Question 1

When a firm perceives that a foreign currency is ____, the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively ____.

Accepted Answer

A)   overvalued; high
B)   overvalued; low
C)   undervalued; high
D)   undervalued; lowE) None of the above
F) C) and D)

Question 2

The following data is available for an investment object:  ∙\bullet∙ Acquisition cost: 60,000
 ∙\bullet∙ Operating cash flows: 20,000 in year 1; 30,000 in year 2; 35,000 in year 3.
Using the NPV model with a discount rate of 10%, which of the following is true?

Accepted Answer

A)   If the investment is realized, a positive NPV of approximately 9,300 can be achieved.
B)   If the investment is realized, a negative NPV of approximately 9,300 can be achieved.
C)   If the investment is realized, a negative NPV of approximately 25,000 can be achieved.
D)   If the investment is realized, a positive NPV of approximately 25,000 can be achieved. E) None of the above
F) A) and B)

Question 3

____ is not a cost-related motive for direct foreign investment.

Accepted Answer

A)   Exploiting monopolistic advantages
B)   Fully benefiting from economies of scale
C)   Uses foreign factors of production
D)   Using foreign raw materialsE) A) and D)
F) C) and D)

Question 4

To fully benefit from economies of scale, an MNC should:

Accepted Answer

A)   establish a subsidiary in a new market that can sell products produced elsewhere.
B)   establish a subsidiary in a market that has relatively low costs of labor or land.
C)   establish a subsidiary in a market where raw materials are cheap and accessible.
D)   participate in a joint venture in order to learn about a production process or other operations.E) A) and D)
F) All of the above

Question 5

Assume the correlation coefficient between the returns on the existing project and the return on a proposed foreign project is 1. Also assume the returns on existing project and the new project are equal, and that the existing project has a lower standard deviation than the proposed project. Under this scenario, undertaking the proposed project will ____ the variance of the firm's overall returns.

Accepted Answer

A)   decrease
B)   increase
C)   decrease or increase, depending on the exact size of the returns and standard deviations
D)   None of the aboveE) A) and B)
F) All of the above

Question 6

The ____ a project's variability in cash flows, and the ____ the positive correlation between the project's cash flow and MNC's cash flow, the lower the risk of the project.

Accepted Answer

A)   higher; higher
B)   higher; lower
C)   lower; lower
D)   lower; higherE) None of the above
F) B) and C)

Question 7

MNCs often attempt to set up production in locations where land and labour are expensive, because expensive factors of production indicate high demand.

Accepted Answer

A) True 
 B)False

Question 8

A firm will likely benefit most from diversifying if:

Accepted Answer

A)   the correlations between country economies are high.
B)   the correlations between country economies are low.
C)   the variability of all country economy levels is high.
D)   B and CE) A) and B)
F) All of the above

Question 9

To use foreign factors of production, an MNC should:

Accepted Answer

A)   establish a subsidiary in a new market that can sell products produced elsewhere.
B)   establish a subsidiary in a market that has relatively low costs of labor or land.
C)   establish a subsidiary in a market where raw materials are cheap and accessible.
D)   participate in a joint venture in order to learn about a production process or other operations.E) A) and C)
F) B) and C)

Question 10

According to the text, a firm may be able to achieve a 'more efficient' project portfolio if it:

Accepted Answer

A)   focuses solely on one product.
B)   focuses solely on one location to market what it produces.
C)   A and B
D)   none of the above.E) A) and C)
F) C) and D)

Question 11

Assume a US firm initiates direct foreign investment in the UK If the British pound is expected to appreciate against the dollar, the dollar value of earnings remitted to the parent should ____. The parent may request that the subsidiary ____ in order to benefit from the expectation about the pound.

Accepted Answer

A)   increase; postpone remitting earnings until the pound strengthens
B)   decrease; postpone remitting earnings until the pound strengthens
C)   decrease; remit earnings immediately before the pound strengthens
D)   increase; remit earnings immediately before the pound strengthensE) A) and D)
F) B) and C)

Question 12

The feasibility of the capital budgeting analysis can vary with the perspective because the net after-tax cash inflows to the subsidiary can differ substantially from those to the parent. Such differences can be due to which of the following factors:

Accepted Answer

A)   tax differentials.
B)   restricted remittances.
C)   exchange rate movements.
D)   all of the above.E) A) and B)
F) A) and C)

Question 13

When a foreign currency is perceived by a firm to be undervalued, the firm may consider direct foreign investment in that country, as the initial outlay should be relatively low.

Accepted Answer

A) True 
 B)False

Question 14

When considering a major new investment, it is not just the individual risk that is important, but how that risk contributes to the overall risk of the portfolio of projects that a MNC is undertaking.

Accepted Answer

A) True 
 B)False

Question 15

Foreign direct investment represents investment in real assets (such as land, buildings, or even existing plants) in foreign countries.

Accepted Answer

A) True 
 B)False

Question 16

MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is not true regarding the efficient frontier considered by MNCs?

Accepted Answer

A)   There is exactly one point on the efficient frontier that is optimal for every MNC, regardless of its degree of risk aversion.
B)   The efficient frontier for international projects will probably lie to the left of the efficient frontier for domestic projects.
C)   Each point on the efficient frontier represents a portfolio of projects as opposed to an individual project.
D)   A and C are false.
E)   All of the above are true.F) B) and D)
G) B) and C)

Question 18

According to information in the text, a host government would be least likely to provide incentives for foreign direct investment (FDI)  into its country if the firm planning FDI:

Accepted Answer

A)   would compete with local firms of the host country.
B)   would produce a good not currently available in the host country.
C)   would produce a good and export it to other countries.
D)   B and CE) A) and C)
F) A) and B)

Question 19

Which of the following is not true regarding host government attitudes towards foreign direct investment (FDI) ?

Accepted Answer

A)   Host governments may offer incentives to MNCs in the form of subsidies in certain circumstances.
B)   Host governments generally perceive FDI as a remedy to eliminate a country's political problems.
C)   The ability of a host government to attract FDI is dependent on the country's markets and resources.
D)   Some types of FDI will be more attractive to some governments than to others.
E)   All of the above are true.F) A) and C)
G) B) and D)

Question 20

Along the frontier of efficient project portfolios, exactly one portfolio can be singled out as "optimal" for all MNCs.

Accepted Answer

A) True 
 B)False

Exam 13: Foreign Direct Investment

When a firm perceives that a foreign currency is , the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively .

Correct Answer
verified

According to the text, a firm may be able to achieve a 'more efficient' project portfolio if it:

Correct Answer
verified

When considering a major new investment, it is not just the individual risk that is important, but how that risk contributes to the overall risk of the portfolio of projects that a MNC is undertaking.

Correct Answer
verified

Which of the following is not true regarding host government attitudes towards foreign direct investment (FDI) ?

Correct Answer
verified

The a project's variability in cash flows, and the the positive correlation between the project's cash flow and MNC's cash flow, the lower the risk of the project.

Correct Answer
verified

Correct Answer
verified

To fully benefit from economies of scale, an MNC should:

Correct Answer
verified

Foreign direct investment represents investment in real assets (such as land, buildings, or even existing plants) in foreign countries.

Correct Answer
verified

Assume a US firm initiates direct foreign investment in the UK If the British pound is expected to appreciate against the dollar, the dollar value of earnings remitted to the parent should . The parent may request that the subsidiary in order to benefit from the expectation about the pound.

Correct Answer
verified

A firm will likely benefit most from diversifying if:

Correct Answer
verified

The feasibility of the capital budgeting analysis can vary with the perspective because the net after-tax cash inflows to the subsidiary can differ substantially from those to the parent. Such differences can be due to which of the following factors:

Correct Answer
verified

Which of the following is not true regarding the efficient frontier considered by MNCs?

Correct Answer
verified

When a foreign currency is perceived by a firm to be undervalued, the firm may consider direct foreign investment in that country, as the initial outlay should be relatively low.

Correct Answer
verified

The following data is available for an investment object: $\bullet$ Acquisition cost: 60,000 $\bullet$ Operating cash flows: 20,000 in year 1; 30,000 in year 2; 35,000 in year 3. Using the NPV model with a discount rate of 10%, which of the following is true?

Correct Answer
verified

MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth.

Correct Answer
verified

Along the frontier of efficient project portfolios, exactly one portfolio can be singled out as "optimal" for all MNCs.

Correct Answer
verified

According to information in the text, a host government would be least likely to provide incentives for foreign direct investment (FDI) into its country if the firm planning FDI:

Correct Answer
verified

MNCs often attempt to set up production in locations where land and labour are expensive, because expensive factors of production indicate high demand.

Correct Answer
verified

To use foreign factors of production, an MNC should:

Correct Answer
verified

____ is not a cost-related motive for direct foreign investment.

Correct Answer
verified

Exam 13: Foreign Direct Investment

When a firm perceives that a foreign currency is ____, the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively ____.

Correct AnswerverifiedShow Answer

According to the text, a firm may be able to achieve a 'more efficient' project portfolio if it:

Correct AnswerverifiedShow Answer

When considering a major new investment, it is not just the individual risk that is important, but how that risk contributes to the overall risk of the portfolio of projects that a MNC is undertaking.

Correct AnswerverifiedShow Answer

Which of the following is not true regarding host government attitudes towards foreign direct investment (FDI) ?

Correct AnswerverifiedShow Answer

The ____ a project's variability in cash flows, and the ____ the positive correlation between the project's cash flow and MNC's cash flow, the lower the risk of the project.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

To fully benefit from economies of scale, an MNC should:

Correct AnswerverifiedShow Answer

Foreign direct investment represents investment in real assets (such as land, buildings, or even existing plants) in foreign countries.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A firm will likely benefit most from diversifying if:

Correct AnswerverifiedShow Answer

The feasibility of the capital budgeting analysis can vary with the perspective because the net after-tax cash inflows to the subsidiary can differ substantially from those to the parent. Such differences can be due to which of the following factors:

Correct AnswerverifiedShow Answer

Which of the following is not true regarding the efficient frontier considered by MNCs?

Correct AnswerverifiedShow Answer

When a foreign currency is perceived by a firm to be undervalued, the firm may consider direct foreign investment in that country, as the initial outlay should be relatively low.

Correct AnswerverifiedShow Answer

The following data is available for an investment object: ∙\bullet∙ Acquisition cost: 60,000 ∙\bullet∙ Operating cash flows: 20,000 in year 1; 30,000 in year 2; 35,000 in year 3. Using the NPV model with a discount rate of 10%, which of the following is true?

Correct AnswerverifiedShow Answer

MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth.

Correct AnswerverifiedShow Answer

Along the frontier of efficient project portfolios, exactly one portfolio can be singled out as "optimal" for all MNCs.

Correct AnswerverifiedShow Answer

According to information in the text, a host government would be least likely to provide incentives for foreign direct investment (FDI) into its country if the firm planning FDI:

Correct AnswerverifiedShow Answer

MNCs often attempt to set up production in locations where land and labour are expensive, because expensive factors of production indicate high demand.

Correct AnswerverifiedShow Answer

To use foreign factors of production, an MNC should:

Correct AnswerverifiedShow Answer

____ is not a cost-related motive for direct foreign investment.

Correct AnswerverifiedShow Answer

When a firm perceives that a foreign currency is , the firm may attempt direct foreign investment in that country, as the initial outlay should be relatively .

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

The a project's variability in cash flows, and the the positive correlation between the project's cash flow and MNC's cash flow, the lower the risk of the project.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The following data is available for an investment object: $\bullet$ Acquisition cost: 60,000 $\bullet$ Operating cash flows: 20,000 in year 1; 30,000 in year 2; 35,000 in year 3. Using the NPV model with a discount rate of 10%, which of the following is true?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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