Question 1

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.

Question 2

To exploit monopolistic advantages, 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 where competitors are unable to produce the identical product.

Question 3

To fully benefit from economies of scale, 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.

Question 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

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.

Question 8

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

Question 9

If countries' economies are highly integrated, 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 whose economies are less integrated.

Accepted Answer

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

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

When a firm perceives that a foreign currency is ____, the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively ____.

Accepted Answer

A) overvalued; high 
B) overvalued; low 
C) undervalued; high 
D) undervalued; low

Question 13

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

Accepted Answer

A) True 
 B)False

Exam 13: Direct Foreign Investment

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

To exploit monopolistic advantages, an MNC should:

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

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

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

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

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

Direct foreign investment would typically be welcomed if:

If countries' economies are highly integrated, 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 whose economies are less integrated.

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

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

When a firm perceives that a foreign currency is , the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively .

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