Question 1

Why do governments regulate international trade?

Accepted Answer

A) To raise revenue 
B) Protect domestic industries 
C) Pursue other economic objectives 
D) All of the above 
A) To raise revenue 
B) Protect domestic industries 
C) Pursue other economic objectives 
D) All of the above

Question 2

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 3

Coca-Cola has invested in bottling plants all over the world rather than licensing local firms

Accepted Answer

A) because the foreigners can't be trusted to follow the secret recipe. 
B) because Coca-Cola wanted to protect the formula for its famous soft drink. 
C) because of the internalization theory of FDI. 
D) both b and c 
A) because the foreigners can't be trusted to follow the secret recipe. 
B) because Coca-Cola wanted to protect the formula for its famous soft drink. 
C) because of the internalization theory of FDI. 
D) both b and c

Question 4

MNCs have invested in China

Accepted Answer

A) by lower material costs. 
B) by lower labor costs. 
C) by a desire to preempt the entry of rivals into China's potentially huge market. 
D) all of the above 
A) by lower material costs. 
B) by lower labor costs. 
C) by a desire to preempt the entry of rivals into China's potentially huge market. 
D) all of the above

Question 5

Severe imperfections in the labor market lead to persistent wage differentials among countries. Some explanations include

Accepted Answer

A) because workers are not allowed to freely move across national boundaries to seek higher wages. 
B) because workers may choose to not move across national boundaries to seek higher wages due to the cultural differences. 
C) but these differences are offset by low productivity in low labor cost countries. 
D) both a and b 
A) because workers are not allowed to freely move across national boundaries to seek higher wages. 
B) because workers may choose to not move across national boundaries to seek higher wages due to the cultural differences. 
C) but these differences are offset by low productivity in low labor cost countries. 
D) both a and b

Question 6

During the five-year period 2007-2011, total annual worldwide FDI outflows amounted to

Accepted Answer

A) about $1,698 million on average. 
B) about $1,698 billion on average. 
C) about $1,698 trillion on average. 
D) None of the above 
A) about $1,698 million on average. 
B) about $1,698 billion on average. 
C) about $1,698 trillion on average. 
D) None of the above

Question 7

FDI vertical integration is backward

Accepted Answer

A) when FDI involves an industry abroad that produces inputs for MNCs. 
B) when FDI involves an industry abroad that sells the MNC's outputs. 
C) none of the above 
A) when FDI involves an industry abroad that produces inputs for MNCs. 
B) when FDI involves an industry abroad that sells the MNC's outputs. 
C) none of the above

Question 8

Labor services in a country might be underpriced relative to productivity because

Accepted Answer

A) workers are not allowed to freely mover across national boundaries to seek higher wages. 
B) some countries do a bad job of educating their work force, consequently they are not very productive. 
C) in some countries there is a shortage of capital investment. 
D) all of the above are equally important 
A) workers are not allowed to freely mover across national boundaries to seek higher wages. 
B) some countries do a bad job of educating their work force, consequently they are not very productive. 
C) in some countries there is a shortage of capital investment. 
D) all of the above are equally important

Question 9

When a firm holds assets in many countries,

Accepted Answer

A) the firm's cash flows are internationally hedged. 
B) thus, shareholders of the firm can indirectly benefit from international diversification even if they are not directly holding foreign shares. 
C) thus, shareholders of the firm can directly benefit from international diversification even if they are not directly holding foreign shares. 
D) none of the above 
A) the firm's cash flows are internationally hedged. 
B) thus, shareholders of the firm can indirectly benefit from international diversification even if they are not directly holding foreign shares. 
C) thus, shareholders of the firm can directly benefit from international diversification even if they are not directly holding foreign shares. 
D) none of the above

Question 10

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 11

Factors of production include land, labor, capital, and entrepreneurial ability. Of all the factor markets, the MOST IMPERFECT is the

Accepted Answer

A) labor market. 
B) capital market. 
C) real estate market. 
D) market for entrepreneurial ability. 
A) labor market. 
B) capital market. 
C) real estate market. 
D) market for entrepreneurial ability.

Question 12

Country risk refers to

Accepted Answer

A) political risk. 
B) credit risk, and other economic performances. 
C) every risk except political risk. 
D) both a and b 
A) political risk. 
B) credit risk, and other economic performances. 
C) every risk except political risk. 
D) both a and b

Question 13

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 14

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 15

The dominant source of FDI outflows

Accepted Answer

A) several developed countries. 
B) a few underdeveloped countries next to wealthy neighbors, like Mexico. 
C) Africa and China. 
D) none of the above 
A) several developed countries. 
B) a few underdeveloped countries next to wealthy neighbors, like Mexico. 
C) Africa and China. 
D) none of the above

Question 16

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

Accepted Answer

A) the host's country's policies affecting the local operations of an MNC. 
B) the host's 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's country's policies affecting the local operations of an MNC. 
B) the host's 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 17

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 18

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 19

The communist victory in China in 1949 is an example of

Accepted Answer

A) micro risk. 
B) macro risk. 
C) both a and b 
D) none of the above 
A) micro risk. 
B) macro risk. 
C) both a and b 
D) none of the above

Question 20

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

Exam 16: Foreign Direct Investment and Cross-Border Acquisitions

Why do governments regulate international trade?

What kind of integration is vertical integration?

Coca-Cola has invested in bottling plants all over the world rather than licensing local firms

MNCs have invested in China

Severe imperfections in the labor market lead to persistent wage differentials among countries. Some explanations include

During the five-year period 2007-2011, total annual worldwide FDI outflows amounted to

FDI vertical integration is backward

Labor services in a country might be underpriced relative to productivity because

When a firm holds assets in many countries,

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

Factors of production include land, labor, capital, and entrepreneurial ability. Of all the factor markets, the MOST IMPERFECT is the

Country risk refers to

Synergistic gains refers to:

A "greenfield" investment

The dominant source of FDI outflows

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

Firms become multinational

According to the internalization theory of FDI

The communist victory in China in 1949 is an example of

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

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

Filters