MCQ - Seminar Five

Question 1

Based on observations of firms that have successfully invested abroad, we can conclude that one of the competitive advantages enjoyed by MNE’s is:

A) financial strength
B) competitiveness of their home markets
C) managerial expertise
D) all of the above are competitive advantages

Answer 1

D) all of the above are competitive advantages

Question 2

Based on observations of firms that have successfully invested abroad, we can conclude companies are more competitive when:

A) located in countries that are naturally endowed with the appropriate factors of production
B) facing sophisticated and demanding customers in the home market
C) surrounded by a critical mass of related industries and suppliers
D) all of the above are true

Answer 2

D) all of the above are true

Question 3

The OLI paradigm is an attempt to create a framework to explain why MNE’s choose ______ rather than some other form of international venture

A) strategic alliances
B) licensing
C) joint ventures
D) foreign direct investment

Answer 3

D) foreign direct investment

Question 4

The owner-specific advantages of OLI must be:

A) firm-specific
B) transferable to foreign subsidiaries
C) not easily copied
D) all of the above

Answer 4

D) all of the above

Question 5

Which of the following is not a market imperfection or genuine comparative advantage that attracts FDI to particular locations?

A) defensive investments
B) unique sources of raw materials
C) low cost and productive labour force
D) an expansive monetary policy

Answer 5

D) an expansive monetary policy

Question 6

A/an ________ would be an example of an internalisation advantage for an MNE

A) possession of proprietary information
B) economy of scale
C) unique sources of raw materials
D) patent

Answer 6

A) possession of proprietary information

Question 7

Which of the following in NOT true regarding behavioural observations of firms making a decision to invest internationally?

A) initial investments tend to be much larger than subsequent ones
B) MNE’s initially invest in countries with a similar “national psychic”
C) firms eventually take greater risks in terms of the national psychic of countries in which they invest
D) all of the above have been observed

Answer 7

A) initial investments tend to be much larger than subsequent ones

Question 8

Which of the following is NOT an advantage to exporting goods to reach international markets rather than entering into some form of FDI?

A) lower front-end investment
B) greater agency costs
C) fewer political risks
D) all of the above are advantages

Answer 8

B) greater agency costs

Question 9

Which of the following is NOT a form of FDI?

A) exporting
B) wholly-owned affiliate
C) joint venture
D) greenfield

Answer 9

A) exporting

Question 10

Which of the following is NOT a potential disadvantage of licensing relative to FDI?

A) possible loss of quality control
B) possible improvement of the technology by the local licensee, which then enters the original firms home market
C) establishment of a potential competitor in third-country markets
D) all of above are potential disadvantages to licensing

Answer 10

D) all of above are potential disadvantages to licensing

Question 11

A ________ is a shared ownership in a foreign business.

A) greenfield investment
B) joint venture
C) licensing agreement
D) wholly-owned affiliate

Answer 11

B) joint venture

Question 12

Which of the following is NOT an advantage to a joint venture?

A) The local partner can provide competent management at many levels.
B) The local partner understands the customs and mores of the foreign market.
C) Possible loss of opportunity to enter the foreign market with FDI later.
D) May be a realistic alternative when 100% foreign ownership is not allowed.

Answer 12

C) possible loss of opportunity to enter the foreign market with FDI later

Question 13

Greenfield investments are typically ________ and ________ than cross-border acquisition.

A) faster; of greater certainty
B) faster; more uncertain
C) slower; more uncertain
D) slower; of greater certainty

Answer 13

C) slower; more uncertain

Question 14

________ risks are those that affect the MNE at the local or project level, but originate at the country level.

A) Country-specific
B) Global-specific
C) Firm-specific
D) none of the above

Answer 14

A) country-specific

Question 15

Which of the following is NOT an example of a country-specific risk?

A) war and ethnic strife
B) transfer risk
C) cultural and religious heritage
D) All of the above are examples of country-specific risk.

Answer 15

D) all of the above are a examples of country-specific risk

Question 16

According to your authors, MNEs can anticipate government regulations that are discriminatory or wealth depriving from a/an ________ or ________ level view.

A) foreign; domestic
B) local; global
C) internal; external
D) micro; macro

Answer 16

D) micro; macro

Question 17

Of the following, which would NOT be considered an issue for an investment agreement prior to investing in a foreign country?

A) the right to export to third-country markets
B) the basis for setting transfer prices
C) provision for arbitration of disputes
D) All of the above could be negotiated prior to investing.

Answer 17

D) all of the above could be negotiated prior to investing

Question 18

________ is the risk that the host government will take specific steps that prevent the foreign affiliate from exercising control over the firm’s assets.

A) Expropriation
B) Inconvertibility
C) Business income risk
D) none of the above

Answer 18

A) expropriation

Question 19

Which of the following is NOT one of the stages at which MNEs can react to the potential for blocked funds?

A) during operations
B) prior to investing
C) reinvesting in the local country when funds cannot be moved
D) All of the above are stages at which MNEs can react.

Answer 19

D) all of the above are stages at which MNE’s can react

Question 20

A ________ loan, also known as ________, is a parent-to-affiliate loan channeled through a financial intermediary such as a large commercial bank.

A) link financing; a parallel loan
B) fronting; link financing
C) fronting; a back-to-back loan
D) parallel; a back-to-back loan

Answer 20

B) fronting; link financing

Question 21

Which of the following could be considered an example of forced reinvestment if the blockage of funds was expected to be temporary?

A) a lumber cutting company subsequently builds a paper mill with blocked funds
B) vertical reinvestment by an automobile manufacturer to buy parts suppliers and showrooms
C) purchase of local money market instruments and short-term loans
D) all of the above

Answer 21

C) purchase of local money market instruments and short-term loans

Question 22

Which of the following is NOT a typical characteristic of a fronting loan made to an international subsidiary?

A) The lending bank is located in the subsidiary’s country.
B) The parent makes a deposit equal to the size of the desired loan into a large commercial bank.
C) The bank lends to the subsidiary firm an amount equal to the parent deposit at a slightly higher interest rate.
D) All of the above are typical characteristics of a fronting loan.

Answer 22

A) the lending bank is located in the subsidiaries country

Question 23

The traditional financial analysis applied to foreign or domestic projects, to determine the project’s value to the firm is called:

A) agency theory.
B) cost of capital analysis.
C) capital budgeting.
D) capital structure analysis.

Answer 23

C) capital budgeting

Question 24

Which of the following is NOT a basic step in the capital budgeting process?

A) Estimate the cash flows to be derived from the project over time.
B) Identify the appropriate interest rate at which to discount future cash flows.
C) Identify the initial capital invested.
D) All of the above are steps in the capital budgeting process.

Answer 24

D) all of the above are steps in the capital budgeting process

Question 25

Which of the following is NOT a reason why capital budgeting for a foreign project is more complex than for a domestic project?

A) Parent cash flows must be distinguished from project cash flows.
B) Differing rates of inflation exist between the foreign and domestic economies.
C) Parent firms must specifically recognize remittance of funds due to differing rules and regulations concerning remittance of cash flows, taxes, and local norms.
D) All of the above add complexity to the international capital budgeting process.

Answer 25

D) all of the above add complexity to the international capital budgeting

Question 26

For purposes of international capital budgeting, which of the following statements is NOT true?

A) Parent cash flows must be distinguished from project cash flows. Each of these two types of flows contributes to a different view of value.
B) An array of nonfinancial payments can generate cash flows from subsidiaries to the parent, including payment of license fees and payments for imports from the parent.
C) Managers must evaluate political risk because political events can drastically reduce the value or availability of expected cash flows. D) All of the above are true statements.
D) all of the above are true statements

Answer 26

D) all of the above are true statements

Question 27

Project evaluation from the ________ viewpoint serves some useful purposes and/but should ________ the ________ viewpoint.

A) parent’s; be subordinated to; local
B) local; not be subordinated to; parent’s
C) local; be subordinated to; parent’s
D) none of the above

Answer 27

C) local; be subordinated to; parents

Question 28

Real option analysis allows managers to analyze all of the following EXCEPT:

A) the option to alter capacity.
B) the option to defer.
C) the option to abandon.
D) All of the above may be analyzed using real option analysis.

Answer 28

D) all of the above may be analysed using real option analysis.

Question 29

Which of the following is NOT a factor critical to the success of project financing?

A) long-lived and capital intensive singular projects
B) separability of the project from its investors
C) cash flow predictability from third part commitments
D) All of the above are critical factors for project financing.

Answer 29

D) all of the above are critical factors fro project financing

Question 30

Which of the following is NOT a characteristic of international long-term capital project financing?

A) The projects are long in life.
B) The projects are generally high in risk.
C) The projects are large in scale.
D) The projects may be all of the above.

Answer 30

D) the projects may be all of the above

Question 31

The predictability of the project’s revenue stream is essential in securing project financing. Which of the following is NOT a typical contract provisions that are intended to assure adequate cash flow?

A) a pricing formula
B) fronting loan
C) circumstances that permit changes in the contract
D) quantity and quality of the project’s output

Answer 31

B) fronting loan

Question 32

Which of the following is NOT a reason given for international mergers and acquisitions?

A) diversifying and spreading their risks wider
B) gaining market power and dominance
C) gaining access to strategic proprietary assets
D) All of the above are commonly cited reasons for international mergers and acquisitions.

Answer 32

D) all of the above are commonly cited reasons for international mergers and acquisitions

Question 33

Which of the following changes does NOT create business opportunities for select firms to both enhance and defend their competitive positions in global markets?

A) changes in management
B) changes in capital markets
C) changes in regulation
D) changes in technology

Answer 33

A) changes in management

Question 34

The process of acquiring an enterprise anywhere in the world has three common elements EXCEPT:

A) management of the post-acquisition transition.
B) identification and valuation of the target.
C) execution of the acquisition offer and purchase the tender.
D) All of the above are common elements in acquiring an enterprise anywhere in the world.

Answer 34

D) all of the above are common elements in acquiring an enterprise anywhere in the world

Question 35

Which of the following is NOT an advantage of cross-border acquisitions over greenfield investments?

A) cost-effective
B) quicker
C) target firms to be undervalued
D) melding corporate cultures

Answer 35

D) melding corporate cultures

Question 36

Which of the following is NOT a typical pitfall of cross-border acquisitions?

A) melding corporate cultures
B) paying too much
C) excessive financing costs
D) All of the above are pitfalls.

Answer 36

D) all of the above are pitfalls