Question 1

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 D

Question 2

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. C

Question 3

Trade barriers can arise naturally.Which of the following are natural barriers to trade?

Accepted Answer

A) Transportation costs 
B) Quotas 
C) Tariffs 
D) Transactions costs 
A) Transportation costs 
B) Quotas 
C) Tariffs 
D) Transactions costs A

Question 4

The product life-cycle theory predicts that

Accepted Answer

A) over time the United States switches from an exporting country of new products to an importing country. 
B) over time the United States switches from a comparative advantage in R&D to a service economy. 
C) over time the United States education system maintains the country's dominant position in the world economy. 
D) none of the above 
A) over time the United States switches from an exporting country of new products to an importing country. 
B) over time the United States switches from a comparative advantage in R&D to a service economy. 
C) over time the United States education system maintains the country's dominant position in the world economy. 
D) none of the above

Question 5

Examples of transfer risk include

Accepted Answer

A) the unexpected imposition of capital controls, inbound or outbound, and withholding taxes on dividend and interest payments. 
B) unexpected changes in environmental policies, sourcing/local content requirements, minimum wage law, and restriction on access to local credit facilities. 
C) restrictions imposed on the maximum ownership share by foreigners, mandatory transfer of ownership to local firms over a certain period of time (fade-out requirements), and the nationalization of local operations of MNCs. 
D) none of the above 
A) the unexpected imposition of capital controls, inbound or outbound, and withholding taxes on dividend and interest payments. 
B) unexpected changes in environmental policies, sourcing/local content requirements, minimum wage law, and restriction on access to local credit facilities. 
C) restrictions imposed on the maximum ownership share by foreigners, mandatory transfer of ownership to local firms over a certain period of time (fade-out requirements), and the nationalization of local operations of MNCs. 
D) none of the above

Question 6

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 7

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

Question 8

In evaluating political risk,experts focus their attention on a set of key factors such as

Accepted Answer

A) the host country's political/government system. 
B) historical records of political parties and their relative strengths. 
C) integration of the host country into the world political/economic system. 
D) all of the above 
A) the host country's political/government system. 
B) historical records of political parties and their relative strengths. 
C) integration of the host country into the world political/economic system. 
D) all of the above

Question 9

Unlike the theory of international trade or the theory of international portfolio investment,

Accepted Answer

A) we do not have a well-developed, comprehensive theory of FDI. 
B) the comprehensive theory of FDI focuses on mean-variance efficiency. 
C) the comprehensive theory of FDI is an arbitrage argument, like interest rate parity. 
D) none of the above 
A) we do not have a well-developed, comprehensive theory of FDI. 
B) the comprehensive theory of FDI focuses on mean-variance efficiency. 
C) the comprehensive theory of FDI is an arbitrage argument, like interest rate parity. 
D) none of the above

Question 10

Why do firms locate production overseas rather than exporting finished goods?

Accepted Answer

A) Shipping costs 
B) Firms seek to extend corporate control overseas 
C) Imperfect factor markets 
D) All of the above 
A) Shipping costs 
B) Firms seek to extend corporate control overseas 
C) Imperfect factor markets 
D) All of the above

Question 11

Severe imperfections in the labor market arise from immobility of workers due to immigration barriers.As a response,firms should consider

Accepted Answer

A) moving to the workers. 
B) moving to countries where labor services are the lowest in absolute terms. 
C) moving to countries where labor services are underpriced relative to productivity. 
D) hiring illegal immigrants. 
A) moving to the workers. 
B) moving to countries where labor services are the lowest in absolute terms. 
C) moving to countries where labor services are underpriced relative to productivity. 
D) hiring illegal immigrants.

Question 12

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 13

Firms that have intangible assets with a public good property tend to invest directly in foreign countries.This is because

Accepted Answer

A) in order to use these assets on a larger scale. 
B) to avoid the misappropriation that may occur while transacting in foreign countries through the market mechanism. 
C) all of the above 
A) in order to use these assets on a larger scale. 
B) to avoid the misappropriation that may occur while transacting in foreign countries through the market mechanism. 
C) all of the above

Question 14

FDI stocks

Accepted Answer

A) are the common shares of multinational companies that invest abroad. 
B) are mutual funds that invest in FDI. 
C) represent the accumulation of previous years' FDI flows. 
D) at the sum total of current year FDI flows. 
A) are the common shares of multinational companies that invest abroad. 
B) are mutual funds that invest in FDI. 
C) represent the accumulation of previous years' FDI flows. 
D) at the sum total of current year FDI flows.

Question 15

Imperfections in the market for intangible assets can also play a major role in motivating firms to undertake cross-border acquisitions.According to the internalization theory,

Accepted Answer

A) cross-border acquisitions may also be motivated by the acquirer's desire to acquire and internalize the target firm's intangible assets. 
B) a firm with intangible assets that have a public good property such as technical and managerial know-how may acquire foreign firms as a platform for using its special assets on a larger scale and, at the same time, avoid the misappropriation that may occur while transacting in foreign markets through a market mechanism. 
C) the internalization thus may proceed forward to internalize the acquirer's assets, or backward to internalize the target's assets. 
D) all of the above 
A) cross-border acquisitions may also be motivated by the acquirer's desire to acquire and internalize the target firm's intangible assets. 
B) a firm with intangible assets that have a public good property such as technical and managerial know-how may acquire foreign firms as a platform for using its special assets on a larger scale and, at the same time, avoid the misappropriation that may occur while transacting in foreign markets through a market mechanism. 
C) the internalization thus may proceed forward to internalize the acquirer's assets, or backward to internalize the target's assets. 
D) all of the above

Question 16

In a push to serve the North American market Samsung,a Korean firm,chose to locate production facilities in Mexico,mainly because

Accepted Answer

A) of lower labor costs in Mexico. 
B) to circumvent trade barriers imposed by NAFTA. 
C) of colder weather in Canada. 
D) none of the above 
A) of lower labor costs in Mexico. 
B) to circumvent trade barriers imposed by NAFTA. 
C) of colder weather in Canada. 
D) none of the above

Question 17

Transfer 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 18

A "Greenfield" investment

Accepted Answer

A) involves soybeans in the spring, corn in the summer. 
B) are generally less politically sensitive than the acquisition of an existing foreign firm. 
C) are generally more politically sensitive than the acquisition of an existing foreign firm. 
D) none of the above 
A) involves soybeans in the spring, corn in the summer. 
B) are generally less politically sensitive than the acquisition of an existing foreign firm. 
C) are generally more politically sensitive than the acquisition of an existing foreign firm. 
D) none of the above

Question 19

The key factors that are important in a firm's decision to invest overseas are

Accepted Answer

A) trade barriers, imperfect labor market, and intangible assets. 
B) vertical integration, product life cycle, and shareholder diversification services. 
C) profit maximization, global prestige, and competition. 
D) both a and b 
A) trade barriers, imperfect labor market, and intangible assets. 
B) vertical integration, product life cycle, and shareholder diversification services. 
C) profit maximization, global prestige, and competition. 
D) both a and b

Question 20

Honda's decision to build a plant in Ohio

Accepted Answer

A) was welcomed by the United Auto Workers. 
B) was encouraged by assistance from the state of Ohio, including improved infrastructure around the plant and abatement of property taxes. 
C) involved setting up a special foreign trade zone that allowed Honda to import auto parts from Japan at a reduced tariff rate. 
D) all of the above 
A) was welcomed by the United Auto Workers. 
B) was encouraged by assistance from the state of Ohio, including improved infrastructure around the plant and abatement of property taxes. 
C) involved setting up a special foreign trade zone that allowed Honda to import auto parts from Japan at a reduced tariff rate. 
D) all of the above

Exam 16: Foreign Direct Investment and Cross-Border Acquisitions

Alternatives to firms locating production overseas include

The third most important host country for FDI is

Trade barriers can arise naturally.Which of the following are natural barriers to trade?

The product life-cycle theory predicts that

Examples of transfer risk include

Many MNCs involved in extractive/natural resources industries

Synergistic gains

In evaluating political risk,experts focus their attention on a set of key factors such as

Unlike the theory of international trade or the theory of international portfolio investment,

Why do firms locate production overseas rather than exporting finished goods?

Severe imperfections in the labor market arise from immobility of workers due to immigration barriers.As a response,firms should consider

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.

Firms that have intangible assets with a public good property tend to invest directly in foreign countries.This is because

FDI stocks

Imperfections in the market for intangible assets can also play a major role in motivating firms to undertake cross-border acquisitions.According to the internalization theory,

In a push to serve the North American market Samsung,a Korean firm,chose to locate production facilities in Mexico,mainly because

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

A "Greenfield" investment

The key factors that are important in a firm's decision to invest overseas are

Honda's decision to build a plant in Ohio

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

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