Question 1

The host country has more reasons to restrict FDI than does the home country.

Accepted Answer

A) True 
 B)False  False

Question 2

Both external and internal factors affect the operation of an MNE. External factors are outside the immediate control of the firm while internal factors are within the control of the firm. Give examples for both and discuss how they would affect the operations of the multinational enterprise.

Accepted Answer

Some examples of external factors are government policies, political risk, and exchange rate changes between the host country and the home country. Internal factors include firm-specific advantages and transfer pricing. The multinational firm may have to incur costs from external factors. For example, because of competition, the multinational firm may not be able to pass on costs of government regulations to consumers and instead have to accept lower profits. Internal factors such as transfer pricing are within the control of the firm and the firm can use these advantages to increase its profits, for instance, by shifting reported profits to low-tax countries.

Question 3

Suppose a firm wants to expand sales of its product into a foreign country. Should the firm license local firms in the foreign country to use its technologies to produce the product or should it set up a foreign operation that it owns and controls? What factors should the firm consider in taking the decision? When identifying these factors, clearly explain how and why they push the decision toward one or the other of the two available choices.

Accepted Answer

The firm could license one or more foreign firms to use its technologies. By licensing, the firm avoids the inherent disadvantages of establishing and managing its foreign operations. However, there are also disadvantages to licensing independent foreign firms. For instance, the licensee may apply the technology to other activities not covered by the license, or the technology may be leaked out to other competitors if the licensee is not careful. So, there are internalization advantages-advantages for using the technologies only within the firm. To maintain internal use in the foreign location, the firm should consider setting up a foreign operation that it owns and controls.

Question 4

At the end of 2011, most of the United States' foreign direct investment was in:

Accepted Answer

A) the other NAFTA countries. 
B) the developing countries in Asia. 
C) the European Union countries. 
D) the Latin American countries. 
A) the other NAFTA countries. 
B) the developing countries in Asia. 
C) the European Union countries. 
D) the Latin American countries.

Question 5

Financing from the parent company to its foreign affiliates is generally a small percentage of total funding because:

Accepted Answer

A) the returns on such investment are taxed at very high rates. 
B) the parent firm wants to reduce the risks to which its foreign activities are exposed. 
C) most foreign governments have imposed quotas of foreign investment in their domestic economy. 
D) most major home-country governments limit investment in foreign firms by their domestic firms. 
A) the returns on such investment are taxed at very high rates. 
B) the parent firm wants to reduce the risks to which its foreign activities are exposed. 
C) most foreign governments have imposed quotas of foreign investment in their domestic economy. 
D) most major home-country governments limit investment in foreign firms by their domestic firms.

Question 6

Which of the following is an example of Foreign Direct Investment?

Accepted Answer

A) Ford motor company puts $10 million from its pension fund into a mutual fund containing shares of foreign companies. 
B) Dr.Gareau, a French biologist, buys $5,000 worth of shares of Toyota. 
C) Wells Fargo Bank buys $10 million worth of Bank of England T-Bills. 
D) Ford buys a controlling interest in Land Rover, a British automobile company. 
A) Ford motor company puts $10 million from its pension fund into a mutual fund containing shares of foreign companies. 
B) Dr.Gareau, a French biologist, buys $5,000 worth of shares of Toyota. 
C) Wells Fargo Bank buys $10 million worth of Bank of England T-Bills. 
D) Ford buys a controlling interest in Land Rover, a British automobile company.

Question 7

As long as _____ and _____ are low enough, foreign direct investment can be used to reduce total costs by locating different stages of overall production in different countries.

Accepted Answer

A) foreign demand; transport costs 
B) transport costs; trade barriers 
C) trade barriers; domestic demand 
D) domestic taxes; foreign demand 
A) foreign demand; transport costs 
B) transport costs; trade barriers 
C) trade barriers; domestic demand 
D) domestic taxes; foreign demand

Question 8

Analysis of the labor market shows that a receiving country loses economic well-being from migration.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is true of FDI in China?

Accepted Answer

A) FDI inflows in China declined substantially during 2007-2009. 
B) Three-fifths of the FDI into China is in the service sector. 
C) Much of China's FDI has come from the developing countries located close to it. 
D) Foreign affiliated firms account for more than 50 percent of production value added in China. 
A) FDI inflows in China declined substantially during 2007-2009. 
B) Three-fifths of the FDI into China is in the service sector. 
C) Much of China's FDI has come from the developing countries located close to it. 
D) Foreign affiliated firms account for more than 50 percent of production value added in China.

Question 10

One measure that would compensate the sending country for its public investments in emigrants could be a(n):

Accepted Answer

A) tax on sending-country product exports. 
B) subsidy to sending-country product imports. 
C) brain-drain tax. 
D) tax on sending-country affiliates of foreign MNEs. 
A) tax on sending-country product exports. 
B) subsidy to sending-country product imports. 
C) brain-drain tax. 
D) tax on sending-country affiliates of foreign MNEs.

Question 11

The existence of migration costs implies that factor-price-equalization in the labor market is less likely.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is NOT a firm specific advantage of an MNE?

Accepted Answer

A) Patented technology 
B) Marketing capabilities 
C) Superior management technique 
D) Native understanding of local customs 
A) Patented technology 
B) Marketing capabilities 
C) Superior management technique 
D) Native understanding of local customs

Question 13

As some government spending is for true public goods in sending countries, the loss of future tax contributions is likely to be _____ the reduction in future government spending as people migrate from the country.

Accepted Answer

A) larger than 
B) smaller than 
C) equal to 
D) independent of 
A) larger than 
B) smaller than 
C) equal to 
D) independent of

Question 14

How do the characteristics of immigrants influence the effects of immigration on the receiving country? What are the implications for receiving country government policy toward immigration?

Accepted Answer

The types of immigrant workers will affe

Question 15

The figure given below represents the effects in the labor markets due to migration. Here the world has been divided into a high-income "North" (left panel) and a low-income "South" (right panel). Dn and Sn are the labor demand and the labor supply curves in North. Ds and (Sr + Smig) are the labor demand and pre-migration labor supply curves in South. Sr is the post-migration labor supply curve in South. The value c is the cost of migrating.   After the migration, the native employees in North:

Accepted Answer

A) lose welfare given by area 'a'. 
B) gain welfare given by area (a+b). 
C) lose welfare given by area (a+b). 
D) lose welfare given by area (e + f). 
A) lose welfare given by area 'a'. 
B) gain welfare given by area (a+b). 
C) lose welfare given by area (a+b). 
D) lose welfare given by area (e + f).

Question 16

Multinationals typically operate in a market structure that would best be described as:

Accepted Answer

A) an oligopoly. 
B) perfect competition. 
C) inherently disadvantaged. 
D) monopoly. 
A) an oligopoly. 
B) perfect competition. 
C) inherently disadvantaged. 
D) monopoly.

Question 17

Which of the following ways can an MNE adopt to reduce its exposure to political risks in its host country?

Accepted Answer

A) By threatening to cease all exports of its products to the host country 
B) By establishing more than one affiliate in the host country 
C) By equating its physical assets in the host country with its local borrowings 
D) By negotiating with the host country's government to clear off its debts 
A) By threatening to cease all exports of its products to the host country 
B) By establishing more than one affiliate in the host country 
C) By equating its physical assets in the host country with its local borrowings 
D) By negotiating with the host country's government to clear off its debts

Question 18

How can an MNE overcome its inherent disadvantages?

Accepted Answer

A) By borrowing funds from the host country rather than transferring funds from the parent firm 
B) By producing more than two products in which it has comparative advantage 
C) By expanding its operation in more than two host countries 
D) By owning one or more assets that are not owned by its local competitors in the host country 
A) By borrowing funds from the host country rather than transferring funds from the parent firm 
B) By producing more than two products in which it has comparative advantage 
C) By expanding its operation in more than two host countries 
D) By owning one or more assets that are not owned by its local competitors in the host country

Question 19

A multinational enterprise produces a component in the United Kingdom, where the corporate income tax rate is 60 percent. It produces its final product in Taiwan, where the corporate income tax rate is 25 percent. The cost of the component produced in the United Kingdom is $4 per unit. The components can be shipped to Taiwan at almost no cost, and there is no tariff on the component when it is imported into Taiwan. Each unit of the final product requires one unit of the component. Other production costs in Taiwan to complete the final product are $14 per unit. The final product price, when it is sold by the Taiwan affiliate to outside buyers, is $20 per unit. If the goal of the multinational enterprise is to maximize its global after tax profit, which of the following three choices should the controller of the multinational enterprise favor? Why?
a.Charge a transfer price of $4 per unit
b.Charge a transfer price of $5 per unit
c.Charge a transfer price of $6 per unit

Accepted Answer

The multinational enterprise's after-tax

Question 20

Which of the following is true for a multinational enterprise (MNE)?

Accepted Answer

A) Its affiliates usually get nearly all of their total financing from the direct investment flows. 
B) It usually transfers its liabilities to its foreign subsidiaries. 
C) Its domestic tax burden is mostly borne by its foreign affiliates. 
D) It usually provides intangible assets to its affiliates for their usage. 
A) Its affiliates usually get nearly all of their total financing from the direct investment flows. 
B) It usually transfers its liabilities to its foreign subsidiaries. 
C) Its domestic tax burden is mostly borne by its foreign affiliates. 
D) It usually provides intangible assets to its affiliates for their usage.

Exam 15: Multinationals and Migration: International Factor Movements

The host country has more reasons to restrict FDI than does the home country.

Both external and internal factors affect the operation of an MNE. External factors are outside the immediate control of the firm while internal factors are within the control of the firm. Give examples for both and discuss how they would affect the operations of the multinational enterprise.

At the end of 2011, most of the United States' foreign direct investment was in:

Financing from the parent company to its foreign affiliates is generally a small percentage of total funding because:

Which of the following is an example of Foreign Direct Investment?

As long as _____ and _____ are low enough, foreign direct investment can be used to reduce total costs by locating different stages of overall production in different countries.

Analysis of the labor market shows that a receiving country loses economic well-being from migration.

Which of the following is true of FDI in China?

One measure that would compensate the sending country for its public investments in emigrants could be a(n):

The existence of migration costs implies that factor-price-equalization in the labor market is less likely.

Which of the following is NOT a firm specific advantage of an MNE?

As some government spending is for true public goods in sending countries, the loss of future tax contributions is likely to be _____ the reduction in future government spending as people migrate from the country.

How do the characteristics of immigrants influence the effects of immigration on the receiving country? What are the implications for receiving country government policy toward immigration?

Multinationals typically operate in a market structure that would best be described as:

Which of the following ways can an MNE adopt to reduce its exposure to political risks in its host country?

How can an MNE overcome its inherent disadvantages?

Which of the following is true for a multinational enterprise (MNE)?

International Economics Is Different

The Basic Theory Using Demand and Supply

Why Everybody Trades: Comparative Advantage

Trade: Factor Availability and Factor Proportions Are Key

Who Gains and Who Loses From Trade

Scale Economies, Imperfect Competition, and Trade

Growth and Trade Part II: Trade Policy

Analysis of a Tariff

Nontariff Barriers to Imports

Arguments for and Against Protection

Pushing Exports

Trade Blocs and Trade Blocks

Trade and the Environment

Trade Policies for Developing Countries

Payments Among Nations

The Foreign Exchange Market

Forward Exchange and International Financial Investment

What Determines Exchange Rates

Government Policies Toward the Foreign Exchange Market

International Lending and Financial Crises

How Does the Open Macroeconomy Work

Internal and External Balance With Fixed Exchange Rates

Floating Exchange Rates and Internal Balance

National and Global Choices: Floating Rates and the Alternatives

Filters

As long as _ and _ are low enough, foreign direct investment can be used to reduce total costs by locating different stages of overall production in different countries.