Archives: Quiz

1) if $1 bought more yen with a spot exchange than with a 30-day forward exchange it indicates the dollar is expected to depreciate against the yen in the next 30 days. when this occurs, we say the dollar is […]

1) raymond vernon suggested that the wealth and size of the u.s. market gave u.s. firms a strong incentive to develop new consumer products. 2) without consolidated financial statements, a multinational firm could conceal losses in an unconsolidated subsidiary. Answer: […]

1) licensing is a good option for firms in high-tech industries where protecting firm-specific expertise is of paramount importance. 2) if the free market reforms in china continue for two more decades, china may move from third world status to […]

1) concentrating production at an optimal location is more attractive when a product serves universal needs. 2) as an investor increases the number of stocks in her portfolio, the portfolio’s risk increases. Answer: false 3) there is now a trend […]

1) the world bank is responsible for maintaining order in the international monetary system. 2) empirical studies show that there is a long-run relationship between a country’s relative inflation rates and changes in exchange rates. Answer: true 3) if the […]

1) governments do not always act in the national interest when they intervene in the economy; politically important interest groups often influence them. 2) the foreign exchange market is a market for converting the currency of one country into that […]

1) entering a foreign market on a large scale provides the opportunity to learn about the foreign country. 2) international businesses avoid or defer income taxes by establishing a wholly owned, nonoperating subsidiary in the tax haven. Answer: true 3) […]

1) firms use countertrade to trade goods and services for other goods and services when they cannot be traded for money. 2) there is a strong relationship between economic freedom and economic growth. Answer: true 3) problems of limited liquidity […]

1) when an investor purchases a corporate stock, he purchases the right to receive a specified fixed stream of income from the corporation for a specified number of years. 2) if a country is characterized as having a single homogenous […]

1) moore’s law predicts that the power of microprocessor technology doubles and its cost of production falls by half every 18 months. 2) a source of concern of critics of free trade is that it usually encourages firms from advanced […]

1) in a common law system, judges have the power to interpret the law. 2) the heckscher-ohlin theory argues that free trade is not beneficial to most nations. Answer: false 3) while popular in its time, ricardo’s theory is no […]

1) the governments of the argentina and brazil in 1988 agreed to enter into a free trade agreement, the goal of which was to eliminate all tariffs on bilateral trade between these countries by 1998 . 2) proponents of nafta […]

1) the ppp theory is a strong predictor of short-run movements in exchange rates covering time spans of five years or less. 2) the eximbank is a part of the wto’s efforts to facilitate trade between nations. Answer: false 3) […]

1) adam smith’s basic argument is that a country should produce goods at home even if it can buy at a lower cost from other countries. 2) a firm may be prevented from using standardized advertising because of advertising regulations. […]

1) in the eu, many firms have historically been limited by a low cost structure in their ability to compete globally with north american and asian firms. 2) the maastricht treaty entails that the ecb take orders from politicians. Answer: […]

1) transfer pricing is consistent with a policy of treating each subsidiary in the firm as a profit center. 2) since 1973, exchange rates have been relatively stable thanks to the floating exchange rate system currently in place. Answer: false […]

1) one of the problems of licensing is that it may result in a firm’s giving away valuable technological know-how to a potential foreign competitor. 2) the mission of the eximbank is to provide financing aid that will facilitate exports, […]

1) countries cannot prohibit national firms from investing in certain countries for political reasons. 2) the failure rate for international strategic alliances is very low. Answer: false 3) the value of a currency is determined by the interaction between the […]

1) in the period 1950-1990, the world gdp showed a consistent decline as opposed to the volume of exports. 2) mercantilism advocated that countries should encourage exports and imports. Answer: false 3) historically, most fdi has been directed at the […]

1) smith’s theory of international trade suggests that when one country has an absolute advantage in the production of all goods, the country might not derive any benefit from international trade. 2) a geocentric staffing policy seeks the best people […]

1) to survive, a firm must strive to achieve a fit between its environment, its strategy, and its organizational architecture. 2) a foreign service premium is offered as an inducement to accept foreign postings. Answer: true 3) a shotgun approach […]

1) during the past decade, countries with high individualism and low confucian dynamics such as the united states have attained high growth rates. 2) culture is static. Answer: false 3) countertrade contracts may involve the exchange of poor-quality goods that […]

1) when a country cannot service its foreign debt obligations, a banking crisis has occurred. 2) the make-or-buy decision involves deciding whether a firm should make or buy the component parts that go into the final product. Answer: true 3) […]

1) when the firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness, the ideal strategy to follow is the transnational strategy. 2) as a plant output expands, unit costs decrease. Answer: true 3) the sullivan principles […]

1) fees are usually levied as a percentage of a subsidiary’s gross revenues. 2) according to the un, a typical international trade transaction can involve 50 different parties. Answer: false 3) unless there is no alternative, large, diverse multinational enterprises […]

1) the so-called group of five major industrial countries includes great britain, the united states, japan, switzerland, and germany. 2) a firm can lower costs by dispersing production to locations around the globe where each activity can be performed most […]

1) a global standardization strategy is appropriate when a firm is facing low pressures for cost reduction but high pressure for local responsiveness. 2) cash needs are assumed to be normally distributed in each country and independent of each other. […]

1) regulated domestic currency deposits ensure that banks have enough liquid funds to satisfy demand if large numbers of domestic depositors should suddenly decide to withdraw their money. 2) the iasb has enough regulatory muscle to enforce its standards. Answer: […]

1) skills in an mne are always generated at the headquarters location and are then dispersed to the rest of the organization. 2) the fisher effect states that a country’s real interest rate is the sum of the nominal interest […]

1) a consolidated financial statement combines the separate financial statements of two or more companies to yield a single set of financial statements as if the individual companies were really one. 2) by centralizing decision making, a firm can avoid […]

1) an oligopoly is an industry composed of a limited number of large firms. 2) a decentralized organization allows managers to respond to environmental changes more quickly than in a centralized organization. Answer: true 3) high relative price inflation, a […]

1) the matrix structure is designed to facilitate maximum integration among subunits. 2) a lack of information about the fundamental quality of foreign investments may encourage speculative flows in the global capital market. Answer: true 3) the entry of large […]

1) myanmar has one of the worst human rights records in the world. 2) in general, economic studies suggest that countries that adopt a more open stance toward international trade enjoy higher growth rates than those who keep their economies […]

1) most governments are in favor of transfer pricing. 2) companies can strengthen the moral courage of employees by committing themselves to retaliate against employees who exercise moral courage, say no to superiors, or otherwise complain about unethical actions. Answer: […]

1) the costs and risks associated with doing business in a foreign country are typically high in an economically advanced and politically stable democratic nation. 2) it is possible that a multinational’s balance sheet may not balance when it uses […]

1) american exporters can minimize their risk by purchasing insurance from the foreign credit insurance association. 2) ricardo noted the importance of country factors such as domestic demand and domestic rivalry in explaining a nation’s dominance in the production and […]

1) with regard to political factors, a company may have to pay off politically powerful entities in a country before the government allows it to do business there. 2) debt continues to be a major burden for poorer nations as […]

1) translation exposure, a.is not entity specific, rather it is currency specific b.is not currency specific, rather it is entity specific c.involves restatement from italian to french d.none of the above 2) american depository receipt (adrs) represent foreign stocks a.denominated […]

1) implementing capital import neutrality means that a.a sovereign government follows the taxation policies of foreign tax authorities on the foreign-source income of its resident mncs b.the tax burden a host country imposes on the foreign subsidiary of a mnc […]

1) what is the difference between control rights and cash flow rights? a.since all shareholders benefit only from pro-rata cash flows, control rights and cash flow rights are the same thing b.large investors may be able to derive private benefits […]

1) the international fisher effect suggests that a.any forward premium or discount is equal to the expected change in the exchange rate b.any forward premium or discount is equal to the actual change in the exchange rate c.the nominal interest […]

1) the main cost of european monetary union is a.the loss of national monetary and exchange rate policy independence b.increased exchange rate uncertainty c.lessened political integration d.none of the above 2) generally speaking, a country would be more prone to […]

1) a controlled foreign corporation (cfc) is a.a foreign corporation established as an affiliate of a u.s. corporation for the purpose of “buying” from the u.s. corporation property for resale and use abroad b.a foreign subsidiary that has more than […]

1) find the hedge ratio for a put option on $15,000 with a strike price of 10,000. in one period the exchange rate (currently s($/) = $1.50/) can increase by 60% or decrease by 37.5% (i.e. u = 1.6 and […]

1) find the value today of a 2-year dual currency bond with annual coupons (paid in u.s. dollars at a 5 percent coupon rate) that pays £500 per $1,000 par value at maturity. the cash flows of the bond are: […]

1) find the debt-to-value ratio for a firm with a debt-to-equity ratio of 1. a. b. c.3/5 d. e.5/7 2) under the bretton woods system a.each country established a par value for its currency in relation to the dollar b.the […]

1) a foreign country could provide low cost production sites a.because the factors of production are underpriced b.because the currency is undervalued c.because the locals like to give away their land labor and capital to foreigners d.both a and b […]

1) consider the following international investment opportunity. it involves a gold mine that can be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up: the current exchange rate is $1.60 = 1.00. the inflation […]

1) managing operating exposure a.is a short-term tactical issue b.is a long-term issue, like selecting a site for a factory c.is relatively unimportant, since most mncs have a built-in hedge d.none of the above 2) examples of transfer risk include […]

1) the table below shows the bushels of wheat and the bottles of beer that north and south dakota can produce per day of labor under two different hypothetical situations (cases i and ii). for case ii, in what range […]