Question 1

Assume a U.S. firm initiates direct foreign investment in Italy. If the euro is expected to depreciate against the dollar, the dollar value of earnings remitted to the parent should ____. The parent may request that the subsidiary ____.

Accepted Answer

A)  increase; postpone remitting earnings until the euro weakens 
B)  decrease; postpone remitting earnings until the euro weakens 
C)  decrease; remit earnings immediately before the euro weakens 
D)  increase; remit earnings immediately before the euro weakens

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)  regulatory barriers. 
B)  industry barriers. 
C)  protective barriers. 
D)  "Red Tape" barriers.

Question 4

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 5

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

Accepted Answer

A)  Attracting new sources of demand 
B)  Fully benefiting from economies of scale 
C)  Exploiting monopolistic advantages 
D)  Entering profitable markets

Question 6

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.

Question 7

The ____ a project's variability in cash flows, and the ____ the positive correlation between the project's cash flow and the MNC's cash flow, the lower the risk of the project.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; lower 
D)  lower; higher

Question 8

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

Accepted Answer

A)  protective barriers. 
B)  "red tape" barriers. 
C)  ethical differences. 
D)  regulatory barriers.

Question 9

To fully benefit from use of foreign raw materials:

Accepted Answer

A)  establish a subsidiary in a market where raw materials are cheap and accessible. 
B)  sell the finished product to countries where the raw materials are more expensive. 
C)  establish a subsidiary in a new market that can sell products produces elsewhere. 
D)  A and B

Question 10

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:

Accepted Answer

A)  would compete with local firms of the host country. 
B)  would produce a good not currently available in the host country. 
C)  would produce a good and export it to other countries. 
D)  B and C

Question 11

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

Question 12

When a firm analyzes the feasibility of a project, it should consider the:

Accepted Answer

A)  variability of the project's cash flow. 
B)  correlation of the project's cash flow relative to the prevailing cash flows of the MNC. 
C)  A and B 
D)  none of the above

Question 13

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

Accepted Answer

A)  Japanese exporters can increase American sales by shifting operations from their British subsidiaries to Japan. 
B)  British exporters can increase American sales by shifting operations from their Japanese subsidiaries to Britain. 
C)  American exporters can increase sales to Japan by shifting operations from Japanese subsidiaries to American subsidiaries. 
D)  B and C

Question 14

Which of the following is not a cost-related motive of direct foreign investment?

Accepted Answer

A)  International diversification. 
B)  Low labor costs. 
C)  Land can be purchased at a low price. 
D)  Manufacturing plants can be built for a low price.

Question 15

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.

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

Question 17

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 18

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 ____.

Accepted Answer

A)  higher; large 
B)  higher; small 
C)  lower; small 
D)  Higher; large

Question 19

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 20

MNCs can probably achieve more desirable risk-return characteristics from their project portfolios if they sufficiently diversify among products and geographical markets.

Accepted Answer

A) True 
 B)False

Exam 13: Direct Foreign Investment

Assume a U.S. firm initiates direct foreign investment in Italy. If the euro is expected to depreciate against the dollar, the dollar value of earnings remitted to the parent should . The parent may request that the subsidiary .

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.

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

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 .

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

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

The a project's variability in cash flows, and the the positive correlation between the project's cash flow and the MNC's cash flow, the lower the risk of the project.

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

To fully benefit from use of foreign raw materials:

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:

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

When a firm analyzes the feasibility of a project, it should consider the:

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 a cost-related motive of direct foreign investment?

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

Direct foreign investment would typically be welcomed if:

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.

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 .

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

MNCs can probably achieve more desirable risk-return characteristics from their project portfolios if they sufficiently diversify among products and geographical markets.