Chapter 9

Question 1

A company can achieve market power through ________.

Select one:

a. internalization advantages
b. horizontal integration
c. ownership advantages
d. vertical integration

Answer 1

d. vertical integration

Question 2

According to the market imperfections theory, competition is a common market imperfection.

Select one:
True
False

Answer 2

False

Question 3

Which of the following methods is being used when a host country provides lower tax rates and low-interest loans to firms from abroad for encouraging inflows of foreign direct investment?

Select one:

a. financial incentives
b. embargoes
c. local content requirements
d. sanctions

Answer 3

a. financial incentives

Question 4

Volkswagen is a leading global auto-maker with production facilities in 48 countries. It sells eight million cars annually to customers in more than 150 countries. Some of VW’s well-known luxury brands include Bentley, Bugatti, Lamborghine and Porsche. Volkswagen attributes its remarkable success to paying its workers twice as much as do its American and Japanee competitors.

Select one:
True
False

Answer 4

False

Question 5

Building a subsidiary abroad from the ground up is called a greenfield investment.

Select one:
True
False

Answer 5

True

Question 6

Which of the following is a major driver of foreign direct investment?

Select one:

a. cultural diversity
b. horizontal integration
c. globalization
d. vertical integration

Answer 6

c. globalization

Question 7

According to the eclectic theory that explains FDI, an ownership advantage is the advantage that arises from internalizing a business activity rather than leaving it to a relatively inefficient market.

Select one:
True
False

Answer 7

False

Question 8

Which of the following is used by home country governments to limit outbound foreign direct investment?

Select one:

a. tax breaks
b. low-interest loans
c. differential tax rates
d. ownership restrictions

Answer 8

c. differential tax rates

Question 9

Increasing globalization is causing a growing number of international companies from emerging markets to undertake FDI.

Select one:
True
False

Answer 9

True

Question 10

When a U.S. subsidiary in another country remits profits back to its parent company in the U.S., the receipt of profits is recorded in the ________.

Select one:

a. income receipts account and given a minus sign
b. income payments account and given a plus sign
c. income receipts account and given a plus sign
d. income payments account and given a minus sign

Answer 10

c. income receipts account and given a plus sign

Question 11

Which of the following accounts of a country’s balance of payments records transactions involving the export of services?

Select one:

a. transactional account
b. savings account
c. capital account
d. current account

Answer 11

d. current account

Question 12

Scenario: Blickinstock at the Crossroads

Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To that end, Blickinstock is trying to decide whether to purchase an existing company in a remote region of Argentina or build its own subsidiary. Keith Moon, Blickinstock’s vice president of global business development, will be making a presentation to the board outlining the company’s options.

Blickinstock has identified a company that it can acquire or merge with. Which of the following statements would represent the least likely reason for Blickinstock to go ahead with the merger?

Select one:

a. The merger would help to fill the gaps in Blickinstock’s product line.
b. The merger would bring in increased cash-flows that Blickinstock can use to acquire other firms.
c. The merger would allow the company to get a foothold in the nascent Latin American market.
d. The merger would help increase Blickinstock’s global competitiveness.

Answer 12

b. The merger would bring in increased cash-flows that Blickinstock can use to acquire other firms.

Question 13

Which of the following theories states that firms undertake foreign direct investment, when the features of a particular location combine with ownership and internalization advantages, to make the location appealing for investment?

Select one:

a. market power theory
b. eclectic theory
c. international product life cycle theory
d. market imperfections theory

Answer 13

b. eclectic theory

Question 14

The possibility that a company will create a future competitor by charging another company for access to its knowledge is a market imperfection that can encourage foreign direct investment.

Select one:
True
False

Answer 14

True

Question 15

The possibility that a company will create a future competitor by charging another company for access to its knowledge is a market imperfection that can encourage foreign direct investment.

Select one:
True
False

Answer 15

True

Question 16

According to the market imperfections theory, competition is a common market imperfection.

Select one:
True
False

Answer 16

False

Question 17

Which of the following countries would a watchmaker most prefer to manufacture its watches in, in order to capitalize on buyer perceptions of high quality?

Select one:

a. China
b. Switzerland
c. Thailand
d. Mexico

Answer 17

Switzerland

Question 18

Which of the following methods is being used when a host country provides lower tax rates and low-interest loans to firms from abroad for encouraging inflows of foreign direct investment?

Select one:

a. financial incentives
b. sanctions
c. local content requirements
d. embargoes

Answer 18

a. financial incentives

Question 19

The possibility that a company will create a future competitor by charging another company for access to its knowledge is a(n) ________ that can encourage FDI.

Select one:

a. market imperfection
b. trade barrier
c. internalization advantage
d. ownership advantage

Answer 19

a. market imperfection

Question 20

Building a subsidiary abroad from the ground up is called a greenfield investment.

Select one:
True
False

Answer 20

True

Question 21

Which of the following statements is true of rationalized production?

Select one:

a. It is an unethical method of production as it uses questionable labor practices to reduce costs.
b. It depends on a large number of distribution channels which leads to inefficiency.
c. It depends on a large number of distribution channels which increases the cost of production.
d. It can bring the entire production process to a standstill, if work is stopped in one country.

Answer 21

d. It can bring the entire production process to a standstill, if work is stopped in one country.

Question 22

Scenario: Blickinstock at the Crossroads

Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To that end, Blickinstock is trying to decide whether to purchase an existing company in a remote region of Argentina or build its own subsidiary. Keith Moon, Blickinstock’s vice president of global business development, will be making a presentation to the board outlining the company’s options.

If Blickinstock’s home government tries to stop the company from investing in Latin America, the government is most likely trying to ________.

Select one:

a. prevent a monopoly situation from occurring
b. discourage the entry of a “sunset” company
c. protect the “sunset” companies in Latin America
d. protect its balance of payments

Answer 22

d. protect its balance of payments

Question 23

Which of the following methods is used by a host country to restrict incoming foreign direct investment?

Select one:

a. differential tax rates for earnings abroad
b. performance demands
c. insurance to cover the risk of overseas investments
d. low-interest loans to investors

Answer 23

b. performance demands

Question 24

A potential problem with a rationalized production model is that a work stoppage in one country can bring the entire production process to a standstill.

Select one:
True
False

Answer 24

True

Question 25

Home nations discourage foreign direct investment outflows because it ________.

Select one:

a. replaces jobs in the home nation
b. decreases long-term competitiveness of companies
c. fails to protect the “sunset” industries in the home nation
d. discourages cooperation between countries

Answer 25

a. replaces jobs in the home nation

Question 26

In industries having a limited number of small firms, foreign direct investment decisions frequently resemble a “follow the leader” scenario.

Select one:
True
False

Answer 26

False

Question 27

A useful strategy to assure a company’s internationalization strategy will work and the investment capital (FDI) deployed will earn a consistent stream of revenues is for the firm to replicate its home country human resource policies to the host country without any changes. In this way expatriate managers will not experience uncertainty when managing or working in the host subsidiary.
Select one:
True
False

Answer 27

False

Question 28

If a Japanese citizen invests in the Australian stock market, the transaction would show up on the capital account in the balance of payments of ________.

Select one:

a. neither Japan nor Australia
b. Japan
c. both Japan and Australia
d. Australia

Answer 28

c. both Japan and Australia

Question 29

________ are those that use outdated and obsolete technologies or employ low-wage workers with few skills.

Select one:

a. Shell corporations
b. Business-agile enterprises
c. Sunset industries
d. Greenfield investments

Answer 29

c. Sunset industries

Question 30

The possibility that a company will create a future competitor by charging another company for access to its knowledge is a(n) ________ that can encourage FDI.

Select one:

a. market imperfection
b. ownership advantage
c. internalization advantage
d. trade barrier

Answer 30

a. market imperfection

Question 31

A firm’s subsidiary built abroad from the ground up is called a(n) ________.

Select one:

a. portfolio investment
b. distributive channel
c. shell corporation
d. greenfield investment

Answer 31

d. greenfield investment

Question 32

Which of the following is least likely a reason for companies to seek cross-border mergers and acquisitions?

Select one:

a. to get a foothold in new geographic markets
b. to increase a firm’s global competitiveness
c. to fill the gaps in companies’ product lines in a global industry
d. to raise company budgets for increased research and development activities

Answer 32

d. to raise company budgets for increased research and development activities

Question 33

The ________ theory states that when an aspect of the market makes a transaction less efficient than it could be, a company will undertake foreign direct investment to internalize the transaction and thereby remove the efficiency-reducing aspect.

Select one:

a. market imperfections
b. international product life cycle
c. eclectic
d. market power

Answer 33

a. market imperfections

Question 34

A potential problem with a rationalized production model is that a work stoppage in one country can bring the entire production process to a standstill.

Select one:
True
False

Answer 34

True

Question 35

Firms from emerging markets account for a greater share of global mergers and acquisitions than developed markets.

Select one:
True
False

Answer 35

True

Question 36

The merchandise account includes exports and imports of tangible goods.

Select one:
True
False

Answer 36

True

Question 37

In industries having a limited number of small firms, foreign direct investment decisions frequently resemble a “follow the leader” scenario.

Select one:
True
False

Answer 37

False

Question 38

Scenario: Happyland

Happyland is a country characterized by beautiful beaches, vast natural resources, and a highly skilled labor force. Happyland is now encouraging foreign direct investment flows. The country has been exporting textiles, computer hardware, and software programs. The net result of the trade is that Happyland exports far more goods and services and receives more income from abroad than it imports and pays abroad.

If Happyland advertises its beaches and attracts tourists, the tourism-related income would be recorded in its ________ account.

Select one:

a. capital
b. income payments
c. services
d. merchandise

Answer 38

c. services

Question 39

Exports and imports of tourism and business consulting are included in the ________ account of a country’s balance of payments.

Select one:

a. services
b. merchandise
c. savings
d. capital

Answer 39

a. services

Question 40

Not all factors of production are internationally mobile.

Select one:
True
False

Answer 40

True

Question 41

A useful strategy to assure a company’s internationalization strategy will work and the investment capital (FDI) deployed will earn a consistent stream of revenues is for the firm to replicate its home country human resource policies to the host country without any changes. In this way expatriate managers will not experience uncertainty when managing or working in the host subsidiary.
Select one:
True
False

Answer 41

False

Question 42

Which of the following statements is true of rationalized production?

Select one:

a. It is an unethical method of production as it uses questionable labor practices to reduce costs.
b. It can bring the entire production process to a standstill, if work is stopped in one country.
c. It depends on a large number of distribution channels which increases the cost of production.
d. It depends on a large number of distribution channels which leads to inefficiency.

Answer 42

b. It can bring the entire production process to a standstill, if work is stopped in one country.