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Fundamentals of Multinational Finance , 3e (Moffett)Chapter1

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Globalizationand theMultinational

Enterpri

se

1.1

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MultipleChoic

eand True/FalseQuestions

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1)

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an open market placeB)

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high quality strategic managementC)

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access to capitalD)

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all of the aboveAnswer:

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ATopic:

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Firm ValueSkill:

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Conceptual

2)

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A well-establis

hed, large firm U.S.-based MNE will probably not be able to overcome which of thefollowing obstacles to maximizing firm value?

A)

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an open market placeB)

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high quality strategic managementC)

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access to capitalD)

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none of the aboveAnswer:

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DTopic:

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Firm ValueSkill:

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Recognition

3)

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TRUETopic:

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Firm ValueSkill:

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Conceptual

4)

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A well-establis

hed, large China-based MNE will probably be most adversely affected by which of thefollowing elements of firm value?

A)

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an open marketplaceB)

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high-quality strategic managementC)

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access to capitalD)

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access to qualified labor poolAnswer:

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ATopic:

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Firm ValueSkill:

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Conceptual

5)

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A well-establis

hed, large, Brazil-based MNE will probably be most adversely affected by which of the following elements of firm value?

A)

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an open marketplaceB)

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high-quality strategic managementC)

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access to capitalD)

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access to qualified labor poolAnswer:

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CTopic:

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Firm ValueSkill:

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40/235

Conceptual

6)

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Thetheory

that suggests specialization by country can increase worldwide production is ________.

A)

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the theory of comparative advantageB)

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the theory of foreign direct investmentC)

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the international Fisher effectD)

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the theory of working capital managementAnswer:

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ATopic:

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Comparative Advantage

Skill:

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Recognition

7)

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Which of the following would NOT be a way to implement comparative advantage?A)

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IBM exports computers to Egypt.B)

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Computerhardware is

designed in the United States but manufactured and assembled in Korea.

C)

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Water of thegreatest

purity is obtained from wells in Oregon, bottled, and exported worldwide.

D)

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All of the above are examples of ways to implement comparative advantage.Answer:

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DTopic:

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Comparative Advantage

Skill:

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Conceptual

8)

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Which of the following would NOT be considered a feature of comparative advantage?A)

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Exporters in Country A sell goods or services to unrelated importers in Country B.B)

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Firms inCountry Aspecialize in

making products that can be produced relatively efficiently, given County A'sendowment of factors of production. Firms in Country B do likewise thusmaximizing the combined output of Countries A and B.

C)

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Trade existsbetween

Counties A and B because of specialized factors of production that cannot bemoved among countries.

D)

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DTopic:

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Comparative Advantage

Skill:

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Recognition

9)

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Of thefollowin

g, which would NOT be considered a way that government interferes withcomparative advantage?

A)

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tariffsB)

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managerial skillsC)

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quotasD)

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other non- tariff restrictionsAnswer:

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BTopic:

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Comparative Advantage

Skill:

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Recognition

10)

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Comparative

advantage shifts over time as less developed countries become more developed andrealize their latent opportunities.Answer:

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TRUETopic:

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Comparative Advantage

Skill:

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Recognition

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11)

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Comparative

advantage was once the cornerstone of international trade theory, but today it isarchaic, simplistic, and irrelevant for explaining investment choices made by MNEs.Answer:

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FALSETopic:

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Recognition

12)

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Indetermining

why a firm becomes multinational there are many reasons. One reason is that thefirm is a market seeker. Which of the following is NOT a reason why market seekingfirms produce in foreign countries?

A)

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political safely and small likelihood of government expropriation of assetsD)

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All of the above are market-seeking activities.Answer:

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CTopic:

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Comparative Advantage

Skill:

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89/235

Recognition

13)

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________ investments are

designed to promote and enhance the growth and profitability of the firm. ________ investments are designed to deny those same opportunities to the firm'scompetitors.

A)

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Conservative ; aggressiveB)

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Defensive; proactiveC)

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Proactive; defensiveD)

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Aggressive; proactiveAnswer:

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CTopic:

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Comparative Advantage

Skill:

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Recognition

14)

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Whichof the

following is NOT considered to be a type of competitive advantage that may beenjoyed by an MNE?

A)

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managerial and marketing expertiseB)

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superior technology due to investment in research and developmentC)

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increased agency costsD)

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differentiate d productsAnswer:

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CTopic:

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Comparative Advantage

Skill:

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105/235

Recognition

15)

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Whichof the

following is NOT considered to be a type of competitive advantage that may beenjoyed by an MNE?

A)

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competitiven ess in their home marketsB)

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foreign exchange risksC)

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economies of scaleD)

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economies of scopeAnswer:

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BTopic:

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Comparative Advantage

Skill:

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Recognition

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16)

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Thephase

of the globalization process characterized by imports from foreign suppliers andexports to foreign buyers is called the

A)

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domestic phase.B)

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multinational phase.C)

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international trade phase.D)

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import- export banking phase.Answer:

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CTopic:

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TheGlobalizationProcessFundamentals

Skill:

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Recognition

17)

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Theauthors

describe the multinational phase of globalization for a firm as one characterized bythe

A)

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ownership of assets and enterprises in foreign countries.B)

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potential forinternational

competitors or suppliers even though all accounts are with domestic firms andare denominated in dollars.

C)

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imports from foreign suppliers and exports to foreign buyers.D)

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requirement that all employees be multilingual.Answer:

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ATopic:

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TheGlobalizationProcessFundamentals

Skill:

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Recognition

18)

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Of thefollowin

g, which was NOT mentioned by the authors as an increase in the demands of financial management services due to increased globalization by the firm?

A)

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evaluation of the credit quality of foreign buyers and sellersB)

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foreign consumer method of payment preferencesC)

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134/235

credit risk managementD)

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evaluation of foreign exchange riskAnswer:

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136/235

BTopic:

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TheGlobalizationProcess,FinancialManagement

Skill:

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Recognition

19)

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Theauthors

describe the multinational phase of globalization for a firm as one characterized bythe

A)

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ownership of assets and enterprises in foreign countries.B)

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141/235

potential forinternational

competitors or suppliers even though all accounts are with domestic firms andare denominated in dollars.

C)

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imports from foreign suppliers and exports to foreign buyers.D)

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requirement that all employees be multilingual.Answer:

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144/235

ATopic:

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145/235

TheGlobalizationProcessFundamentals

Skill:

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146/235

Recognition

20)

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Of thefollowin

g, which was NOT mentioned by the authors as an increase in the demands of financial management services due to increased globalization by the firm?

A)

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evaluation of the credit quality of foreign buyers and sellersB)

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149/235

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credit risk managementD)

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151/235

evaluation of foreign exchange riskAnswer:

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152/235

BTopic:

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153/235

TheGlobalizationProcess,FinancialManagement

Skill:

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154/235

Recognition

21)

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Typically, a firm

in its domestic stage of globalization has all financial transactions in its domesticcurrency.Answer:

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TRUETopic:

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TheGlobalizationProcessFundamentals

Skill:

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Conceptual

22)

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A firm in the International Trade Phase of GlobalizationA)

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makes allforeign

payments in foreign currency units and all foreign receipts in domestic currencyunits.

B)

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receives allforeign

receipts in foreign currency units and makes all foreign payments in domesticcurrency units.

C)

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bears direct foreign exchange risk.D)

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none of the above.Answer:

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CTopic:

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165/235

TheGlobalizationProcessFundamentals

Skill:

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Conceptual

23)

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The exposure to foreign exchange risk known as Translation Exposure may be defined asA)

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changes inreported

owners' equity in consolidated financial statements caused by a change inexchange rates.

B)

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the impact of settling

outstanding obligations entered into before change in exchange rates but to besettled after change in exchange rates.

C)

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the changein expected

future cash flows arising from an unexpected change in exchange rates.

D)

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all of the above.Answer:

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172/235

ATopic:

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173/235

TheGlobalizationProcessFundamentals

Skill:

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Conceptual

24)

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Thetwin

agency problems limiting financial globalization are caused by these two groupsacting in their own self-interests rather than the interests of the firm.

A)

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corporate insiders and attorneysC)

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corporate insiders and rulers of sovereign statesD)

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attorneys and unsavory customs officialsAnswer:

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CTopic:

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Firm ValueSkill:

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Recognition

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TABLE 1.1Use the information in the table to answer following question(s).

25)

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Refer to Table

1.1. A production unit in Austria has a/an ________ over a production unit in Russia in ________.

A)

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absolute disadvantage; digital camerasB)

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absolute disadvantage; snowboardsC)

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absolute advantage; both cameras and snowboardsD)

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188/235

none of the aboveAnswer:

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189/235

CTopic:

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190/235

Absolute Advantage

Skill:

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191/235

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192/235

Refer to Table

1.1. Austria has a larger relative advantage over Russia in the production of ________ at a ratio of ________.

A)

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snowboards; 5 to 4B)

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cameras; 8 to 3C)

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snowboards; 8 to 3D)

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cameras; 3 to 8Answer:

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197/235

BTopic:

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198/235

Absolute Advantage

Skill:

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199/235

Conceptual

27)

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Refer to Table1.1.

Assume no trade between Russia and Austria. If each country put 50% of theirproduction units into each product, the total number of snowboards and digitalcameras produced by the two countries combined are ________ and ________.

A)

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15,000 snowboards; 3,000 digital camerasB)

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6,000 snowboards; 4,000 digital camerasC)

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2,750 digital cameras; 6,750 snowboardsD)

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204/235

15,000 digital cameras; 1,000 snowboardsAnswer:

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205/235

CTopic:

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206/235

Absolute Advantage

Skill:

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207/235

Analytical

28)

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208/235

Refer to Table

1.1. If trade takes place at Brazil's domestic price, ________ snowboards will berequired to obtain 1 digital camera.

A)

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4B)

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2 and 2/3C)

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1.25D)

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212/235

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ATopic:

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214/235

Absolute Advantage

Skill:

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215/235

Analytical

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216/235

29)

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217/235

Refer to Table1.1. If each

country specializes in their production with Austria producing only digital camerasand Russia producing only snowboards, at a trading rate of three snowboards perdigital camera, how many cameras and snowboards will be available to be consumedin Austria if they trade 3,000 cameras to Russia?

A)

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9,000 snowboards and 5,000 digital camerasB)

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3,000 snowboards and 3,000 digital camerasC)

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220/235

3,000 snowboards and 9,000 digital camerasD)

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221/235

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222/235

ATopic:

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223/235

Absolute Advantage

Skill:

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224/235

Analytical

30)

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225/235

Refer to Table1.1. If each

country specializes in their production with Austria producing only digital camerasand Russia producing only snowboards, at a trading rate of three snowboards perdigital camera, how many cameras and snowboards will be available to be consumedin Russia if they trade 9,000 snowboards to Austria?

A)

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9,000 snowboards and 5,000 digital camerasB)

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3,000 snowboards and 3,000 digital camerasC)

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228/235

3,000 snowboards and 9,000 digital camerasD)

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229/235

There is not enough information to answer this question.Answer:

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230/235

CTopic:

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231/235

Absolute Advantage

Skill:

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232/235

Analytical

1.2

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Ess1)

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List andexplain

three strategic motives why firms become multinationals and give an example of each.Answer:

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The authorsprovide 5strategic motivesfor firms tobecomemultinationals:

market seekers,raw materialsseekers,productionefficiencyseekers,