Question 1

A true MNC,with operations in dozens of different countries

Accepted Answer

A) must effectively manage foreign exchange risk. 
B) can ignore foreign exchange risk since it is diversified. 
C) will pay taxes in only its home county. 
D) none of the above 
A) must effectively manage foreign exchange risk. 
B) can ignore foreign exchange risk since it is diversified. 
C) will pay taxes in only its home county. 
D) none of the above

Question 2

MNC stands for

Accepted Answer

A) Multinational Corporation. 
B) Multi Nationalized Corporation. 
C) Military National Cooperation. 
A) Multinational Corporation. 
B) Multi Nationalized Corporation. 
C) Military National Cooperation.

Question 3

Which state has a comparative advantage in wheat production in Case II?

Accepted Answer

A) South Dakota 
B) North Dakota 
C) Neither state 
A) South Dakota 
B) North Dakota 
C) Neither state

Question 4

An example of a political risk is

Accepted Answer

A) expropriation of assets. 
B) adverse change in tax rules. 
C) the opposition party being elected. 
D) both answers a) and b) are correct. 
A) expropriation of assets. 
B) adverse change in tax rules. 
C) the opposition party being elected. 
D) both answers a) and b) are correct.

Question 5

Which state has a comparative advantage in producing wine in Case II?

Accepted Answer

A) South Dakota 
B) North Dakota 
C) Neither state 
A) South Dakota 
B) North Dakota 
C) Neither state

Question 6

Country A can produce 10 yards of textiles or 6 pounds of food per unit of input.Country B can produce 8 yards of textiles or 5 pounds of food per unit of input.

Accepted Answer

A) Country A is relatively more efficient than Country B in the production of textiles. 
B) Country B is relatively more efficient than Country A in the production of food. 
C) Country A has an absolute advantage over Country B in the production of food and textiles. 
D) all of the above 
A) Country A is relatively more efficient than Country B in the production of textiles. 
B) Country B is relatively more efficient than Country A in the production of food. 
C) Country A has an absolute advantage over Country B in the production of food and textiles. 
D) all of the above

Question 7

While the corporate governance problem is not confined to the United States,

Accepted Answer

A) it can be a much more serious problem in many other parts of the world, where legal protection of shareholders is weak or nonexistent. 
B) it has reached its high point in the United States. 
C) the U.S.legal system, with lawsuits used only as a last resort, ensured that any conflicts of interest will soon be a thing of the past. 
D) none of the above 
A) it can be a much more serious problem in many other parts of the world, where legal protection of shareholders is weak or nonexistent. 
B) it has reached its high point in the United States. 
C) the U.S.legal system, with lawsuits used only as a last resort, ensured that any conflicts of interest will soon be a thing of the past. 
D) none of the above

Question 8

What is the price of beer without trade in Northern Ireland?

Accepted Answer

A) 2 bottles of whiskey = 3 kegs of beer 
B) 5 bottles of whiskey = 12 kegs of beer 
C) 3 bottles of whiskey = 1 keg of beer 
A) 2 bottles of whiskey = 3 kegs of beer 
B) 5 bottles of whiskey = 12 kegs of beer 
C) 3 bottles of whiskey = 1 keg of beer

Question 9

Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso depreciates drastically against the U.S.dollar,as it did in December 1994.This means

Accepted Answer

A) your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall. 
B) your firm will be able to charge more in dollar terms while keeping peso prices stable. 
C) your domestic competitors will enjoy a period of facing little price competition from Mexican imports. 
D) both b) and c) are correct 
A) your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall. 
B) your firm will be able to charge more in dollar terms while keeping peso prices stable. 
C) your domestic competitors will enjoy a period of facing little price competition from Mexican imports. 
D) both b) and c) are correct

Question 10

Recently,financial markets have become highly integrated.This development

Accepted Answer

A) allows investors to diversify their portfolios internationally. 
B) allows minority investors to buy and sell stocks. 
C) has increased the cost of capital for firms. 
D) answers a) and c) are both correct. 
A) allows investors to diversify their portfolios internationally. 
B) allows minority investors to buy and sell stocks. 
C) has increased the cost of capital for firms. 
D) answers a) and c) are both correct.

Question 11

Suppose that Northern Ireland and Southern Ireland each have 1,000 hours of labor per day.Southern workers are paid €1 per day and Northern workers are paid £1 per day.What is the exchange rate associated with an international price of one keg of beer = 1 bottle of whiskey?

Accepted Answer

A) €1.25 = £1 
B) €0.80 = £1 
C) €1 = £1 
D) None of the above 
A) €1.25 = £1 
B) €0.80 = £1 
C) €1 = £1 
D) None of the above

Question 12

The World Trade Organization,WTO,

Accepted Answer

A) has the power to enforce the rules of international trade. 
B) covers agriculture and physical goods, but not services or intellectual property rights. 
C) recently expelled China for human rights violations. 
D) ruled that NAFTA is to be the model for world trade integration. 
A) has the power to enforce the rules of international trade. 
B) covers agriculture and physical goods, but not services or intellectual property rights. 
C) recently expelled China for human rights violations. 
D) ruled that NAFTA is to be the model for world trade integration.

Question 13

A corporation that can source its products in one country,sell them in another country,and raise the funds in a third country

Accepted Answer

A) is a multinational corporation. 
B) is a domestic firm if all of the shareholders are from the same country. 
C) enjoys a built-in hedge against exchange rate risk. 
D) enjoys a built-in hedge against political risk. 
A) is a multinational corporation. 
B) is a domestic firm if all of the shareholders are from the same country. 
C) enjoys a built-in hedge against exchange rate risk. 
D) enjoys a built-in hedge against political risk.

Question 14

The comparative advantage argument in free trade

Accepted Answer

A) ignores the cost of readjustment. 
B) is a short-run argument. 
C) only works for two goods at a time. 
D) none of the above 
A) ignores the cost of readjustment. 
B) is a short-run argument. 
C) only works for two goods at a time. 
D) none of the above

Question 15

Japan has experienced large trade surpluses.Japanese investors have responded to this by

Accepted Answer

A) liquidating their positions in stocks to buy dollar denominated bonds. 
B) investing heavily in U.S.and other foreign financial markets. 
C) lobbying the U.S.government to depreciate its currency. 
D) lobbying the Japanese government to allow the yen to appreciate. 
A) liquidating their positions in stocks to buy dollar denominated bonds. 
B) investing heavily in U.S.and other foreign financial markets. 
C) lobbying the U.S.government to depreciate its currency. 
D) lobbying the Japanese government to allow the yen to appreciate.

Question 16

Deregulated financial markets and heightened competition in financial services provided an environment for financial innovations that resulted in the introduction of various instruments.Examples of these innovative instruments include

Accepted Answer

A) currency futures and options, foreign stock index futures and options. 
B) multicurrency bonds. 
C) international mutual funds, country funds, exchange traded funds. 
D) all of the above 
A) currency futures and options, foreign stock index futures and options. 
B) multicurrency bonds. 
C) international mutual funds, country funds, exchange traded funds. 
D) all of the above

Question 17

Although the world economy is much more integrated today than was the case 10 or 20 years ago,a variety of barriers still hamper free movements of people,goods,services,and capital across national boundaries.These barriers include

Accepted Answer

A) legal restrictions. 
B) excessive transportation costs. 
C) information asymmetry. 
D) all of the above 
A) legal restrictions. 
B) excessive transportation costs. 
C) information asymmetry. 
D) all of the above

Question 18

When individual investors become aware of overseas investment opportunities and are willing to diversify their portfolios internationally,

Accepted Answer

A) they trade one market imperfection, information asymmetry, for another, exchange rate risk. 
B) they benefit from an expanded opportunity set. 
C) they should not bother to read or to understand the prospectus, since it's probably written in a foreign language. 
D) they should invest only in dollars or euros. 
A) they trade one market imperfection, information asymmetry, for another, exchange rate risk. 
B) they benefit from an expanded opportunity set. 
C) they should not bother to read or to understand the prospectus, since it's probably written in a foreign language. 
D) they should invest only in dollars or euros.

Question 19

The goal of shareholder wealth maximization

Accepted Answer

A) is not appropriate for non-U.S.business firms. 
B) means that all business decisions and investments that a firm makes are done for the purpose of making the owners of the firm better off financially. 
C) is a sub-objective the firm should attempt to achieve after the objective of customer satisfaction is met. 
D) is in conflict with the privatization process taking place in third-world countries. 
A) is not appropriate for non-U.S.business firms. 
B) means that all business decisions and investments that a firm makes are done for the purpose of making the owners of the firm better off financially. 
C) is a sub-objective the firm should attempt to achieve after the objective of customer satisfaction is met. 
D) is in conflict with the privatization process taking place in third-world countries.

Question 20

Which state has an absolute advantage in producing beer in Case I?

Accepted Answer

A) South Dakota 
B) North Dakota 
C) Neither state 
A) South Dakota 
B) North Dakota 
C) Neither state

Exam 1: Globalization and the Multinational Firm

A true MNC,with operations in dozens of different countries

MNC stands for

Which state has a comparative advantage in wheat production in Case II?

An example of a political risk is

Which state has a comparative advantage in producing wine in Case II?

Country A can produce 10 yards of textiles or 6 pounds of food per unit of input.Country B can produce 8 yards of textiles or 5 pounds of food per unit of input.

While the corporate governance problem is not confined to the United States,

What is the price of beer without trade in Northern Ireland?

Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso depreciates drastically against the U.S.dollar,as it did in December 1994.This means

Recently,financial markets have become highly integrated.This development

Suppose that Northern Ireland and Southern Ireland each have 1,000 hours of labor per day.Southern workers are paid €1 per day and Northern workers are paid £1 per day.What is the exchange rate associated with an international price of one keg of beer = 1 bottle of whiskey?

The World Trade Organization,WTO,

A corporation that can source its products in one country,sell them in another country,and raise the funds in a third country

The comparative advantage argument in free trade

Japan has experienced large trade surpluses.Japanese investors have responded to this by

Deregulated financial markets and heightened competition in financial services provided an environment for financial innovations that resulted in the introduction of various instruments.Examples of these innovative instruments include

Although the world economy is much more integrated today than was the case 10 or 20 years ago,a variety of barriers still hamper free movements of people,goods,services,and capital across national boundaries.These barriers include

When individual investors become aware of overseas investment opportunities and are willing to diversify their portfolios internationally,

The goal of shareholder wealth maximization

Which state has an absolute advantage in producing beer in Case I?

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

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

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