Question 1

A strongly competitive home market tends to dull the competitive advantage relative to firms located in less competitive home markets.

Accepted Answer

A) True 
 B)False

Question 2

Local partners in a foreign country and in a joint venture with an MNE are likely to make decisions that maximize the value of the subsidiary. Such actions probably will not maximize the value of the entire firm.

Accepted Answer

A) True 
 B)False

Question 3

As a general rule, the decision about where to invest abroad for the first time is the same as the decision about where to reinvest abroad.

Accepted Answer

A) True 
 B)False

Question 4

A ________ is a shared ownership in a foreign business.

Accepted Answer

A)  licensing agreement 
B)  greenfield investment 
C)  joint venture 
D)  wholly-owned affiliate

Question 5

With licensing the ________ is likely to be lower than with FDI because of lower profits; however, the ________ is likely to be higher due to a greater return per dollar invested.

Accepted Answer

A)  IRR; NPV 
B)  NPV; IRR 
C)  cost of capital; NPV 
D)  IRR; cost of capital

Question 6

Which of the following is NOT true regarding behavioral observations of firms making a decision to invest internationally?

Accepted Answer

A)  MNEs initially invest in countries with a similar "national psychic." 
B)  Firms eventually take greater risks in terms of the national psychic of countries in which they invest. 
C)  Initial investments tend to be much larger than subsequent ones. 
D)  All of the above have been observed.

Question 7

A number of institutional services provide updated country risk ratings on a regular basis. This is an example of micro-risk information for MNEs using this data.

Accepted Answer

A) True 
 B)False

Question 8

The OLI paradigm is an attempt to create a framework to explain why MNEs choose ________ rather than some other form of international venture.

Accepted Answer

A)  licensing 
B)  joint ventures 
C)  foreign direct investment 
D)  strategic alliances

Question 9

Joint ventures are a more common FDI than wholly owned subsidiaries.

Accepted Answer

A) True 
 B)False

Question 10

A/An ________ would be an example of an internalization advantage for an MNE.

Accepted Answer

A)  patent 
B)  economy of scale 
C)  unique source of raw materials 
D)  possession of proprietary information

Question 11

________ is a type of political risk that OPIC does NOT cover.

Accepted Answer

A)  Inconvertibility 
B)  Expropriation 
C)  War 
D)  OPIC covers all of the above.

Question 12

Blocked funds are cash flows that:

Accepted Answer

A)  come in regular intervals in standardized amounts or blocks. 
B)  have been restricted in transfer out of a local country. 
C)  come from a certain sector or region of the world. 
D)  none of the above

Question 13

In deciding whether to invest abroad, management must first determine whether the firm has a sustainable competitive advantage that enables it to compete effectively in the home market. The competitive advantage must be:

Accepted Answer

A)  firm specific. 
B)  not easily copied. 
C)  in a transferable form. 
D)  all of the above

Question 14

Which of the following is NOT an advantage to exporting goods to reach international markets rather than entering into some form of FDI?

Accepted Answer

A)  fewer political risks 
B)  greater agency costs 
C)  lower front-end investment 
D)  All of the above are advantages.

Question 15

Which of the following is an advantage to exporting goods to reach international markets rather than entering into some form of FDI?

Accepted Answer

A)  fewer agency costs 
B)  fewer direct advantages from research and development 
C)  a greater risk of losing markets to copycat goods producers 
D)  an inability to exploit R&D as effectively as if also invested abroad

Question 16

Which of the following is NOT an example of a country-specific risk?

Accepted Answer

A)  transfer risk 
B)  war and ethnic strife 
C)  cultural and religious heritage 
D)  All of the above are examples of country-specific risk.

Question 17

Greenfield investments are typically ________ and ________ than cross-border acquisition.

Accepted Answer

A)  slower; more uncertain 
B)  faster; of greater certainty 
C)  slower; of greater certainty 
D)  faster; more uncertain

Question 18

A/An ________ would be an example of an owner-specific advantage for an MNE.

Accepted Answer

A)  patent 
B)  economy of scale 
C)  economy of scope 
D)  all of the above

Question 19

Economists have observed that firms tend to invest first in countries that are too far distant in psychic distance (similar cultural, legal, and institutional environment).

Accepted Answer

A) True 
 B)False

Question 20

Transnationals are firms that have operations in more than one country and conduct their business through branches, foreign subsidiaries, or joint ventures with host country firms.

Accepted Answer

A) True 
 B)False

Exam 17: Foreign Direct Investment and Political Risk

A strongly competitive home market tends to dull the competitive advantage relative to firms located in less competitive home markets.

Local partners in a foreign country and in a joint venture with an MNE are likely to make decisions that maximize the value of the subsidiary. Such actions probably will not maximize the value of the entire firm.

As a general rule, the decision about where to invest abroad for the first time is the same as the decision about where to reinvest abroad.

A ________ is a shared ownership in a foreign business.

With licensing the is likely to be lower than with FDI because of lower profits; however, the is likely to be higher due to a greater return per dollar invested.

Which of the following is NOT true regarding behavioral observations of firms making a decision to invest internationally?

A number of institutional services provide updated country risk ratings on a regular basis. This is an example of micro-risk information for MNEs using this data.

The OLI paradigm is an attempt to create a framework to explain why MNEs choose ________ rather than some other form of international venture.

Joint ventures are a more common FDI than wholly owned subsidiaries.

A/An ________ would be an example of an internalization advantage for an MNE.

________ is a type of political risk that OPIC does NOT cover.

Blocked funds are cash flows that:

In deciding whether to invest abroad, management must first determine whether the firm has a sustainable competitive advantage that enables it to compete effectively in the home market. The competitive advantage must be:

Which of the following is NOT an advantage to exporting goods to reach international markets rather than entering into some form of FDI?

Which of the following is an advantage to exporting goods to reach international markets rather than entering into some form of FDI?

Which of the following is NOT an example of a country-specific risk?

Greenfield investments are typically and than cross-border acquisition.

A/An ________ would be an example of an owner-specific advantage for an MNE.

Economists have observed that firms tend to invest first in countries that are too far distant in psychic distance (similar cultural, legal, and institutional environment).

Transnationals are firms that have operations in more than one country and conduct their business through branches, foreign subsidiaries, or joint ventures with host country firms.