Chapter 1
Globalization and the Multinational
Corporation
QUESTIONS
1. Define globalization. How has it proceeded in trade in goods and services versus
capital markets?
2. Describe fours ways that a company can supply its products to a foreign country.
How do they differ?
3. What is a greenfield investment?
4. What percentage ownership typically defines FDI?
5. What is agency theory? How does corporate governance the issues raised by agency
theory?
2 Chapter 1 Globalization and the Multinational Corporation
Answer: Agency theory explores the problems that arise because the owners of the firm
do not typically manage the firm, and it devises ways to resolve these problems. This is
6. Why is ownership more concentrated in developing countries than in developed
countries?
Answer: In many developed countries, the rule of law is strong enough to discipline
managers through legal means, for example by takeovers and proxy contests or through
7. What is the IMF? What is its role in the world economy?
Answer: The International Monetary Fund (IMF) is an international organization of 187
member countries, based in Washington, DC, which was conceived at a United Nations
conference convened in Bretton Woods, New Hampshire, in 1944. The main goal of the
8. What is the World Bank? What is its role in the world economy?
Answer: The World Bank is an international institution created in 1944, as the
9. What are the major multilateral development banks?
Answer: The term typically refers to the World Bank Group and four regional
development banks: the African Development Bank, the Asian Development Bank, the
European Bank for Reconstruction and Development, and the Inter-American
10. What is the WTO? What is its role in the world economy?
Answer: The World Trade Organization (WTO) was founded in 1995. It is headquartered
in Geneva, Switzerland, and had 153 member countries in 2010. Whereas GATT was a
11. What is an institutional investor? Along with individual investors, what do they
detemine?
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12. What are anti-globalists?
Answer: Anti-globalization is an umbrella term encompassing separate social
movements, united in their opposition to the globalization of corporate economic activity
13. Who are Ante and Freedy Handel? How do their views on the world economy
differ?
Answer: Ante and Freedy Handel are two brothers who discuss various international
financial management problems and controversial issues in international finance in
PROBLEMS
1. Go to the Web site of your favorite multinational firm and determine where it
operates thoughout the world. How many employees does it have worldwide? Has
it done any interesting cross-border mergers and acquisitions during the last year?
2. Go to UNCTADstat at http://unctadstat.unctad.org. Update the data in Exhibit 1.6
on cross-border mergers and acquisitions for the most recent years.
3. Go to the IMF’s Web site at www.imf.org and download the 2011 World Economic
Outlook. Pick your favorite country and determine if this is a good time to invest in
it or not.
4. Go to the WTO’s Web site at www.wto.org and determine which goods or services
are the sources of trade disputes between countries this year.