Seminar 5 MCQs

Question 1

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

A) Financial strength.
B) Competitiveness of their home markets.
C) Managerial expertise.
D) All of the above are competitive advantages.

Answer 1

All of the above.

Question 2

Based on the 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

All of the above are true.

Question 3

The OLI paradigm is an attempt to create a framework to explain why MNEs choose _______ rather than some other form of international venture.

A) Strategic alliances.
B) Licensing.
C) Joint ventures.
D) FDI.

Answer 3

FDI.

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

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

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 source of raw materials.
D) Patent.

Answer 6

Possession of proprietary information.

Question 7

Which of the following is 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) MNEs 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

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

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 investment.

Answer 9

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 license, which then enters the original firm’s home market.
C) Establishment of a potential competitor in third-country markets.
D) All of the above are potential disadvantages to licensing.

Answer 10

All of the above.

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

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 customers 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

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

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

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

All of the above.

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

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 be negotiated prior to investing.

Answer 17

All of the above.

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

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

All of the above.

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

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 the local money market instruments and short-term loans.
D) All of the above.

Answer 21

Purchase of the 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 larger 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

The lending bank is located in the subsidiary’s 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

Capital budgeting.

Question 24

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

A) Agency theory.
B) Cost of capital analysis.
C) Capital budgeting.
D) Capital structure analysis.

Answer 24

Capital structure analysis.

Question 25

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

All of the above.

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 non-financial payments can generate cash flows from subsidiaries to the parent, including payment of licensing 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.

Answer 26

All of the above.

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

Local; be subordinated to; parent’s.

Question 28

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

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

Answer 28

All of the above.

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

All of the above.

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

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

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

All of the above.

Question 33

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

A) Changes in management.
B) Changes in capital markets.
C) Changes in regulation.
D) Changes in technology.

Answer 33

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 purchases - the tender.
D) All of the above are common elements in acquiring an enterprise anywhere in the world.

Answer 34

All of the above.

Question 35

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

A) Cost-effective.
B) Quicker.
C) Excessive financing costs.
D) All of the above are pitfalls.

Answer 35

All of the above.