Question 1: Assume the British pound appreciates against the dollar while the Japanese yen depreciates against the dollar. Which of the following is true?
A) Japanese exporters can increase American sales by shift¬ing operations from their British subsidiaries to Japan.
B) British exporters can increase American sales by shifting operations from their Japanese subsidiaries to Britain.
C) American exporters can increase sales to Japan by shift¬ing operations from Japanese subsidiaries to American subsidiaries.
D) None of these are true.
Question 2. Other things being equal, firms from a particular home country will engage in more international acquisitions if they expect foreign currencies to _______ against their home currency, and if their cost of capital is relatively _______.
A) appreciate; low
B) appreciate; high
C) depreciate; high
D) depreciate; low
Question 3: A country with high unemployment could best increase its employment by:
A) encouraging foreign firms to establish subsidiaries that produce the same products local firms produce.
B) encouraging foreign firms to establish licensing arrange¬ments for products local firms produce.
C) encouraging foreign firms to establish subsidiaries that produce products local firms do not produce.
D) none of these would reduce employment.
Question 4: _______ is not a disadvantage of direct foreign investment.
A) The expense of establishing a foreign subsidiary
B) The uncertainty of inflation and exchange rate movements
C) Political risk
D) All of these are disadvantages of direct foreign investment
Question 5. The break-even salvage value of a particular project is the salvage value necessary to:
A) offset any losses incurred by the subsidiary in a given year.
B) offset any losses incurred by the MNC overall in a given year.
C) make the project have zero profits.
D) make the project’s return equal the required rate of return.
Question 6: If a subsidiary project is assessed from the subsidiary’s perspective, then an expected appreciation in the foreign currency will affect the feasibility of the project:
A) positively.
B) negatively.
C) either positively or negatively, depending on the percentage appreciation.
D) none of these.
Question 7: Which of the following is not an advantage of international acquisitions over the establishment of a new subsidiary?
A) the firm can immediately expand its international business.
B) the firm benefits from existing customer relationships.
C) international acquisitions are generally cheaper than the establishment of a new subsidiary.
D) an international acquisition typically generates quicker and larger cash flows than the establishment of a new subsidiary.
E) All of these are advantages of international acquisitions.
Question 8: Based on information in the text, the following factors should be considered in an international acquisition except:
A) the target’s willingness to be acquired.
B) the target’s previous acquisition history.
C) the target’s previous cash flows.
D) the target’s local economic conditions.
Question 9: If an MNC sells a product in a foreign country and imports partially manufactured components needed for production to that country from the U.S., then the local economy’s inflation will have:
A) a more pronounced impact on revenues than on costs.
B) a less pronounced impact on revenues than on costs.
C) the same impact on revenues as on costs.
D) none of these.
Question 10: Other things being equal, a foreign subsidiary in China would more likely be divested by the U.S. parent if new information caused the parent to suddenly anticipate that:
A) the Chinese yuan would depreciate in the future.
B) the Chinese yuan would appreciate in the future.
C) the Chinese yuan would remain somewhat stable in the future.
D) none of these; the value of the Chinese yuan has no impact on the feasibility of a divestiture.
Question 11: To best reduce exposure to a host government takeover, a subsidiary could:
A) use a long run profit perspective for business in that country.
B) hire people from its own country if the host government does not cooperate.
C) attempt to obtain supplies from its parent for which substitutes are not available.
D) borrow funds from its parent rather than from the host country’s creditors.
Question 12: When an MNC is considering financing a portion of a foreign project within the foreign country, the best method to account for a foreign project’s risk is to:
A) derive net present values based on the weighted average cost of capital.
B) adjust the weighted average cost of capital for the risk differential.
C) derive the net present value of the equity investment.
D) none of these.
Question 13: When determining whether a particular proposed project in a foreign country is feasible:
A) a country risk rating can adequately substitute for a capital budgeting analysis.
B) country risk analysis should be incorporated within the capital budgeting analysis.
C) the effect of country risk on sales revenue is more important than the effect on cash flows.
D) the project with the highest country risk rating (lowest country risk) should be accepted.
E) country risk analysis should be incorporated within the capital budgeting analysis AND the project with the highest country risk rating (lowest country risk) should be accepted.
Question 14: An MNC considers direct foreign investment in Germany. It is mainly concerned with the subsidiary’s ability to generate sufficient sales there. The country risk character¬istic that would best address this concern is:
A) the host government’s tax rates charged on remitted earnings.
B) the possibility of blocked funds.
C) the state of the economy in Germany.
D) the possibility of a withholding tax imposed by the German government.
Question 15: Eurenasia is a country that has frequently been assigned low macro-assessment ratings of country risk in the recent past due to its tendency to war with neighboring nations. MNC A is considering the establishment of a subsidiary to manufacture personal computers, while MNC B is considering the establishment of a subsidiary to manufacture tanks. Which of the two MNCs is likely to be less affected by the low macro-assessment?
A) MNC A.
B) MNC B.
C) Both MNC A and MNC B will be equally affected, since the macroassessment does not vary.
D) none of these.
Question 16: Assume the U.S. financing rate is 10 percent and that the financing rate in Germany is 9 percent. An MNC would be indifferent between financing in dollars and financing in euros next year if the euro is expected to _______.
A) appreciate by 0.92%.
B) depreciate by 0.92%.
C) appreciate by 1.00%.
D) depreciate by 1.00%.