Question 1

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 A

Question 2

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 D

Question 3

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 A

Question 4

Governments regulate international trade

Accepted Answer

A) to raise revenue (e.g. through tariffs). 
B) to protect domestic industries. 
C) to pursue other economic policy objectives (e.g. North Korea forgoing trade). 
D) all of the above 
A) to raise revenue (e.g. through tariffs). 
B) to protect domestic industries. 
C) to pursue other economic policy objectives (e.g. North Korea forgoing trade). 
D) all of the above

Question 5

Since shareholders of MNCs may indirectly benefit from corporate international diversification,

Accepted Answer

A) therefore firms are motivated to undertake FDI for the purpose of providing shareholders with diversification services. 
B) therefore firms are motivated to undertake FDI for the purpose of being part of the global minimum variance portfolio. 
C) therefore firms are motivated to undertake FDI for the purpose of staying on the efficient frontier. 
D) none of the above 
A) therefore firms are motivated to undertake FDI for the purpose of providing shareholders with diversification services. 
B) therefore firms are motivated to undertake FDI for the purpose of being part of the global minimum variance portfolio. 
C) therefore firms are motivated to undertake FDI for the purpose of staying on the efficient frontier. 
D) none of the above

Question 6

The rapid increase in cross-border M&A deals can be attributed to

Accepted Answer

A) the end of the greenfield era-we are running out of land. 
B) the lack of domestic investment opportunity. 
C) the ongoing liberalization of capital markets and the integration of the world economy. 
D) none of the above 
A) the end of the greenfield era-we are running out of land. 
B) the lack of domestic investment opportunity. 
C) the ongoing liberalization of capital markets and the integration of the world economy. 
D) none of the above

Question 7

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 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

Severe imperfections in the labor market lead to

Accepted Answer

A) persistent wage differentials among countries. 
B) persistent exchange rate volatility among countries. 
C) persistent interest rate differentials among countries. 
D) none of the above 
A) persistent wage differentials among countries. 
B) persistent exchange rate volatility among countries. 
C) persistent interest rate differentials among countries. 
D) none of the above

Question 10

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 11

Such products as mineral ore and cement that are heavy or bulky relative to their economic values

Accepted Answer

A) may be suitable for exporting because high transportation costs will be overcome by high profit margins in oligopolistic industries. 
B) have high "value-to-weight ratios" that protect profit margins. 
C) may not be suitable for exporting because high transportation costs will substantially reduce profit margins. 
D) none of the above 
A) may be suitable for exporting because high transportation costs will be overcome by high profit margins in oligopolistic industries. 
B) have high "value-to-weight ratios" that protect profit margins. 
C) may not be suitable for exporting because high transportation costs will substantially reduce profit margins. 
D) none of the above

Question 12

Whether or not cross-border acquisitions produce synergistic gains and how such gains are divided between acquiring and target firms

Accepted Answer

A) are important issues from the perspective of shareholder welfare. 
B) are important issues from the perspective of public policy. 
C) are important issues from the perspective of stakeholders in the target firms. 
D) all of the above 
A) are important issues from the perspective of shareholder welfare. 
B) are important issues from the perspective of public policy. 
C) are important issues from the perspective of stakeholders in the target firms. 
D) all of the above

Question 13

OPIC is the

Accepted Answer

A) Overseas Pirate Investment Corporation. 
B) Overseas Private Investment Corporation. 
C) Organization Petroleum Importing Countries. 
D) None of the above 
A) Overseas Pirate Investment Corporation. 
B) Overseas Private Investment Corporation. 
C) Organization Petroleum Importing Countries. 
D) None of the above

Question 14

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 15

The boomerang effect

Accepted Answer

A) the possibility that if the secret formula of Coca-Cola were leaked, that other firms would come up with similar products and hurt Coca-Cola's sales. 
B) the possibility that FDI in an undeveloped nation will lead to a group of workers who have enough money to afford the firm's products, leading to an increase of sales and increase of workers and so on. 
C) the possibility that FDI in an undeveloped nation will lead to a group of domestic workers no longer have enough money to afford the firm's products, leading to an decrease of sales. 
D) none of the above 
A) the possibility that if the secret formula of Coca-Cola were leaked, that other firms would come up with similar products and hurt Coca-Cola's sales. 
B) the possibility that FDI in an undeveloped nation will lead to a group of workers who have enough money to afford the firm's products, leading to an increase of sales and increase of workers and so on. 
C) the possibility that FDI in an undeveloped nation will lead to a group of domestic workers no longer have enough money to afford the firm's products, leading to an decrease of sales. 
D) none of the above

Question 16

Considering the fact that many barriers to international portfolio investments have been dismantled in recent years,

Accepted Answer

A) capital market imperfections as a motivating factor for FDI are likely to become more important going forward. 
B) capital market imperfections as a motivating factor for FDI are likely to become less relevant. 
C) labor market imperfections as a motivating factor for FDI are likely to become less relevant. 
D) none of the above 
A) capital market imperfections as a motivating factor for FDI are likely to become more important going forward. 
B) capital market imperfections as a motivating factor for FDI are likely to become less relevant. 
C) labor market imperfections as a motivating factor for FDI are likely to become less relevant. 
D) none of the above

Question 17

Once a MNC decides to undertake a foreign project, it can take various measures to minimize its exposure to political risk. These include

Accepted Answer

A) the MNC can form a joint venture with a local company. 
B) the MNC may also consider forming a consortium of international companies to undertake the foreign project. 
C) the MNC can use local debt to finance the foreign project. 
D) the MNC may purchase insurance against the hazard of political risk. 
E) all of the above 
A) the MNC can form a joint venture with a local company. 
B) the MNC may also consider forming a consortium of international companies to undertake the foreign project. 
C) the MNC can use local debt to finance the foreign project. 
D) the MNC may purchase insurance against the hazard of political risk. 
E) all of the above

Question 18

Intangible assets are often hard to package and sell to foreigners

Accepted Answer

A) because they usually default on the contracts that they sign. 
B) As a result, there is more FDI than there might otherwise be. 
C) Because property rights in intangible assets are difficult to establish and protect, especially in foreign countries where legal recourse may not be readily available. 
D) both b and c 
A) because they usually default on the contracts that they sign. 
B) As a result, there is more FDI than there might otherwise be. 
C) Because property rights in intangible assets are difficult to establish and protect, especially in foreign countries where legal recourse may not be readily available. 
D) both b and c

Question 19

In the early 1980s, Honda, the Japanese automobile company, built an assembly plant in Marysville, Ohio, and began to produce cars for the North American market. As the production capacity at the Ohio plant expanded, Honda began to export its U.S.-manufactured cars to Japan.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 16: Foreign Direct Investment and Cross-Border Acquisitions

The majority of foreign vertical integration is

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

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

Governments regulate international trade

Since shareholders of MNCs may indirectly benefit from corporate international diversification,

The rapid increase in cross-border M&A deals can be attributed to

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

When firms undertake FDI,

Severe imperfections in the labor market lead to

The product life-cycle theory predicts that

Such products as mineral ore and cement that are heavy or bulky relative to their economic values

Whether or not cross-border acquisitions produce synergistic gains and how such gains are divided between acquiring and target firms

OPIC is the

Examples of transfer risk include

The boomerang effect

Considering the fact that many barriers to international portfolio investments have been dismantled in recent years,

Once a MNC decides to undertake a foreign project, it can take various measures to minimize its exposure to political risk. These include

Intangible assets are often hard to package and sell to foreigners

In the early 1980s, Honda, the Japanese automobile company, built an assembly plant in Marysville, Ohio, and began to produce cars for the North American market. As the production capacity at the Ohio plant expanded, Honda began to export its U.S.-manufactured cars to Japan.

An increase in political risk can be managed by

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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