Question 1

As a mode of FDI entry,cross-border M&A offers two key advantages over Greenfield investments:

Accepted Answer

A) speed and access to proprietary assets. 
B) firms bolster their competitive positions in the world market by acquiring special assets from other firms or using their own assets on a larger scale. 
C) firms can better leverage their intangible assets and on a larger scale. 
D) none of the above 
A) speed and access to proprietary assets. 
B) firms bolster their competitive positions in the world market by acquiring special assets from other firms or using their own assets on a larger scale. 
C) firms can better leverage their intangible assets and on a larger scale. 
D) none of the above

Question 2

Firms become multinational

Accepted Answer

A) when they undertake foreign direct investments (FDI). 
B) with the establishment of new production facilities in foreign countries such as Honda's Ohio plant. 
C) when they become involved in mergers with and acquisitions of existing foreign businesses. 
D) all of the above 
A) when they undertake foreign direct investments (FDI). 
B) with the establishment of new production facilities in foreign countries such as Honda's Ohio plant. 
C) when they become involved in mergers with and acquisitions of existing foreign businesses. 
D) all of the above

Question 3

When evaluating a foreign investment project,it is important for the MNC to consider the effect of political risk,as a sovereign country can change "the rules of the game".To account for this

Accepted Answer

A) the MNC may adjust the cost of capital upward. 
B) the MNC may lower the expected cash flows from the foreign project. 
C) the MNC may purchase insurance policies against the hazard of political risks. 
D) all of the above 
A) the MNC may adjust the cost of capital upward. 
B) the MNC may lower the expected cash flows from the foreign project. 
C) the MNC may purchase insurance policies against the hazard of political risks. 
D) all of the above

Question 4

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 5

According to the internalization theory of FDI

Accepted Answer

A) firms that have intangible assets with a public good property tend to invest directly in foreign countries. 
B) property rights in intangible assets are difficult to establish and protect, especially in foreign countries where legal recourse may not be readily available. 
C) both b and a 
D) none of the above 
A) firms that have intangible assets with a public good property tend to invest directly in foreign countries. 
B) property rights in intangible assets are difficult to establish and protect, especially in foreign countries where legal recourse may not be readily available. 
C) both b and a 
D) none of the above

Question 6

The majority of foreign vertical integration is

Accepted Answer

A) backward. 
B) forward. 
C) sideways. 
D) none of the above 
A) backward. 
B) forward. 
C) sideways. 
D) none of the above

Question 7

Examples of operational 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 8

When firms undertake FDI,

Accepted Answer

A) they become MNCs. 
B) they reduce their tax rate since they can tell each country that they do business in that they paid their taxes in other countries. 
C) the can exploit workers by paying them below-market wages in depreciating currencies. 
D) all of the above 
A) they become MNCs. 
B) they reduce their tax rate since they can tell each country that they do business in that they paid their taxes in other countries. 
C) the can exploit workers by paying them below-market wages in depreciating currencies. 
D) all of the above

Question 9

The Ford Motor Company recently acquired Mazda,a Japanese auto maker,and Jaguar,a British auto maker.

Accepted Answer

A) This is an example of cross-border M&A. 
B) This was a Greenfield investment. 
C) both a and b 
D) none of the above 
A) This is an example of cross-border M&A. 
B) This was a Greenfield investment. 
C) both a and b 
D) none of the above

Question 10

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 11

In the 1960s,Coca-Cola,which had bottling plants in India,faced strong pressure from the Indian government to reveal the Coke formula as a condition for continued operations in India.As a result,

Accepted Answer

A) Coke agreed to reveal the formula to the Indian government, which has maintained it as a state secret to this day. 
B) instead of revealing the formula, Coke withdrew from the Indian market. 
C) Coke was able to successfully lobby the government to withdraw this demand. 
D) none of the above 
A) Coke agreed to reveal the formula to the Indian government, which has maintained it as a state secret to this day. 
B) instead of revealing the formula, Coke withdrew from the Indian market. 
C) Coke was able to successfully lobby the government to withdraw this demand. 
D) none of the above

Question 12

MNCs might have been lured to invest in China not only by lower labor and material costs but also

Accepted Answer

A) by China's lower labor and material costs. 
B) by the desire to preempt the entry of rivals into China's potentially huge market. 
C) by the Kung Pao chicken. 
D) by the desire to see, if not buy, all the tea in China. 
A) by China's lower labor and material costs. 
B) by the desire to preempt the entry of rivals into China's potentially huge market. 
C) by the Kung Pao chicken. 
D) by the desire to see, if not buy, all the tea in China.

Question 13

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

Accepted Answer

A) integration of the host country into the world political/economic system. 
B) the host country's ethnic and religious stability. 
C) the host country's regional security, and key economic indicators. 
D) all of the above 
A) integration of the host country into the world political/economic system. 
B) the host country's ethnic and religious stability. 
C) the host country's regional security, and key economic indicators. 
D) all of the above

Question 14

Following Honda's FDI in the U.S.,

Accepted Answer

A) The U.S.government imposed a Voluntary Trade Agreement under which Japanese automobile manufacturers were not allowed to increase their exports to the U.S.market. 
B) Toyota and Nissan made direct investments in America. 
C) Sales of Hondas declined. 
D) none of the above 
A) The U.S.government imposed a Voluntary Trade Agreement under which Japanese automobile manufacturers were not allowed to increase their exports to the U.S.market. 
B) Toyota and Nissan made direct investments in America. 
C) Sales of Hondas declined. 
D) none of the above

Question 15

What kind of integration is vertical integration?

Accepted Answer

A) When the government outlaws discrimination against both short and tall people. 
B) When two firms join together in a conglomerate merger. 
C) When two firms related in the production process are owned by the same firm, as in a plywood manufacturer owning a logging company. 
D) All of the above 
A) When the government outlaws discrimination against both short and tall people. 
B) When two firms join together in a conglomerate merger. 
C) When two firms related in the production process are owned by the same firm, as in a plywood manufacturer owning a logging company. 
D) All of the above

Question 16

As a mode of entry into a foreign market,cross-border acquisition

Accepted Answer

A) involves building new production facilities in a foreign country. 
B) offer faster speed over Greenfield investment. 
C) can offer access to proprietary assets. 
D) both b and c 
A) involves building new production facilities in a foreign country. 
B) offer faster speed over Greenfield investment. 
C) can offer access to proprietary assets. 
D) both b and c

Question 17

If cross-border acquisitions generate synergistic gains,

Accepted Answer

A) then both the acquiring and target shareholders gain wealth at the same time. 
B) then one can argue that cross-border acquisitions are mutually beneficial and thus should not be thwarted both from a national and global perspective. 
C) then the value of the combined firm is greater than the stand-alone valuations of the individual (acquiring and target) firms. 
D) all of the above. 
A) then both the acquiring and target shareholders gain wealth at the same time. 
B) then one can argue that cross-border acquisitions are mutually beneficial and thus should not be thwarted both from a national and global perspective. 
C) then the value of the combined firm is greater than the stand-alone valuations of the individual (acquiring and target) firms. 
D) all of the above.

Question 18

Prior to Honda's decision to build a plant in Ohio,

Accepted Answer

A) the Japanese government had been urging the automobile companies to begin production in the United States. 
B) the Japanese government had been urging the automobile companies to keep production in Japan. 
C) the Japanese government imposed import quotas on U.S.-made automobiles. 
D) none of the above 
A) the Japanese government had been urging the automobile companies to begin production in the United States. 
B) the Japanese government had been urging the automobile companies to keep production in Japan. 
C) the Japanese government imposed import quotas on U.S.-made automobiles. 
D) none of the above

Question 19

Synergistic gains refers to:

Accepted Answer

A) gains from hedging. 
B) gains obtained when the value of the acquiring and target firms, combined together, is greater than the stand-alone valuations of the individual firms. 
C) gains arising if the combined companies can save on the costs of production, marketing, distribution, and R&D. 
D) both b and c 
A) gains from hedging. 
B) gains obtained when the value of the acquiring and target firms, combined together, is greater than the stand-alone valuations of the individual firms. 
C) gains arising if the combined companies can save on the costs of production, marketing, distribution, and R&D. 
D) both b and c

Question 20

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

Exam 16: Foreign Direct Investment and Cross-Border Acquisitions

As a mode of FDI entry,cross-border M&A offers two key advantages over Greenfield investments:

Firms become multinational

When evaluating a foreign investment project,it is important for the MNC to consider the effect of political risk,as a sovereign country can change "the rules of the game".To account for this

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

According to the internalization theory of FDI

The majority of foreign vertical integration is

Examples of operational risk include

When firms undertake FDI,

The Ford Motor Company recently acquired Mazda,a Japanese auto maker,and Jaguar,a British auto maker.

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

In the 1960s,Coca-Cola,which had bottling plants in India,faced strong pressure from the Indian government to reveal the Coke formula as a condition for continued operations in India.As a result,

MNCs might have been lured to invest in China not only by lower labor and material costs but also

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

Following Honda's FDI in the U.S.,

What kind of integration is vertical integration?

As a mode of entry into a foreign market,cross-border acquisition

If cross-border acquisitions generate synergistic gains,

Prior to Honda's decision to build a plant in Ohio,

Synergistic gains refers to:

Cross-border acquisition involves

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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