Question 1

Why might a multinational firm depend on foreign subsidiaries for the sale of its finished goods?

Accepted Answer

A)  In order to control its distribution facilities. 
B)  In order to provide specialised after-sale services. 
C)  In order to ensure a reliable flow of information between the firm and its customers. 
D)  All the given answers. 
A)  In order to control its distribution facilities. 
B)  In order to provide specialised after-sale services. 
C)  In order to ensure a reliable flow of information between the firm and its customers. 
D)  All the given answers.

Question 2

The cost of capital is lower for multinational firms because:

Accepted Answer

A)  they are larger and as a result receive preferential treatment by creditors. 
B)  they have better access to international capital markets. 
C)  they are exposed to foreign exchange risk. 
D)  both they are larger and as a result receive preferential treatment by creditors and they have better . access to international capital markets. 
A)  they are larger and as a result receive preferential treatment by creditors. 
B)  they have better access to international capital markets. 
C)  they are exposed to foreign exchange risk. 
D)  both they are larger and as a result receive preferential treatment by creditors and they have better . access to international capital markets.

Question 3

The Weighted Average Cost of Capital:

Accepted Answer

A)  equals the sum of the cost of equity and the cost of debt, weighted by their respective shares of the project's capital. 
B)  equals the product of the cost of equity and the cost of debt, weighted by their respective shares of the project's capital. 
C)  is often used as the discount value in calculating the net present value of a project. 
D) both equals the sum of the cost of equity and the cost of debt, weighted by their respective shares of the project's capital and is often used as the discount value in calculating the net present value of a project. 
A)  equals the sum of the cost of equity and the cost of debt, weighted by their respective shares of the project's capital. 
B)  equals the product of the cost of equity and the cost of debt, weighted by their respective shares of the project's capital. 
C)  is often used as the discount value in calculating the net present value of a project. 
D) both equals the sum of the cost of equity and the cost of debt, weighted by their respective shares of the project's capital and is often used as the discount value in calculating the net present value of a project.

Question 4

The growth of foreign direct investment in the post-World War Two period is due to:

Accepted Answer

A)  improvement in transport and communications. 
B)  the need to finance reconstruction projects in Japan and Europe. 
C)  U.S. tax law which favoured foreign investment. 
D)  all of the given answers. 
A)  improvement in transport and communications. 
B)  the need to finance reconstruction projects in Japan and Europe. 
C)  U.S. tax law which favoured foreign investment. 
D)  all of the given answers.

Question 5

How might country risk be incorporated into the capital budgeting process?

Accepted Answer

A)  By adjusting expected cash flows for losses due to country risk. 
B)  By estimating the value of an insurance contract designed to reimburse all losses resulting from a country risk event. 
C)  By pricing the country risk using option pricing theory. 
D)  Any of the given answers. 
A)  By adjusting expected cash flows for losses due to country risk. 
B)  By estimating the value of an insurance contract designed to reimburse all losses resulting from a country risk event. 
C)  By pricing the country risk using option pricing theory. 
D)  Any of the given answers.

Question 6

A project with a net present value equal to zero:

Accepted Answer

A)  is not worth considering. 
B)  has an internal rate of return equal to its discount rate. 
C)  has an internal rate of return equal to the project's cost of capital. 
D)  both has an internal rate of return equal to its discount rate and has an internal rate of return equal to the project's cost of capital. 
A)  is not worth considering. 
B)  has an internal rate of return equal to its discount rate. 
C)  has an internal rate of return equal to the project's cost of capital. 
D)  both has an internal rate of return equal to its discount rate and has an internal rate of return equal to the project's cost of capital.

Question 7

Which of the following was not a reason for the rebound of FDI in the 1990s?

Accepted Answer

A)  German re-unification 
B)  The increasing number of multinationals 
C)  The increasing sectoral diversity of FDI 
D)  The increasing number of countries participating in this activity 
A)  German re-unification 
B)  The increasing number of multinationals 
C)  The increasing sectoral diversity of FDI 
D)  The increasing number of countries participating in this activity

Question 8

The differential rates of return hypothesis assumes:

Accepted Answer

A)  risk aversion. 
B)  risk neutrality. 
C)  UIP. 
D)  Ex ante PPP. 
A)  risk aversion. 
B)  risk neutrality. 
C)  UIP. 
D)  Ex ante PPP.

Question 9

Which of the following factors are important for the evaluation of FDI projects?

Accepted Answer

A)  Future inflation. 
B)  Restrictions on remittances. 
C)  Blocked funds. 
D)  All of the given answers. 
A)  Future inflation. 
B)  Restrictions on remittances. 
C)  Blocked funds. 
D)  All of the given answers.

Question 10

Trade-oriented FDI:

Accepted Answer

A)  generates an excess demand for imports at the original terms of trade. 
B)  generates an excess demand for exports at the original terms of trade. 
C)  leads to welfare improvement in the host country only. 
D)  implies investment in industries in which the source country has a comparative advantage. 
A)  generates an excess demand for imports at the original terms of trade. 
B)  generates an excess demand for exports at the original terms of trade. 
C)  leads to welfare improvement in the host country only. 
D)  implies investment in industries in which the source country has a comparative advantage.

Question 11

Firms, which have FDI projects in high-inflation countries:

Accepted Answer

A)  tend to have low required rates of return. 
B)  can ignore inflation and changes in exchange rates because they cancel out each other. 
C)  view the projects less favourably than their subsidiaries. 
D)  almost invariably obtain negative net present values from these projects. 
A)  tend to have low required rates of return. 
B)  can ignore inflation and changes in exchange rates because they cancel out each other. 
C)  view the projects less favourably than their subsidiaries. 
D)  almost invariably obtain negative net present values from these projects.

Question 12

It may be preferable to adjust for country risk:

Accepted Answer

A)  by adjusting cash flows. 
B)  adjusting the discount rate. 
C)  by adjusting the pay-back period. 
D)  none of the given answers. 
A)  by adjusting cash flows. 
B)  adjusting the discount rate. 
C)  by adjusting the pay-back period. 
D)  none of the given answers.

Question 13

Factors which need to be considered in relation to transfer pricing include:

Accepted Answer

A)  relative taxation rates of different countries. 
B)  global regulation. 
C)  management incentives and performance 
D)  all the given answers. 
A)  relative taxation rates of different countries. 
B)  global regulation. 
C)  management incentives and performance 
D)  all the given answers.

Question 14

Political risk arises from:

Accepted Answer

A)  changes in the constitution. 
B)  elections resulting in hung parliaments. 
C)  election wins by right-wing parties. 
D)  unexpected changes in the legal and fiscal frameworks. 
A)  changes in the constitution. 
B)  elections resulting in hung parliaments. 
C)  election wins by right-wing parties. 
D)  unexpected changes in the legal and fiscal frameworks.

Question 15

The accounting rate of return is not appropriate for evaluating direct investment projects because it:

Accepted Answer

A)  is based on double-entry bookkeeping. 
B)  does not take into account the effect of inflation. 
C)  is based on profit which is an accounting concept. 
D)  is not based on the principle of accruals. 
A)  is based on double-entry bookkeeping. 
B)  does not take into account the effect of inflation. 
C)  is based on profit which is an accounting concept. 
D)  is not based on the principle of accruals.

Question 16

The payback period is not an appropriate criterion for evaluating direct investment projects because:

Accepted Answer

A)  it ignores the time value of money. 
B)  it overlooks cash flows arising after the payback period. 
C)  it is based on profit. 
D)  it both ignores the time value of money and it overlooks cash flows arising after the payback period. 
A)  it ignores the time value of money. 
B)  it overlooks cash flows arising after the payback period. 
C)  it is based on profit. 
D)  it both ignores the time value of money and it overlooks cash flows arising after the payback period.

Question 17

For the purpose of distinguishing, in the Balance of Payments statistics, between direct investment and portfolio investment the equity threshold used to imply significant control is:

Accepted Answer

A)  higher in France, Germany and the UK than in the US and Australia. 
B)  lower in France, Germany and the UK than in the US and Australia. 
C)  higher in Belgium and the Netherlands than in the US and Australia. 
D)  lower in Belgium and the Netherlands than in the US and Australia. 
A)  higher in France, Germany and the UK than in the US and Australia. 
B)  lower in France, Germany and the UK than in the US and Australia. 
C)  higher in Belgium and the Netherlands than in the US and Australia. 
D)  lower in Belgium and the Netherlands than in the US and Australia.

Question 18

According to the eclectic theory, FDI is determined by the following advantages, except:

Accepted Answer

A)  financial advantages. 
B)  ownership advantages. 
C)  internalisation advantages. 
D)  locational advantages. 
A)  financial advantages. 
B)  ownership advantages. 
C)  internalisation advantages. 
D)  locational advantages.

Question 19

Which of the following theories of FDI assumes perfect markets?

Accepted Answer

A)  The internalisation hypothesis 
B)  The location hypothesis 
C)  The diversification hypothesis 
D)  The eclectic theory 
A)  The internalisation hypothesis 
B)  The location hypothesis 
C)  The diversification hypothesis 
D)  The eclectic theory

Why might a multinational firm depend on foreign subsidiaries for the sale of its finished goods?

The cost of capital is lower for multinational firms because:

The Weighted Average Cost of Capital:

The growth of foreign direct investment in the post-World War Two period is due to:

How might country risk be incorporated into the capital budgeting process?

A project with a net present value equal to zero:

Which of the following was not a reason for the rebound of FDI in the 1990s?

The differential rates of return hypothesis assumes:

Which of the following factors are important for the evaluation of FDI projects?

Trade-oriented FDI:

Firms, which have FDI projects in high-inflation countries:

It may be preferable to adjust for country risk:

Factors which need to be considered in relation to transfer pricing include:

Political risk arises from:

The accounting rate of return is not appropriate for evaluating direct investment projects because it:

The payback period is not an appropriate criterion for evaluating direct investment projects because:

For the purpose of distinguishing, in the Balance of Payments statistics, between direct investment and portfolio investment the equity threshold used to imply significant control is:

According to the eclectic theory, FDI is determined by the following advantages, except:

Which of the following theories of FDI assumes perfect markets?

An Overview

The Foreign Exchange Market

The Balance of Payments and Effective Exchange Rate

Exchange Rate Determination

The International Monetary System and Exchange Rate Arrangements

The Eurocurrency Market and International Banking

International Banking Regulation and Basel Accords

Exchange Rate Forecasting, Technical Analysis and Trading Rules

Currency Futures and Swaps

Currency Options

International Arbitarage

Foreign Exchange Risk and Exposure

Foreign Exchange Risk Management

International Short-Term Financing and Investment

International Long-Term Financing and Investment

Filters

Exam 16: Foreign Direct Investment and International

Why might a multinational firm depend on foreign subsidiaries for the sale of its finished goods?

The cost of capital is lower for multinational firms because:

The Weighted Average Cost of Capital:

The growth of foreign direct investment in the post-World War Two period is due to:

How might country risk be incorporated into the capital budgeting process?

A project with a net present value equal to zero:

Which of the following was not a reason for the rebound of FDI in the 1990s?

The differential rates of return hypothesis assumes:

Which of the following factors are important for the evaluation of FDI projects?

Trade-oriented FDI:

Firms, which have FDI projects in high-inflation countries:

It may be preferable to adjust for country risk:

Factors which need to be considered in relation to transfer pricing include:

Political risk arises from:

The accounting rate of return is not appropriate for evaluating direct investment projects because it:

The payback period is not an appropriate criterion for evaluating direct investment projects because:

For the purpose of distinguishing, in the Balance of Payments statistics, between direct investment and portfolio investment the equity threshold used to imply significant control is:

According to the eclectic theory, FDI is determined by the following advantages, except:

Which of the following theories of FDI assumes perfect markets?

An Overview

The Foreign Exchange Market

The Balance of Payments and Effective Exchange Rate

Exchange Rate Determination

The International Monetary System and Exchange Rate Arrangements

The Eurocurrency Market and International Banking

International Banking Regulation and Basel Accords

Exchange Rate Forecasting, Technical Analysis and Trading Rules

Currency Futures and Swaps

Currency Options

International Arbitarage

Foreign Exchange Risk and Exposure

Foreign Exchange Risk Management

International Short-Term Financing and Investment

International Long-Term Financing and Investment

Filters