Deck 15: Multinationals and Migration: International Factor Movements

Question 1

Financing from the parent company to its foreign affiliates is generally a small percentage of total funding because:

A)the returns on such investment are taxed at very high rates.
B)the parent firm wants to reduce the risks to which its foreign activities are exposed.
C)most foreign governments have imposed quotas of foreign investment in their domestic economy.
D)most major home-country governments limit investment in foreign firms by their domestic firms.

Answer 1

B

Question 2

Which of the following refers to transfer pricing by an MNE?

A)The act of buying a good at a low price and selling it at a high price
B)The process of setting a high price for a good in a market with relatively inelastic demand and setting a low price in a market with relatively elastic demand
C)Lowering the product prices to undercut the competitors and gain a greater market share
D)Setting prices by the company for things that move between the units of the company

Answer 2

D

Question 3

Which of the following is an example of Foreign Direct Investment?

A)Ford motor company puts $10 million from its pension fund into a mutual fund containing shares of foreign companies.
B)Dr.Gareau, a French biologist, buys $5,000 worth of shares of Toyota.
C)Wells Fargo Bank buys $10 million worth of Bank of England T-Bills.
D)Ford buys a controlling interest in Land Rover, a British automobile company.

Answer 3

D

Question 4

Most foreign direct investment is in:

A)the agricultural sector.
B)the manufacturing sector.
C)the mining and extraction sector.
D)the service sector.

Question 5

How can an MNE overcome its inherent disadvantages?

A)By borrowing funds from the host country rather than transferring funds from the parent firm
B)By producing more than two products in which it has comparative advantage
C)By expanding its operation in more than two host countries
D)By owning one or more assets that are not owned by its local competitors in the host country

Question 6

Foreign Direct Investment (FDI) refers to:

A)the flow of funding provided by an investor or lender to establish or acquire a foreign company or to expand or finance an existing foreign company that the investor owns and controls.
B)the hot money that an investor needs to get registered in a foreign stock exchange to make investments, and have the liberty to sell and take back the stocks purchased earlier.
C)a method of funding business adopted by a foreign investor by participating directly in the secondary markets of a country, through investments in the country's stocks or bonds.
D)the passive holding of securities such as foreign stocks, bonds, or other financial assets, none of which entails active management or control of the securities issued by the investor.

Question 7

Multinationals typically operate in a market structure that would best be described as:

A)an oligopoly.
B)perfect competition.
C)inherently disadvantaged.
D)monopoly.

Question 8

Which of the following provides a good explanation of why multinational firms exist?

A)Location factors that favor exporting over foreign production
B)The need to shift financial capital between countries
C)Internalization advantages that favor direct investment over contracting with independent foreign firms
D)Firms lack inherent knowledge of foreign laws, procedures, and practices.

Question 9

Import tariffs and non-tariff barriers suggest that:

A)FDI is a substitute for exporting.
B)exporting is preferable to FDI.
C)exporting is preferable to licensing local firms in the foreign markets.
D)such measures restrict the ability of MNEs' to expand their operations.

Question 10

A firm that owns and controls operations in more than one country is a(n):

A)franchise.
B)MNE.
C)monopolist.
D)affiliate.

Question 11

Which of the following ways can an MNE adopt to reduce its exposure to political risks in its host country?

A)By threatening to cease all exports of its products to the host country
B)By establishing more than one affiliate in the host country
C)By equating its physical assets in the host country with its local borrowings
D)By negotiating with the host country's government to clear off its debts

Question 12

As long as _____ and _____ are low enough, foreign direct investment can be used to reduce total costs by locating different stages of overall production in different countries.

A)foreign demand; transport costs
B)transport costs; trade barriers
C)trade barriers; domestic demand
D)domestic taxes; foreign demand

Question 13

Which of the following is NOT a firm specific advantage of an MNE?

A)Patented technology
B)Marketing capabilities
C)Superior management technique
D)Native understanding of local customs

Question 14

Which of the following statements is true concerning the global flow of FDI since 1990?

A)The proportion of global FDI that flowed into developing countries increased.
B)Mexico has received more FDI inflows than has the United States.
C)The proportion of global FDI that flowed into the United States increased.
D)FDI flows into the European Union fell.

Question 15

Which of the following is true for a multinational enterprise (MNE)?

A)Its affiliates usually get nearly all of their total financing from the direct investment flows.
B)It usually transfers its liabilities to its foreign subsidiaries.
C)Its domestic tax burden is mostly borne by its foreign affiliates.
D)It usually provides intangible assets to its affiliates for their usage.

Question 16

Which of the following is an inherent disadvantage to being a multinational enterprise?

A)An MNE does not initially have the native understanding of local laws, customs, procedures, practices, and relationships.
B)An MNE does not have the same assets as those held by its local competitors in the host market.
C)An MNE does not enjoy comparative advantages in the same goods as those of its local competitors in the host market.
D)An MNE's profits are doubly taxed by two governments.

Question 17

At the end of 2011, most of the United States' foreign direct investment was in:

A)the other NAFTA countries.
B)the developing countries in Asia.
C)the European Union countries.
D)the Latin American countries.

Question 18

Multinational enterprises use transfer pricing to:

A)lower prices of their products and gain market share.
B)reduce their global tax burden.
C)move products to the markets where the demand for those goods is relatively inelastic.
D)provide managers in a foreign affiliate with an incentive to maximize local profit.

Question 19

The existence of economies of scale suggests that:

A)FDI is a complement to exporting.
B)exporting can be preferable to FDI.
C)licensing local firms in the foreign market is preferable to exporting.
D)inherent disadvantages cannot be fully overcome.

Question 20

Concern about the ability of independent foreign firms to maintain product quality:

A)often results in the formation of a license agreement between a foreign firm and an MNE.
B)makes licensing firms in the foreign markets preferable to FDI.
C)is an inherent disadvantage faced by the multinationals.
D)makes FDI preferable to licensing firms in the foreign markets.

Question 21

The figure given below represents the effects in the labor markets due to migration. Here the world has been divided into a high-income "North" (left panel) and a low-income "South" (right panel). D_n and S_n are the labor demand and the labor supply curves in North. D_s and (S_r + S_mig) are the labor demand and pre-migration labor supply curves in South. S_r is the post-migration labor supply curve in South. The value c is the cost of migrating. The net gain to the migrants is represented by the area:

A)(a + b).
B)(e + f).
C)(d + e).
D)(a + f).

Question 22

One measure that would compensate the sending country for its public investments in emigrants could be a(n):

A)tax on sending-country product exports.
B)subsidy to sending-country product imports.
C)brain-drain tax.
D)tax on sending-country affiliates of foreign MNEs.

Question 23

_____ is the movement of people from one country to another country in which they plan to reside for some noticeable period of time.

A)Denationalization
B)International transfer
C)Internal migration
D)International migration

Question 24

The figure given below represents the effects in the labor markets due to migration. Here the world has been divided into a high-income "North" (left panel) and a low-income "South" (right panel). D_n and S_n are the labor demand and the labor supply curves in North. D_s and (S_r + S_mig) are the labor demand and pre-migration labor supply curves in South. S_r is the post-migration labor supply curve in South. The value c is the cost of migrating. The migration cost on a per hour basis is:

A)$4.25.
B)$6.75.
C)$2.50.
D)$3.00.

Question 25

Which of the following is true of FDI in China?

A)FDI inflows in China declined substantially during 2007-2009.
B)Three-fifths of the FDI into China is in the service sector.
C)Much of China's FDI has come from the developing countries located close to it.
D)Foreign affiliated firms account for more than 50 percent of production value added in China.

Question 26

The figure given below represents the effects in the labor markets due to migration. Here the world has been divided into a high-income "North" (left panel) and a low-income "South" (right panel). D_n and S_n are the labor demand and the labor supply curves in North. D_s and (S_r + S_mig) are the labor demand and pre-migration labor supply curves in South. S_r is the post-migration labor supply curve in South. The value c is the cost of migrating. After the migration, the native employees in North:

A)lose welfare given by area 'a'.
B)gain welfare given by area (a+b).
C)lose welfare given by area (a+b).
D)lose welfare given by area (e + f).

Question 27

Which of the following is a likely impact of international migration?

A)The native workers in the receiving country gain welfare.
B)The receiving country as a whole gains.
C)The workers remaining in the country after emigration lose welfare.
D)The country from which workers migrate out to other countries gains welfare as long as remittances are small.

Question 28

The figure given below represents the effects in the labor markets due to migration. Here the world has been divided into a high-income "North" (left panel) and a low-income "South" (right panel). D_n and S_n are the labor demand and the labor supply curves in North. D_s and (S_r + S_mig) are the labor demand and pre-migration labor supply curves in South. S_r is the post-migration labor supply curve in South. The value c is the cost of migrating. As a result of migration, the employers in North:

A)lose $131.25 million.
B)gain $31.25 million.
C)gain $162.5 million.
D)lose $100 million.

Question 29

Which of the following groups are positively affected by foreign direct investment outflows?

A)The home country's labor unions
B)Tax payers in the home country
C)The home country's government
D)The owners of the multinationals

Question 30

Which of the following was among the policies that the Chinese government began to implement since 2006?

A)Engaging in "bidding wars" with other countries to attract FDI
B)Phasing out many of the tax incentives which were initially provided to the foreign firms
C)Reducing the restrictions on foreign acquisitions of Chinese publicly traded companies.
D)Emphasizing on the quantity of investments of inbound FDI

Question 31

Which of the following is most likely to be an impact of FDI?

A)There may arise temporary unemployment in the home country.
B)The rental rate of capital declines in the home country.
C)The wage rate declines in the host countries.
D)Government revenue of the home country increases.

Question 32

The figure given below represents the effects in the labor markets due to migration. Here the world has been divided into a high-income "North" (left panel) and a low-income "South" (right panel). D_n and S_n are the labor demand and the labor supply curves in North. D_s and (S_r + S_mig) are the labor demand and pre-migration labor supply curves in South. S_r is the post-migration labor supply curve in South. The value c is the cost of migrating. The world's net gain due to migration is represented by the area:

A)(a + b).
B)(e + f).
C)(a + f).
D)(b + f).

Question 33

The figure given below represents the effects in the labor markets due to migration. Here the world has been divided into a high-income "North" (left panel) and a low-income "South" (right panel). D_n and S_n are the labor demand and the labor supply curves in North. D_s and (S_r + S_mig) are the labor demand and pre-migration labor supply curves in South. S_r is the post-migration labor supply curve in South. The value c is the cost of migrating. When migration is not allowed, workers in North earn _____ per hour and workers in South earn _____ per hour.

A)$6.75; $4.25
B)$8.00; $4.25
C)$6.75; $3.00
D)$8.00; $3.00

Question 34

Which of the following groups are negatively affected by foreign direct investment flows?

A)The host country's workers
B)The home country's workers
C)The host country's government
D)The suppliers of inputs to the affiliates of foreign multinationals

Question 35

The figure given below represents the effects in the labor markets due to migration. Here the world has been divided into a high-income "North" (left panel) and a low-income "South" (right panel). D_n and S_n are the labor demand and the labor supply curves in North. D_s and (S_r + S_mig) are the labor demand and pre-migration labor supply curves in South. S_r is the post-migration labor supply curve in South. The value c is the cost of migrating. After migration of the workers, the workers in North earn _____ per hour and South workers earn _____ per hour.

A)$6.75; $4.25
B)$8.00; $4.25
C)$6.75; $3.00
D)$8.00; $3.00

Question 36

If movement of labor across countries is costless and painless, it can be expected that:

A)all the countries in the world will operate at the full employment level.
B)the wage rates in the countries will equalize over time.
C)the rate of unemployment will fall to zero in all the countries.
D)the GDP of the countries will equalize over time.

Question 37

As some government spending is for true public goods in sending countries, the loss of future tax contributions is likely to be _____ the reduction in future government spending as people migrate from the country.

A)larger than
B)smaller than
C)equal to
D)independent of

Question 38

In the case in which foreign affiliates undertake the same kind of production as the parent firm, the affiliate _____ some trade in that product. The affiliate also _____ trade through better local marketing of other products produced by the multinational in other countries.

A)displaces; expands
B)expands, displaces
C)expands; expands
D)displaces; displaces

Question 39

The figure given below represents the effects in the labor markets due to migration. Here the world has been divided into a high-income "North" (left panel) and a low-income "South" (right panel). D_n and S_n are the labor demand and the labor supply curves in North. D_s and (S_r + S_mig) are the labor demand and pre-migration labor supply curves in South. S_r is the post-migration labor supply curve in South. The value c is the cost of migrating. When migration between North and South is allowed, how many workers will choose to migrate to North?

A)20 million
B)30 million
C)40 million
D)50 million

Question 40

China's economic growth and emergence as a major exporter was assisted by:

A)opening the country to FDI.
B)restricting inflows of FDI.
C)the use of inward-oriented policies.
D)exploiting a comparative advantage in primary products.

Question 41

Both external and internal factors affect the operation of an MNE. External factors are outside the immediate control of the firm while internal factors are within the control of the firm. Give examples for both and discuss how they would affect the operations of the multinational enterprise.

Question 42

FDI outflows have a positive impact on workers in the home country.

Question 43

The host country has more reasons to restrict FDI than does the home country.

Question 44

Should receiving countries ban all forms of immigration because non-immigrant workers in the receiving country are hurt by immigration? Discuss.

Question 45

In 2007-2011 China was the largest recipient of direct investment flows in the world.

Question 46

Sending countries that do not receive much in the way of remittances probably gain well-being, but those receive substantial remittances probably lose well-being.

Question 47

It is easier to transfer capital from one country to another using FDI than to use international portfolio investment.

Question 48

The existence of migration costs implies that factor-price-equalization in the labor market is less likely.

Question 49

Trade among parent and affiliates engaged in different stages of production shows that foreign direct investment and trade can sometimes be complements.

Question 50

Foreign Direct Investment is used for all foreign securities investments that do not involve management control.

Question 51

What factors should be considered in determining whether a firm should sell to buyers in a foreign country by exporting from its home country or by setting up local production in the foreign country to produce the products that are sold to foreign consumers? When identifying these factors, clearly explain how and why they push the decision toward one or the other of the two available choices.

Question 52

Political risk is the possibility that the government of the host country will alter its policies in ways that harm the multinational enterprise.

Question 53

How do the characteristics of immigrants influence the effects of immigration on the receiving country? What are the implications for receiving country government policy toward immigration?

Question 54

The changes in China's FDI policy since 2006 are likely to shift manufacturing FDI away from unskilled-labor-intensive production like toys.

Question 55

Countries that grow the fastest are those that adopt inward-oriented policies toward trade and foreign direct investment.

Question 56

Suppose a firm wants to expand sales of its product into a foreign country. Should the firm license local firms in the foreign country to use its technologies to produce the product or should it set up a foreign operation that it owns and controls? What factors should the firm consider in taking the decision? When identifying these factors, clearly explain how and why they push the decision toward one or the other of the two available choices.

Question 57

In the past three decades many developing countries have shifted away from restricting FDI inflows to encouraging them.

Question 58

Analysis of the labor market shows that a receiving country loses economic well-being from migration.

Question 59

Historically, the U.S. firms have shown less of a preference for FDI and management control than have firms from other investing countries.

Question 60

A multinational enterprise produces a component in the United Kingdom, where the corporate income tax rate is 60 percent. It produces its final product in Taiwan, where the corporate income tax rate is 25 percent. The cost of the component produced in the United Kingdom is $4 per unit. The components can be shipped to Taiwan at almost no cost, and there is no tariff on the component when it is imported into Taiwan. Each unit of the final product requires one unit of the component. Other production costs in Taiwan to complete the final product are $14 per unit. The final product price, when it is sold by the Taiwan affiliate to outside buyers, is $20 per unit. If the goal of the multinational enterprise is to maximize its global after tax profit, which of the following three choices should the controller of the multinational enterprise favor? Why?
a.Charge a transfer price of $4 per unit
b.Charge a transfer price of $5 per unit
c.Charge a transfer price of $6 per unit