Deck 9: International Resource Movements and Multinational Corporations

Question 1

When will a resident of one country purchase bonds of another country?

A)if the returns on bonds are higher in the other country
B)if the returns on bonds are lower in the other country
C)if the returns on bonds cannot be taxed domestically
D)if the returns on bonds are equal in both countries

Answer 1

A

Question 2

How is risk measured?

A)by the median value of the returns
B)by the variance of returns about the average
C)by the mean value of returns
D)by the average number of stocks and bonds sold international

Answer 2

B

Question 3

_____________ often takes the form of starting a subsidiary or taking control of another firm.

A)Private investment
B)Portfolio investment
C)Direct investment
D)Indirect investment

Answer 3

C

Question 4

In the international community,direct investments are undertaken usually by multinational corporations engaged in all of the following activities except?

A)manufacturing
B)resource extraction
C)services
D)basic agriculture

Question 5

All of the following are risks associated with stocks,except

A)bankruptcy.
B)variability in market value.
C)possibility of lower than anticipated returns.
D)the risk of bank failure.

Question 6

The United States government considers the purchase of voting stocks in a corporation as portfolio investment as long as the purchased voting stocks remain?

A)less than 20%
B)less than 35%
C)less than 15%
D)less than 10%

Question 7

Why was US direct investment in Latin America lower in 1985 than in 1980?

A)inflation in the US
B)recessions in the Latin American countries
C)international debt problems in the Latin American countries
D)a recession in the US

Question 8

________________ are the primary risks associated with activity in the bond market.

A)Bankruptcy and the variability of exchange rates
B)Bankruptcy and the variability in their market value
C)Variability in their market value and the risk of bank failure
D)Bankruptcy and the risk of bank failure

Question 9

The rapid growth in US direct investment in Europe from 1950 to 2002 was due to which of the following?

A)The US desire to join the European Union.
B)The US desire to avoid the common external tariff imposed by the EU.
C)The relatively slow growth of the European Union.
D)To retaliate against European exports to the United States.

Question 10

Portfolio theory states that

A)when investing in securities with yields that are positively related over time,a higher yield can be obtained for the same level of risk for a portfolio as a whole.
B)when investing in securities with yields that are inversely related over time,a given yield can be obtained at a smaller risk or a higher yield can be obtained for the same level of risk for a portfolio as a whole.
C)when investing in securities with yields that are inversely related over time,the risk level will be so low as to make reasonable returns impossible for the portfolio as a whole
D)when investing in securities with yields that are positively related over time,the investor's level of risk will be so great as to discourage most investors from entering the market

Question 11

The basic motive for international portfolio investments is

A)to earn higher returns domestically than are possible abroad.
B)to earn higher returns abroad than are possible domestically.
C)to earn returns domestically on incomes earned abroad.
D)to earn returns abroad that cannot be taxed domestically.

Question 12

In general,_________________ on all types of investment.

A)the greater the risk,the greater the return
B)the lower the risk,the greater the return
C)the lower the interest rates,the lower the return
D)there is no relationship between risk and return

Question 13

When an investor purchases __________,then he/she is purchasing a claim on the net worth of the firm.

A)a bond
B)stock
C)a mutual fund
D)real estate

Question 14

_____________ allow the investor to lend capital to get fixed payouts or returns at regular intervals and then receive the face value at a predetermined date in the future.

A)Stocks
B)Bonds
C)Dividends
D)Mutual funds

Question 15

The purchase of purely financial assets,such as bonds and stocks,is called

A)portfolio investment.
B)direct investment.
C)indirect investment.
D)corporate investment.

Question 16

Real investment in factories,capital goods,land,and inventories where the investor retains control over the use of the invested capital is referred to as

A)portfolio investment.
B)direct investment.
C)indirect investment.
D)corporate investment.

Question 17

Suppose General Electric charges its Mexican subsidiary $500,000 for manufacturing equipment that could be purchased in the open market for $300,000.This practice is best referred to as

A)price gouging.
B)transfer pricing.
C)export subsidy.
D)predatory pricing.

Question 18

According to the_________________ model,returns on capital are originally higher in the nation having the ___________ overall relative capital-labor ratio.

A)Heckscher-Ohlin; higher
B)Heckscher-Ohlin; lower
C)Stolper-Samuelson; higher
D)Stolper-Samuelson; lower

Question 19

Two-way international capital flows is often explained by the element of

A)higher returns in other countries.
B)risk.
C)specialization.
D)diminishing marginal returns.

Question 20

When the purchase of voting stock in a corporation becomes _____________,the United States government considers such investment by a foreign entity as direct investment

A)More than 50%
B)More than 15%
C)More than 20%
D)More than 10%

Question 21

________________ has been the most common form of direct foreign investments in developing countries and in some mineral-rich developed countries.

A)Backward vertical integration
B)Forward vertical integration
C)Linear integration
D)Horizontal integration

Question 22

Investments in securities with yields that are inversely correlated is known as

A)basic Investment theory.
B)risk diversification.
C)vertical integration.
D)horizontal integration.

Question 23

When capital moves from lower returns to higher returns,there will be

A)greater efficiency in the use of capital internationally.
B)increased world output.
C)increased world welfare.
D)all of the above.

Question 24

The overpricing or underpricing of products in the intrafirm trade of multinational corporations in an attempt to shift income and profits from high to low tax nations is known as

A)predatory pricing.
B)transfer pricing.
C)tax pricing.
D)out-bidding pricing.

Question 25

When a firm expands in the production process to supply its own raw materials and intermediate products or to provide its own sales or distribution networks,the process is called

A)horizontal merger.
B)risk diversification.
C)vertical integration.
D)horizontal integration.

Question 26

Why is a portfolio including both domestic and foreign securities likely to have a higher average yield than one only containing domestic securities?

A)Yields on foreign securities are more likely to be inversely related to yields on domestic securities.
B)Yields on foreign securities are less likely to be inversely related to yields on domestic securities.
C)Yields on foreign securities do not depend on economic conditions abroad,as do yields on domestic securities.
D)A portfolio including both foreign and domestic securities is NOT likely to have a higher average yield than one containing only domestic securities.

Question 27

____________ is the production abroad of a differentiated product that is also produced at home.

A)Forward integration
B)Backward integration
C)Vertical integration
D)Horizontal integration

Question 28

When a multinational corporation controls the raw material used in the production of its final good through a vertical integration,which of the following is most likely to happen?

A)The MNC will obtain an uninterrupted supply of the raw material at the lowest possible cost.
B)Consumers will pay lower prices for the good.
C)The MNC will face anti-trust charges for owning firms that produce both the raw material and the final good.
D)Consumers will pay higher prices for the good.

Question 29

The United States is the main supplier of foreign direct investments to what countries?

A)Ghana and Morocco
B)Former communist countries in Eastern Europe
C)Latin America,Bangladesh,Pakistan,the Philippines,and Saudi Arabia
D)Taiwan and Japan

Question 30

If capital (K)is free to move internationally,then K will flow from the nation with ___________,to the nation with ______________ until the returns have equalized between countries.

A)higher K returns; lower K returns
B)lower K returns; higher K returns
C)higher labor returns; lower labor returns
D)lower labor returns; lower capital returns

Question 31

Which of the following is not a problem created in the home country in association with multinational corporations who are engaged in foreign direct investment?

A)loss of unskilled and semiskilled production jobs
B)loss of high skill technical jobs and reduced return to capital
C)loss of tax revenue and loss of tax base
D)undermining of government's monetary policy

Question 32

______________________ can explain two-way international portfolio investments.

A)Portfolio theory and risk diversification
B)Horizontal integration
C)Risk assumption
D)Vertical integration

Question 33

Which of the following is not a primary reason for a country to go for foreign direct investment?

A)To preserve unique production knowledge or managerial skill
B)A safe and secure return on its investment
C)Obtain control of a key raw material
D)To bypass tariff and other restrictions that nations impose on imports

Question 34

IBM does not want to license foreign producers because it wants to retain complete control over its ____________ and to ensure consistence in _____________.

A)trade secrets and patents; workforce
B)accounting process; quality and service
C)trade secrets and patents; quality and services
D)stock; quality and service

Question 35

_______________ involves multinational corporations establishing subsidiaries for the sale or distribution of their final goods abroad.

A)Backward vertical integration
B)Forward vertical integration
C)Linear integration
D)Horizontal integration

Question 36

Direct foreign investments have been greatly facilitated by the rapid advancements in _______________ since the end of World War II.

A)manufacturing technology
B)transportation and communication
C)accounting practices
D)anti-trust legislation

Question 37

If less than full employment is present,then foreign investments tend to ________ the level of employment in the investing country and __________ foreign investments in the host country.

A)Decrease; increase
B)Increase; decrease
C)Decrease; decrease
D)Increase; increase

Question 38

It has been found that firms with a strong international orientation tend to

A)be less profitable than those that are wholly domestic.
B)be more profitable than those that are wholly domestic.
C)have greater variability in profits than purely domestic firms.
D)earn only accounting profit,not economic profit.

Question 39

In the year in which foreign investment takes place,an investing country will see one of the following to occur?

A)increase in foreign expenditures and a balance-of-payment deficit
B)decrease in foreign expenditures and a balance-of-payment surplus
C)increase in foreign expenditures and a balance-of-payment surplus
D)decrease in foreign expenditures and a balance-of-payment deficit

Question 40

Today,multinational corporations account for what percent of the world's output?

A)5%
B)50%
C)25%
D)40%

Question 41

US direct investments in Latin American countries increased from 1980 to 1985 because of the international debt problem in Latin America.

Question 42

Direct investments would not include takeovers by another firm.

Question 43

The Heckscher-Ohlin model states that returns on capital are originally higher in the nation having the lower overall relative to capital-labor ration.

Question 44

A portfolio including both domestic and foreign securities tends to have lower risks than a portfolio containing only domestic securities.

Question 45

Investors are only interested in the rate of return.

Question 46

From 1950 to 2002,both US private holdings of foreign long-term securities and foreign private holdings of US long-term securities increased very rapidly.

Question 47

A purchase of 10% or more of a corporation constitutes a portfolio investment.

Question 48

Which of the following is not true about immigration?

A)Immigration of highly skilled workers is not good for the immigrating country.
B)Immigration of workers will lower the wages in the immigrating country.
C)Emigration of highly skilled workers is not good for the emigrating country.
D)Migration of unskilled workers is bad for both the immigrating and emigrating countries.

Question 49

Why does a multinational firm have to go for direct foreign investment instead of licensing a local firm to carry out production on its behalf?

Question 50

Which of the following is not a problem created in the host country by the multinational corporations?

A)MNCs dominate the host country economies
B)Influencing national taste through large scale advertising
C)Siphoning of R&D fund to the home country
D)Adverse effect on the host country job market

Question 51

By using the Portfolio Theory in the context of Risk Diversification,provide an explanation for two-way international portfolio investment.

Question 52

Brain drain is the migration of highly skilled and trained people from developing to developed nations,and from other industrial nations to the United States.

Question 53

In reality,investors always know precisely the average return on stocks.

Question 54

What are the basic reasons for a multinational corporations (MNCs)existence?

Question 55

The two main types of foreign investments are portfolio and direct investments.