Managerial Economics, 7e (Keat)
Chapter 13 The Multinational Corporation in a Global Setting
Multiple-Choice Questions
1) Which of the following are risks for multinational corporations but not risks for domestic
corporations?
A) changes in government rules and regulations
B) capital controls
C) changes in tax laws
D) government red tape and corruption
2) Which of the following represents a way in which multinational corporations can protect
themselves from exchange rate risks?
A) forward markets
B) futures markets
C) currency options
D) All of the above
3) Which of the following represents a capital budgeting problem for multinational corporations
but not for domestic corporations?
A) determining the cost of capital
B) calculating after-tax cash flows
C) selecting the appropriate risk-adjusted rates of return
D) None of the above
4) Which of the following is not an argument in favor of the globalization of business?
A) More efficient use of resources lowers operating costs and selling prices.
B) More products are made available and new markets are opened.
C) Economic and political security are enhanced.
D) Technology transfers improve living standards in poorer countries.
5) Globalization has depressed wages in western industrialized countries, particularly those for
A) highly skilled workers.
B) highly educated workers.
C) semi-skilled workers.
D) low skilled workers.
1
6) Risks faced by multinational corporations include
A) changes in exchange rates.
B) restrictions on ownership.
C) repatriation of funds.
D) cultural and religious philosophies.
E) All of the above
7) The spot exchange market is for ________ delivery, whereas a forward contract permits a firm
to buy or sell currency for ________ delivery.
A) future; immediate
B) local; distant
C) immediate; future
D) long-term; short-term
8) Which of the following would be an example of FDI?
A) A Brazilian investor buys German government bond.
B) An American buys a new Swedish car.
C) An Italian firm builds a plant in Nebraska.
D) A Canadian investor buys a French equity.
9) A motive for FDI includes
A) the extraction of natural resources.
B) a multinational corporation attempting to jump over trade restrictions.
C) high transportation costs.
D) All of the above
10) Firms undertake multinational operations in order to
A) hire low-wage workers.
B) manufacture in nations they have difficulty exporting to.
C) obtain necessary factor inputs.
D) All of the above
2
11) If a multinational is controlling funds, it will expect a subsidiary to remit a ________ portion
of their earnings if this subsidiary has the opportunity to reinvest its earnings profitably.
A) significant
B) substantial
C) smaller
D) larger
12) In order to maximize profits, multinationals typically use transfer pricing by showing
________ profits in the high-tax country and by showing ________ profits in the low-tax
country.
A) high; low
B) low; high
C) economic; normal
D) above-normal; accounting
13) The pricing of a product at each stage of production as the product moves through several
stages is called
A) transfer pricing.
B) cost plus pricing.
C) penetration pricing.
D) monopolistic pricing.
14) Transfer pricing is a method used to
A) determine whether a firm should make or buy a component product.
B) determine the correct value of a product as it moves from one stage of production to another.
C) minimize a multinational firm’s tax liabilities.
D) All of the above
15) Typically, transfer pricing audits by the IRS are concentrated in the case of
A) tangible goods.
B) intangible property transactions.
C) services.
D) inputs.
3
Analytical Questions
1) What are the major risks facing multinational corporations?
2) What are the major ways that the risks of exchange rate changes can be hedged against?
3) What are the major reasons a multinational corporation would engage in Foreign Direct
Investment (FDI)?
4) What are the ways a multinational corporation can reposition its funds to increase its profits?