Deck 1: Globalization and the Multinational Enterprise

Question 1

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

Answer 1

The authors provide 5 strategic motives for firms to become multinationals: market seekers, raw materials seekers, production efficiency seekers, knowledge seekers, and political safety seekers. Market seekers are looking for more consumers for their products such as automobiles or steel. Knowledge seekers may be looking for an educated work force similar to the way firms seeking R and D set up shop in university towns. Raw materials seekers may be after commodities such as oil or copper. Production efficiencies may occur in countries like Mexico that have capable workers and lower wages. Political safety seekers are looking for countries that will not expropriate their assets, so they may stay away from countries that in the post have engaged in such activities.

Question 2

Comparative advantage in the 21st century is based more on services and their cross border facilitation by telecommunications and the Internet.

Answer 2

True

Question 3

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.

Answer 3

True

Question 4

Comparative advantage is one of the underlying principles driving the growth of global business.

Question 5

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 6

Which of the following factors of production DO NOT flow freely between countries?

A)Raw materials
B)Financial capital
C)(Non-military)Technology
D)All of the above factors of production flow freely among countries.

Question 7

International trade might have approached the comparative advantage model in the 19th century, and it does so even more today.

Question 8

A well-established, large 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

Question 9

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 10

The theory of comparative advantage owes it origins to Ben Bernanke as described in his book The Wealth of Bankers.

Question 11

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 12

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

Question 13

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 14

MNEs must modify finance theories like cost of capital and capital budgeting because of foreign complexities.

Question 15

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 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

Which of the following is NOT a reason governments interfere with comparative advantage?

A)Governments attempt to achieve full employment.
B)Governments promote economic development.
C)National self-sufficiency in defense-related industries.
D)All are reasons governments interfere with comparative advantage.

Question 18

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 19

Which of the following domestic financial instruments have NOT been modified for use in international financial management?

A)Currency options and futures.
B)Interest rate and currency swaps.
C)Letters of credit.
D)All of the above are domestic financial instruments that have also been modified for use in international financial markets.

Question 20

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

Question 21

________ 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 22

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 23

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 24

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 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

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.

Question 27

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 28

Typically, a "greenfield" investment abroad is considered a greater foreign investment having a greater foreign presence than a joint venture with a foreign firm.

Question 29

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 30

For firms competing in a world characterized by oligopolistic competition, strategic motives can be subdivided into proactive and defensive investments.

Question 31

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

Question 32

Defensive measures are designed to enhance growth and profitability of the firm itself.

Question 33

The authors argue that financial inefficiency caused by influential insiders may prove to be an increasingly troublesome barrier to international finance.