Midterm 1

Question 1

Goal of the MNC:

Answer 1

Maximize shareholder wealth.

Question 2

When a corporation shareholders differ from its managers a conflict of goals exist:

Answer 2

Agency problem

Question 3

Specialization by countries can increase production efficiency:

Answer 3

Theory of comparative advantage

Question 4

The markets for the various resources used in production or imperfect

Answer 4

Imperfect markets theory

Question 5

As a firm matures it may recognize additional opportunities outside its home country

Answer 5

Product cycle theory

Question 6

Involves exporting and or importing

Answer 6

International trade

Question 7

Allows a firm to provide its technology in exchange for fees or some other benefits

Answer 7

Licensing

Question 8

Obligates a firm to provide a specialized sales or service strategy, support assistance, and possibly an initial investment in exchange for periodic fees

Answer 8

Franchising

Question 9

International business usually increases a MNC’s exposure to:

Answer 9

1. Exchange rate movements
2. Foreign economies
3. Political risk

Question 10

Of what is the current account generally composed of?

Answer 10

The current account balance is composed of the balance of trade, the net amount of payments of interest to foreign investors and from foreign investment, payment from international tourism, and private gifts and grants.

Question 11

Of what is the capital account generally composed of?

Answer 11

The capital account is composed of all capital investments made between countries, including both direct foreign investment and purchases of securities with maturities exceeding one year.

Question 12

How to word a relatively high home inflation rate affect the home countries current account, other things being equal?

Answer 12

A high inflation rate tends to increase imports and decrease exports, thereby increasing the current account deficit, other things equal

Question 13

Is a negative current account harmful to a country?

Answer 13

A negative current account is thought to reflect lost jobs in a country, which is unfavorable. Yet, the foreign importing reflects strong competition from foreign producers, which may keep prices low.

Question 14

Which of the following industries would most likely take advantage of lower cost and some less developed foreign countries?

A) assembly line production
B) specialized professional services
C) nuclear missile planning
D) planning for more sophisticated computer technology

Answer 14

A) Assembly line production

Question 15

What should the following is an example of direct foreign investment? Exporting to a country, establishing licensing arrangements in a country, purchasing existing companies in a country, or investing directly without brokers in foreign stocks

Answer 15

Purchasing existing companies in a country

Question 16

The direct foreign investment positions by US firms have generally _______ overtime; the direct foreign investment positions in the US by non-US firms have generally _____ overtime.

Answer 16

Increased; increased

Question 17

Dumb thing is used in the text to represent:

Exporting of goods that do not meet quality standards, sales of junk bonds to foreign countries, removal of foreign subsidiaries by the host government, or exporting of goods at prices below Cost.

Answer 17

Exporting of goods at prices below cost.