Question 1

When a firm holds assets in many countries,

Accepted Answer

A) the firm's cash flows are internationally hedged. 
B) thus, shareholders of the firm can indirectly benefit from international diversification even if they are not directly holding foreign shares. 
C) thus, shareholders of the firm can directly benefit from international diversification even if they are not directly holding foreign shares. 
D) none of the above 
A) the firm's cash flows are internationally hedged. 
B) thus, shareholders of the firm can indirectly benefit from international diversification even if they are not directly holding foreign shares. 
C) thus, shareholders of the firm can directly benefit from international diversification even if they are not directly holding foreign shares. 
D) none of the above

Question 2

Labor services in a country can be severely underpriced relative to its productivity

Accepted Answer

A) because workers are not allowed to freely move across national boundaries to seek higher wages. 
B) because among all factor markets, the labor market is the most imperfect. 
C) because workers may choose to not move across national boundaries to seek higher wages due to the cultural differences. 
D) all of the above 
A) because workers are not allowed to freely move across national boundaries to seek higher wages. 
B) because among all factor markets, the labor market is the most imperfect. 
C) because workers may choose to not move across national boundaries to seek higher wages due to the cultural differences. 
D) all of the above

Question 3

During the five-year period 2004-2008,

Accepted Answer

A) China received the largest amount of FDI inflows. 
B) India received the largest amount of FDI inflows. 
C) Mexico received the largest amount of FDI inflows. 
D) the United States received the largest amount of FDI inflows. 
A) China received the largest amount of FDI inflows. 
B) India received the largest amount of FDI inflows. 
C) Mexico received the largest amount of FDI inflows. 
D) the United States received the largest amount of FDI inflows.

Question 4

Alternatives to firms locating production overseas include

Accepted Answer

A) exporting from the home country. 
B) licensing production to a local firm in the host country. 
C) ignoring the foreign market. 
D) all of the above 
A) exporting from the home country. 
B) licensing production to a local firm in the host country. 
C) ignoring the foreign market. 
D) all of the above

Question 5

Operational risk refers to the risk which arises from the uncertainty about

Accepted Answer

A) the host country's policies affecting the local operations of an MNC. 
B) the host country's policy regarding ownership and control of local operations. 
C) cross-border flows of capital, payment, know-how, and the like. 
D) none of the above 
A) the host country's policies affecting the local operations of an MNC. 
B) the host country's policy regarding ownership and control of local operations. 
C) cross-border flows of capital, payment, know-how, and the like. 
D) none of the above

Question 6

Cross-border acquisition involves

Accepted Answer

A) building new production facilities in a foreign country. 
B) buying existing foreign business. 
C) both a) and b) 
D) none of the above 
A) building new production facilities in a foreign country. 
B) buying existing foreign business. 
C) both a) and b) 
D) none of the above

Question 7

An increase in political risk can be managed by

Accepted Answer

A) adjusting a foreign investment project's NPV by either reducing its expected cash flows, or by increasing the cost of capital. 
B) forming joint venture with a local company. 
C) purchase insurance against the hazard of political risk. 
D) all of the above 
A) adjusting a foreign investment project's NPV by either reducing its expected cash flows, or by increasing the cost of capital. 
B) forming joint venture with a local company. 
C) purchase insurance against the hazard of political risk. 
D) all of the above

Question 8

MNCs may undertake overseas investment projects in a foreign country,despite the fact that local firms may enjoy inherent advantages.This implies that

Accepted Answer

A) MNCs are making a mistake in this case and will have to eventually withdraw. 
B) MNCs should have significant advantages over local firms such as comparative advantages due to intangible assets. 
C) the local firms will not have to compete due to their inherent advantages over the foreigners. 
D) none of the above 
A) MNCs are making a mistake in this case and will have to eventually withdraw. 
B) MNCs should have significant advantages over local firms such as comparative advantages due to intangible assets. 
C) the local firms will not have to compete due to their inherent advantages over the foreigners. 
D) none of the above

Question 9

Many MNCs involved in extractive/natural resources industries

Accepted Answer

A) tend to directly own oil fields, mine deposits, and forests. 
B) tend to lease their oil fields, mine deposits, and forests. 
C) tend to partner with local firms, leveraging their intangible assets. 
D) none of the above 
A) tend to directly own oil fields, mine deposits, and forests. 
B) tend to lease their oil fields, mine deposits, and forests. 
C) tend to partner with local firms, leveraging their intangible assets. 
D) none of the above

Question 10

Mergers and acquisitions are a popular mode of investment for firms wishing to protect,consolidate and advance their global competitive positions.Examples include,

Accepted Answer

A) selling off divisions that fall outside the scope of their core competence. 
B) acquiring strategic assets that reduce their competitiveness. 
C) firms can better leverage their intangible assets and on a larger scale through licensing. 
D) none of the above 
A) selling off divisions that fall outside the scope of their core competence. 
B) acquiring strategic assets that reduce their competitiveness. 
C) firms can better leverage their intangible assets and on a larger scale through licensing. 
D) none of the above

Question 11

More than fifty percent of FDI in dollar terms

Accepted Answer

A) takes the form of cross-border mergers and acquisitions. 
B) takes the form of Greenfield investment. 
C) is initiated by governments. 
D) none of the above 
A) takes the form of cross-border mergers and acquisitions. 
B) takes the form of Greenfield investment. 
C) is initiated by governments. 
D) none of the above

Question 12

According to a recent UN survey,the world FDI stock grew at what rate relative to worldwide exports of goods and services?

Accepted Answer

A) The world FDI stock grew twice as fast as worldwide exports of goods and services. 
B) The world FDI stock grew at the same rate as worldwide exports of goods and services. 
C) The world FDI stock grew half as fast as worldwide exports of goods and services. 
D) None of the above 
A) The world FDI stock grew twice as fast as worldwide exports of goods and services. 
B) The world FDI stock grew at the same rate as worldwide exports of goods and services. 
C) The world FDI stock grew half as fast as worldwide exports of goods and services. 
D) None of the above

Question 13

The third most important host country for FDI is

Accepted Answer

A) the United States. 
B) Japan. 
C) China. 
D) Mexico. 
A) the United States. 
B) Japan. 
C) China. 
D) Mexico.

Question 14

In 1992,the Enron Development Corporation,a subsidiary of the Houston-based energy company,signed a contract to build the largest-ever power plant in India,requiring a total investment of $2.8 billion.After Enron had spent nearly $300 million,the project was canceled by Hindu nationalist politicians in the Maharashtra state where the plant was to be built.Which of the following is true?

Accepted Answer

A) Subsequently, Maharashtra invited Enron to renegotiate its contract. 
B) The lack of an effective means of enforcing contracts in a foreign country is clearly a major source of political risk associated with FDI. 
C) In an effort to pressure Maharashtra to reverse its decision, Enron "pushed like hell" the U.S.Energy Department to make a statement in June 1995 to the effect that canceling the Enron deal could adversely affect other power projects.The statement only compounded the situation.The BJP politicians immediately criticized the statement as an attempt by Washington to bully India. 
D) All of the above 
A) Subsequently, Maharashtra invited Enron to renegotiate its contract. 
B) The lack of an effective means of enforcing contracts in a foreign country is clearly a major source of political risk associated with FDI. 
C) In an effort to pressure Maharashtra to reverse its decision, Enron "pushed like hell" the U.S.Energy Department to make a statement in June 1995 to the effect that canceling the Enron deal could adversely affect other power projects.The statement only compounded the situation.The BJP politicians immediately criticized the statement as an attempt by Washington to bully India. 
D) All of the above

Question 15

Labor services in a country might be underpriced relative to productivity because

Accepted Answer

A) workers are not allowed to freely move across national boundaries to seek higher wages. 
B) some countries do a bad job of educating their work force, consequently they are not very productive. 
C) in some countries there is a shortage of capital investment. 
D) all of the above are equally important 
A) workers are not allowed to freely move across national boundaries to seek higher wages. 
B) some countries do a bad job of educating their work force, consequently they are not very productive. 
C) in some countries there is a shortage of capital investment. 
D) all of the above are equally important

Question 16

One particular type of political risk that MNCs and investors may face is corruption associated with the abuse of public office for private benefits.

Accepted Answer

A) Investors may often encounter demands for bribes from politicians and government officials for contracts and smooth bureaucratic processes. 
B) If companies refuse to make grease payments, they may lose business opportunities or face difficult bureaucratic red tape. 
C) They may risk violating laws or being embarrassed when the payments are discovered and reported in the media. 
D) All of the above 
A) Investors may often encounter demands for bribes from politicians and government officials for contracts and smooth bureaucratic processes. 
B) If companies refuse to make grease payments, they may lose business opportunities or face difficult bureaucratic red tape. 
C) They may risk violating laws or being embarrassed when the payments are discovered and reported in the media. 
D) All of the above

Question 17

In a study of the effect of international acquisitions on the stock prices of U.S.firms.U.S.acquiring firms with information-based intangible assets experience a significantly positive stock price reaction upon foreign acquisition.

Accepted Answer

A) This is consistent with the finding that the market value of the firm is positively related to its multinationality because of the firm's intangible assets, such as R&D capabilities, with public good nature. 
B) It is not the multinationality per se that contributes to the firm's value. 
C) Their empirical findings support the (forward-) internalization theory of FDI. 
D) All of the above 
A) This is consistent with the finding that the market value of the firm is positively related to its multinationality because of the firm's intangible assets, such as R&D capabilities, with public good nature. 
B) It is not the multinationality per se that contributes to the firm's value. 
C) Their empirical findings support the (forward-) internalization theory of FDI. 
D) All of the above

Question 18

In 1992,the Enron Development Corporation,a subsidiary of the Houston-based energy company,signed a contract to build the largest-ever power plant in India,requiring a total investment of $2.8 billion.After Enron had spent nearly $300 million,the project was canceled by Hindu nationalist politicians in the Maharashtra state where the plant was to be built.Which of the following is true?

Accepted Answer

A) Upon the news release of the project cancellation, Enron's share price fell immediately by about 10 percent. 
B) In the process of structuring the deal, Enron made a profound political miscalculation: Instead of waiting for the next election results, Enron rushed to close the deal and began construction, apparently believing that a new government would find it difficult to unwind the deal when construction was already under way. 
C) Enron had the last laugh, however when they went bankrupt and left the power plant unfinished. 
D) All of the above 
A) Upon the news release of the project cancellation, Enron's share price fell immediately by about 10 percent. 
B) In the process of structuring the deal, Enron made a profound political miscalculation: Instead of waiting for the next election results, Enron rushed to close the deal and began construction, apparently believing that a new government would find it difficult to unwind the deal when construction was already under way. 
C) Enron had the last laugh, however when they went bankrupt and left the power plant unfinished. 
D) All of the above

Question 19

Some of the risks that a U.S.based MNC can encounter in its foreign investments are: (i)- an increase in the cost of borrowing due to a rise in interest rates
(ii)- increase in inflation rates
(iii)- dumping
(iv)- unfair competition by local companies
(v)- inconvertibility of foreign currencies
(vi)- expropriation
(vii)- destruction of properties due to war,revolution,and other violent political events in foreign countries
(viii)- loss of business income due to political violence
In the U.S.,the Overseas Private Investment Corporation (OPIC)offers insurance against which of the above:

Accepted Answer

A) (i), (ii), (iii), and (iv) 
B) (v), (vi), (vii), and (viii) 
C) a) and b) 
D) none of the above 
A) (i), (ii), (iii), and (iv) 
B) (v), (vi), (vii), and (viii) 
C) a) and b) 
D) none of the above

Question 20

Synergistic gains

Accepted Answer

A) are obtained when the acquiring firm is greater in value than the stand-alone valuations of the target firm(s). 
B) can only be obtained by increases in market power. 
C) are obtained when the value of the combined firm is greater than the stand-alone valuations of the individual (acquiring and target) firms. 
D) none of the above 
A) are obtained when the acquiring firm is greater in value than the stand-alone valuations of the target firm(s). 
B) can only be obtained by increases in market power. 
C) are obtained when the value of the combined firm is greater than the stand-alone valuations of the individual (acquiring and target) firms. 
D) none of the above

When a firm holds assets in many countries,

Labor services in a country can be severely underpriced relative to its productivity

During the five-year period 2004-2008,

Alternatives to firms locating production overseas include

Operational risk refers to the risk which arises from the uncertainty about

Cross-border acquisition involves

An increase in political risk can be managed by

MNCs may undertake overseas investment projects in a foreign country,despite the fact that local firms may enjoy inherent advantages.This implies that

Many MNCs involved in extractive/natural resources industries

Mergers and acquisitions are a popular mode of investment for firms wishing to protect,consolidate and advance their global competitive positions.Examples include,

More than fifty percent of FDI in dollar terms

According to a recent UN survey,the world FDI stock grew at what rate relative to worldwide exports of goods and services?

The third most important host country for FDI is

Labor services in a country might be underpriced relative to productivity because

One particular type of political risk that MNCs and investors may face is corruption associated with the abuse of public office for private benefits.

In a study of the effect of international acquisitions on the stock prices of U.S.firms.U.S.acquiring firms with information-based intangible assets experience a significantly positive stock price reaction upon foreign acquisition.

Synergistic gains

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 16: Foreign Direct Investment and Cross-Border Acquisitions

When a firm holds assets in many countries,

Labor services in a country can be severely underpriced relative to its productivity

During the five-year period 2004-2008,

Alternatives to firms locating production overseas include

Operational risk refers to the risk which arises from the uncertainty about

Cross-border acquisition involves

An increase in political risk can be managed by

MNCs may undertake overseas investment projects in a foreign country,despite the fact that local firms may enjoy inherent advantages.This implies that

Many MNCs involved in extractive/natural resources industries

Mergers and acquisitions are a popular mode of investment for firms wishing to protect,consolidate and advance their global competitive positions.Examples include,

More than fifty percent of FDI in dollar terms

According to a recent UN survey,the world FDI stock grew at what rate relative to worldwide exports of goods and services?

The third most important host country for FDI is

Labor services in a country might be underpriced relative to productivity because

One particular type of political risk that MNCs and investors may face is corruption associated with the abuse of public office for private benefits.

In a study of the effect of international acquisitions on the stock prices of U.S.firms.U.S.acquiring firms with information-based intangible assets experience a significantly positive stock price reaction upon foreign acquisition.

Synergistic gains

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters