Question 1

A Multinational corporation can take the form of an exporter, licensing agreement, joint venture and a fully owned foreign subsidiary.

Accepted Answer

A multinational corporation can use any of these forms to expand their business internationally depending on their strategy and goals.

Question 2

A joint venture with a private entrepreneur in a host country exposes the multinational corporation to the least amount of political risk.

Accepted Answer

A joint venture with a private entrepreneur in a host country exposes the multinational corporation to the least amount of political risk because the private entrepreneur has a vested interest in the success of the venture and is therefore more likely to cooperate with the multinational corporation and protect its interests.

Question 3

A foreign affiliate may be an exporter, a joint venture, or a fully owned foreign subsidiary.

Accepted Answer

False

Question 4

In recent years, fully owned foreign subsidiaries are experiencing increased political pressure from foreign governments.

Accepted Answer

Foreign governments are becoming more protective of their local markets and are imposing stricter regulations on foreign-owned businesses, including fully owned foreign subsidiaries. This has led to increased political pressure on such subsidiaries.

Question 5

An exporter is able to satisfy foreign demand for a product while avoiding long-term investment in that foreign country, although this method is considered riskier than all other alternatives.

Accepted Answer

Exporting is generally considered less risky compared to other methods like foreign direct investment, as it doesn't require significant long-term investment in the foreign country.

Question 6

A forward exchange rate can be used to help establish the value of a currency at a future point in time.

Accepted Answer

A forward exchange rate is an agreement between two parties to exchange currencies at a predetermined rate on a specific date in the future. This rate can be used to help establish the expected value of a currency at that future point in time, based on current market conditions and expectations.

Question 7

A foreign affiliate lowers the portfolio risk of its parent company because the foreign and domestic economies tend to be fairly similar.

Accepted Answer

Having a foreign affiliate does not necessarily lower the portfolio risk of the parent company, as the foreign and domestic economies may not be similar and may be affected differently by various factors such as political events, currency fluctuations, and economic policies.

Question 8

All of the countries that joined the "Eurozone" have experienced economic success for various reasons.

Accepted Answer

Not all countries that joined the Eurozone have experienced economic success. Some countries, such as Greece and Portugal, have struggled economically since joining the Eurozone.

Question 9

Currency exchange rates may be either floating or fixed.

Accepted Answer

Currency exchange rates can be either floating, which means they are determined by the market forces of supply and demand, or fixed, which means they are set by governments or central banks.

Question 10

Multinational firms tend to have a lower level of portfolio risk than comparable U.S. firms.

Accepted Answer

Multinational firms have the ability to diversify their operations across multiple countries, which can help to lower their portfolio risk compared to U.S. firms that may operate solely within the domestic market. Additionally, multinational firms can also benefit from currency hedging and other risk management strategies that U.S. firms may not have access to.

Question 11

The North American Free Trade Association (NAFTA) continues to generate more foreign trade despite some negative political views.

Accepted Answer

Despite criticism and threats of renegotiation or withdrawal from some political leaders, NAFTA continues to facilitate significant foreign trade between the United States, Canada, and Mexico. According to data from the Office of the United States Trade Representative, trilateral trade between the NAFTA partners increased from $290 billion in 1993 (when the agreement took effect) to $1.2 trillion in 2016.

Question 12

There is no guarantee that any currency will stay strong relative to other currencies, but the dollar is an exception.

Accepted Answer

There is no such guarantee. The value of any currency is subject to various factors such as economic performance, political stability, inflation, and market demand. While the US dollar has been a dominant global currency for decades, its strength can be influenced by these same factors.

Question 13

Companies such as Coca-Cola and McDonald's generate more than 50% of their sales revenues from foreign activities.

Accepted Answer

Both Coca-Cola and McDonald's are multinational corporations with a significant global presence, and they generate more than half of their sales revenues from foreign markets.

Question 14

A foreign exchange rate specifies how much a currency is worth in terms of another currency.

Accepted Answer

This is the definition of a foreign exchange rate. It is the value of one currency in relation to another currency.

Question 15

One benefit in joining the "Eurozone" was to have easy access to borrowing.

Accepted Answer

One of the benefits of joining the Eurozone was to have easy access to borrowing due to the lower interest rates and increased investor confidence in the stability of the currency.

Question 16

In a free market, the exchange rate between two currencies is determined by the supply of and demand for those currencies with the influence of the central bank.

Accepted Answer

In a free market, the exchange rate between two currencies is based on the supply of and demand for those currencies. The central bank can influence the exchange rate through its monetary policy decisions, but ultimately it is the market forces that determine the exchange rate.

Question 17

Fundamental factors, such as inflation, interest rates, balance of payments and government policies do not play much of a role in explaining short and long term fluctuations of a currency value.

Accepted Answer

Fundamental factors can have a significant impact on short and long term fluctuations of a currency value. For example, higher inflation can lead to a decrease in the value of a currency, while higher interest rates can increase the value of a currency. Similarly, government policies such as trade policies and fiscal stimulus can also impact currency values.

Question 18

Investors and firms who diversify their U.S. portfolios by buying foreign stocks or investing in foreign subsidiaries take on a much higher level of portfolio risk than if they had invested in domestic stocks or companies only.

Accepted Answer

Diversifying internationally can actually reduce portfolio risk because it spreads investments across different economies and markets, which often do not move in tandem. This can lower overall volatility compared to investing solely in domestic stocks or companies.

Question 19

During the global financial crisis that began in late 2008, the dollar fell in value relative to the British pound and the euro.

Accepted Answer

During the global financial crisis that began in late 2008, the dollar actually strengthened relative to the British pound and the euro, as investors sought safety in U.S. Treasury securities, which increased demand for the dollar.

Question 20

When a country has a weak currency relative to other countries, visiting that country is much more expensive for people that don't live in that country.

Accepted Answer

When a country has a weak currency relative to other countries, it becomes cheaper for people from countries with stronger currencies to visit, as their money has more purchasing power.

Quiz 21: International Financial Management