Question 1

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 2

Examples of intangible assets include

Accepted Answer

A) technological, managerial, and marketing know-how. 
B) superior R&D capabilities. 
C) brand names. 
D) all of the above 
A) technological, managerial, and marketing know-how. 
B) superior R&D capabilities. 
C) brand names. 
D) all of the above

Question 3

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 4

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 5

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 6

Shareholders of U.S. bidders (acquiring firms in M&A) experience significant positive abnormal returns when firms expand into new industries and geographic markets.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Country risk

Accepted Answer

A) is a broader measure of risk than political risk. 
B) encompasses political risk, credit risk, and other economic performances. 
C) all of the above 
D) none of the above 
A) is a broader measure of risk than political risk. 
B) encompasses political risk, credit risk, and other economic performances. 
C) all of the above 
D) none of the above

Question 9

Cross-border acquisitions of businesses are a politically sensitive issue,

Accepted Answer

A) as most countries prefer to retain foreign control of domestic firms. 
B) as most countries prefer to retain local control of domestic firms. 
C) as most countries prefer to retain local control of foreign firms. 
D) none of the above 
A) as most countries prefer to retain foreign control of domestic firms. 
B) as most countries prefer to retain local control of domestic firms. 
C) as most countries prefer to retain local control of foreign firms. 
D) none of the above

Question 10

An example of forward vertical FDI

Accepted Answer

A) U.S. car makers built their own network of dealerships in Japan to help sell their cars. 
B) U.S. car makers began to source parts in Japan to lower the cost of their cars. 
C) U.S. car makers entered into joint partnerships with car makers in Japan to help sell their cars. 
D) None of the above 
A) U.S. car makers built their own network of dealerships in Japan to help sell their cars. 
B) U.S. car makers began to source parts in Japan to lower the cost of their cars. 
C) U.S. car makers entered into joint partnerships with car makers in Japan to help sell their cars. 
D) None of the above

Question 11

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 12

Shareholders of U.S. targets experience higher wealth gains when they are acquired by foreign firms than when acquired by U.S. firms.

Accepted Answer

A) True 
 B)False

Question 13

A classic example for trade barrier-motivated FDI is

Accepted Answer

A) Honda's investment in Ohio. 
B) Bridgestone's investment in Japan. 
C) NAFTA. 
D) None of the above 
A) Honda's investment in Ohio. 
B) Bridgestone's investment in Japan. 
C) NAFTA. 
D) None of the above

Question 14

North Korea, Iran, and Cuba are examples of

Accepted Answer

A) countries with low levels of political risk. 
B) countries with high levels of political risk. 
C) countries that are politically and economically isolated from the rest of the world. 
D) both b and c 
A) countries with low levels of political risk. 
B) countries with high levels of political risk. 
C) countries that are politically and economically isolated from the rest of the world. 
D) both b and c

Question 15

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 16

Examples of control 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 17

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 18

The conflicts between the upstream and downstream firms can be resolved,

Accepted Answer

A) if the two firms form a horizontally integrated firm. 
B) if the two firms form a vertically integrated firm. 
C) if the two firms form a linearly integrated firm. 
D) none of the above 
A) if the two firms form a horizontally integrated firm. 
B) if the two firms form a vertically integrated firm. 
C) if the two firms form a linearly integrated firm. 
D) none of the above

Question 19

International markets for goods and services are often imperfect. Which is the MOST common and MOST important?

Accepted Answer

A) Acts of governments 
B) Natural barriers like distance 
C) Cultural barriers 
D) Lack of knowledge 
A) Acts of governments 
B) Natural barriers like distance 
C) Cultural barriers 
D) Lack of knowledge

Question 20

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

Exam 16: Foreign Direct Investment and Cross-Border Acquisitions

FDI stocks

Examples of intangible assets include

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,

If cross-border acquisitions generate synergistic gains,

Shareholders of U.S. bidders (acquiring firms in M&A) experience significant positive abnormal returns when firms expand into new industries and geographic markets.

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,

Country risk

Cross-border acquisitions of businesses are a politically sensitive issue,

An example of forward vertical FDI

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

Shareholders of U.S. targets experience higher wealth gains when they are acquired by foreign firms than when acquired by U.S. firms.

A classic example for trade barrier-motivated FDI is

North Korea, Iran, and Cuba are examples of

The third most important host country for FDI is

Examples of control risk include

Alternatives to firms locating production overseas include

The conflicts between the upstream and downstream firms can be resolved,

International markets for goods and services are often imperfect. Which is the MOST common and MOST important?

More than fifty percent of FDI in dollar terms

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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