Deck 1: Current Multinational Challenges and the Global Economy

Question 1

The Eurocurrency market continues to thrive because it is a large international money market relatively free from governmental regulation and interference. Recent events may lead to greater regulation.

Answer 1

True

Question 2

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.

Answer 2

the theory of comparative advantage.

Question 3

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.

Answer 3

All are reasons governments interfere with comparative advantage.

Question 4

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

Question 5

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 6

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 7

Your authors suggest that one way to characterize the global financial marketplace is through its assets, institutions, and linkages.

Question 8

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 9

Eurocurrency markets serve two valuable purposes: 1)Eurocurrency deposits are an efficient and convenient money market device for holding excess corporate liquidity; and 2)the Eurocurrency market is a major source of short-term bank loans to finance corporate working capital needs, including the financing of imports and exports.

Question 10

BRICs is a term used in international finance to represent assets that are considered to be inexpensive and sturdy, but fundamentally unsound and and incapable of coping with the upheavals now apparent in international financial markets.

Question 11

Ownership, control, and governance changes radically across the world. The publicly traded company is not the dominant global business organization-the privately held or family-owned business is the prevalent structure-and their goals and measures of performance differ dramatically.

Question 12

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 13

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 14

The key factor attracting both depositors and borrowers to the Eurocurrency loan market is the narrow interest rate spread within that market.

Question 15

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

Question 16

Eurocurrencies are domestic currencies of one country on deposit in a second country.

Question 17

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

Question 18

Multinational enterprises (MNEs)are firms, both for profit companies and not-for-profit organizations, that have operations in more than one country, and conduct their business through foreign subsidiaries,
branches, or joint ventures with host country firms.

Question 19

A eurodollar deposit is a demand deposit.

Question 20

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 21

It would be safe to make the statement that modern telecommunications now take business activities to labor rather than moving labor to the places of business.

Question 22

When discussing comparative advantage, it is apparent that today at least two of the factors of production, capital and technology, now flow directly and easily between countries, rather than only indirectly through traded goods and services.

Question 23

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 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

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

Question 26

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

Question 27

A number of financial instruments that are used in domestic financial management have been modified for use in international financial management. Examples are foreign currency options and futures, interest rate and currency swaps, and letters of credit.

Question 28

Because countries have different financial regulations and customs, it is common for MNEs to apply their domestic rules and regulations when doing financial business in a foreign country.

Question 29

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

Question 30

Relative to MNEs, purely domestic firms tend to have GREATER political risk.

Question 31

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

Question 32

Domestic firms tend to make GREATER use of financial derivatives than MNEs because they can bear the greater risk presented by these financial instruments.

Question 33

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 safety and small likelihood of government expropriation of assets
D)All of the above are market-seeking activities.

Question 34

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 35

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 36

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

Question 37

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

Question 38

________ 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 39

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 40

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 41

The authors describe a process for development of a MNE that begins with a purely domestic phase, followed by the multinational phase, and topping out with the international trade phase.

Question 42

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

Question 43

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

Question 44

The actions of corporate insiders and the actions of rulers of sovereign states are both agency costs that act as an impediment to the growth of globalization.

Question 45

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 46

Today it is widely assumed that there are NO LIMITS to financial globalization.

Question 47

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 48

The growth in the influence and self-enrichment of organizational insiders is seen as an impediment to the growth of financial globalization in general.

Question 49

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 50

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.