Deck 1: Globalization and the Multinational Enterprise

Question 1

Which of the following is NOT considered to be a type of competitive advantage that may be enjoyed by an MNE?

A) competitiveness in their home markets
B) foreign exchange risks
C) economies of scale
D) economies of scope

Answer 1

foreign exchange risks

Question 2

A well-established, large firm U.S.-based MNE will probably not be able to overcome which of the following obstacles to maximizing firm value?

A) an open market place
B) high quality strategic management
C) access to capital
D) none of the above

Answer 2

none of the above

Question 3

Which of the following are critical to a firm trying to reach the top of the "firm value pyramid"?

A) an open market place
B) high quality strategic management
C) access to capital
D) all of the above

Answer 3

an open market place

Question 4

The theory that suggests specialization by country can increase worldwide production is ________.

A) the theory of comparative advantage
B) the theory of foreign direct investment
C) the international Fisher effect
D) the theory of working capital management

Question 5

Of the following, which was NOT mentioned by the authors as an increase in the demands of financial management services due to increased globalization by the firm?

A) evaluation of the credit quality of foreign buyers and sellers
B) foreign consumer method of payment preferences
C) credit risk management
D) evaluation of foreign exchange risk

Question 6

Comparative advantage was once the cornerstone of international trade theory, but today it is archaic, simplistic, and irrelevant for explaining investment choices made by MNEs.

Question 7

Three necessary conditions for a firm to reach the top of the "firm value pyramid" are an open market place, high quality strategic management, and access to capital.

Question 8

The authors describe the multinational phase of globalization for a firm as one characterized by the

A) ownership of assets and enterprises in foreign countries.
B) potential for international competitors or suppliers even though all accounts are with domestic firms and are denominated in dollars.
C) imports from foreign suppliers and exports to foreign buyers.
D) requirement that all employees be multilingual.

Question 9

Which of the following would NOT be a way to implement comparative advantage?

A) IBM exports computers to Egypt.
B) Computer hardware is designed in the United States but manufactured and assembled in Korea.
C) Water of the greatest purity is obtained from wells in Oregon, bottled, and exported worldwide.
D) All of the above are examples of ways to implement comparative advantage.

Question 10

Comparative advantage shifts over time as less developed countries become more developed and realize their latent opportunities.

Question 11

________ investments are designed to promote and enhance the growth and profitability of the firm. ________ investments are designed to deny those same opportunities to the firm's competitors.

A) Conservative; aggressive
B) Defensive; proactive
C) Proactive; defensive
D) Aggressive; proactive

Question 12

Which of the following is NOT considered to be a type of competitive advantage that may be enjoyed by an MNE?

A) managerial and marketing expertise
B) superior technology due to investment in research and development
C) increased agency costs
D) differentiated products

Question 13

Of the following, which was NOT mentioned by the authors as an increase in the demands of financial management services due to increased globalization by the firm?

A) evaluation of the credit quality of foreign buyers and sellers
B) foreign consumer method of payment preferences
C) credit risk management
D) evaluation of foreign exchange risk

Question 14

A well-established, large China-based MNE will probably be most adversely affected by which of the following elements of firm value?

A) an open marketplace
B) high-quality strategic management
C) access to capital
D) access to qualified labor pool

Question 15

The phase of the globalization process characterized by imports from foreign suppliers and exports to foreign buyers is called the

A) domestic phase.
B) multinational phase.
C) international trade phase.
D) import-export banking phase.

Question 16

Of the following, which would NOT be considered a way that government interferes with comparative advantage?

A) tariffs
B) managerial skills
C) quotas
D) other non-tariff restrictions

Question 17

The authors describe the multinational phase of globalization for a firm as one characterized by the

A) ownership of assets and enterprises in foreign countries.
B) potential for international competitors or suppliers even though all accounts are with domestic firms and are denominated in dollars.
C) imports from foreign suppliers and exports to foreign buyers.
D) requirement that all employees be multilingual.

Question 18

Which of the following would NOT be considered a feature of comparative advantage?

A) Exporters in Country A sell goods or services to unrelated importers in Country B.
B) Firms in Country A specialize in making products that can be produced relatively efficiently, given County A's endowment of factors of production. Firms in Country B do likewise thus maximizing the combined output of Countries A and B.
C) Trade exists between Counties A and B because of specialized factors of production that cannot be moved among countries.
D) All of the above are features of comparative advantage.

Question 19

In determining why a firm becomes multinational there are many reasons. One reason is that the firm is a market seeker. Which of the following is NOT a reason why market seeking firms produce in foreign countries?

A) satisfaction of local demand in the foreign country
B) satisfaction of local demand in the domestic markets
C) political safely and small likelihood of government expropriation of assets
D) All of the above are market-seeking activities.

Question 20

A well-established, large, Brazil-based MNE will probably be most adversely affected by which of the following elements of firm value?

A) an open marketplace
B) high-quality strategic management
C) access to capital
D) access to qualified labor pool

Question 21

TABLE 1.1
Use the information in the table to answer following question(s).

Refer to Table 1.1. If each country specializes in their production with Austria producing only digital cameras and Russia producing only snowboards, at a trading rate of three snowboards per digital camera, how many cameras and snowboards will be available to be consumed in Russia if they trade 9,000 snowboards to Austria?

A) 9,000 snowboards and 5,000 digital cameras
B) 3,000 snowboards and 3,000 digital cameras
C) 3,000 snowboards and 9,000 digital cameras
D) There is not enough information to answer this question.

Question 22

TABLE 1.1
Use the information in the table to answer following question(s).

Refer to Table 1.1. If each country specializes in their production with Austria producing only digital cameras and Russia producing only snowboards, at a trading rate of three snowboards per digital camera, how many cameras and snowboards will be available to be consumed in Austria if they trade 3,000 cameras to Russia?

A) 9,000 snowboards and 5,000 digital cameras
B) 3,000 snowboards and 3,000 digital cameras
C) 3,000 snowboards and 9,000 digital cameras
D) There is not enough information to answer this question.

Question 23

The exposure to foreign exchange risk known as Translation Exposure may be defined as

A) changes in reported owners' equity in consolidated financial statements caused by a change in exchange rates.
B) the impact of settling outstanding obligations entered into before change in exchange rates but to be settled after change in exchange rates.
C) the change in expected future cash flows arising from an unexpected change in exchange rates.
D) all of the above.

Question 24

TABLE 1.1
Use the information in the table to answer following question(s).

Refer to Table 1.1. A production unit in Austria has a/an ________ over a production unit in Russia in ________.

A) absolute disadvantage; digital cameras
B) absolute disadvantage; snowboards
C) absolute advantage; both cameras and snowboards
D) none of the above

Question 25

A firm in the International Trade Phase of Globalization

A) makes all foreign payments in foreign currency units and all foreign receipts in domestic currency units.
B) receives all foreign receipts in foreign currency units and makes all foreign payments in domestic currency units.
C) bears direct foreign exchange risk.
D) none of the above.

Question 26

TABLE 1.1
Use the information in the table to answer following question(s).

Refer to Table 1.1. Austria has a larger relative advantage over Russia in the production of ________ at a ratio of ________.

A) snowboards; 5 to 4
B) cameras; 8 to 3
C) snowboards; 8 to 3
D) cameras; 3 to 8

Question 27

TABLE 1.1
Use the information in the table to answer following question(s).

Refer to Table 1.1. If trade takes place at Brazil's domestic price, ________ snowboards will be required to obtain 1 digital camera.

A) 4
B) 2 and 2/3
C) 1.25
D) 0.25

Question 28

Typically, a firm in its domestic stage of globalization has all financial transactions in its domestic currency.

Question 29

List and explain three strategic motives why firms become multinationals and give an example of each.

Question 30

TABLE 1.1
Use the information in the table to answer following question(s).

Refer to Table 1.1. Assume no trade between Russia and Austria. If each country put 50% of their production units into each product, the total number of snowboards and digital cameras produced by the two countries combined are ________ and ________.

A) 15,000 snowboards; 3,000 digital cameras
B) 6,000 snowboards; 4,000 digital cameras
C) 2,750 digital cameras; 6,750 snowboards
D) 15,000 digital cameras; 1,000 snowboards

Question 31

The twin agency problems limiting financial globalization are caused by these two groups acting in their own self-interests rather than the interests of the firm.

A) rulers of sovereign states and unsavory customs officials
B) corporate insiders and attorneys
C) corporate insiders and rulers of sovereign states
D) attorneys and unsavory customs officials