

A)  the products to be produced are substitutes for other locally produced products. 
B)  people from the country of the company's headquarter are transferred to the foreign country to work at the subsidiary. 
C)  the products to be produced are going to be exported. 
D)  all of the above 
A)  the products to be produced are substitutes for other locally produced products. 
B)  people from the country of the company's headquarter are transferred to the foreign country to work at the subsidiary. 
C)  the products to be produced are going to be exported. 
D)  all of the above

Question 17

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 18

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 19

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 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.

Exam 13: Direct Foreign Investment

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

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.

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

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

Which of the following is a reason to consider international business?

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

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

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

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:

From the concept of an "efficient frontier," the point on a frontier that is optimal for all firms:

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

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

____ is not a disadvantage of direct foreign investment.

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

To use foreign factors of production, an MNC should:

Direct foreign investment would typically be welcomed if:

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

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

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

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

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