Globalization And The Multinational Firm

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Question 1
Free
True/False

Is Northern Ireland better off when it trades with Southern Ireland?

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True

False

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Question 2
Free
True/False

Now suppose that Southern workers receive a raise to €2 per day.Will trade be possible at the exchange rate you found in the last question?

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True

False

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Question 3
Free
True/False

Now suppose that Southern workers are paid €1 per day but the Northern workers receive a raise to £2 per day.Will trade be possible at the exchange rate you found in the question before the last question?

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True

False

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Question 4
Free
Multiple Choice

What major dimension sets apart international finance from domestic finance?

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A

Foreign exchange and political risks

B

Market imperfections

C

Expanded opportunity set

D

All of the above

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Question 5
Free
Multiple Choice

An example of a political risk is

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A

expropriation of assets.

B

adverse change in tax rules.

C

the opposition party being elected.

D

both answers a) and b) are correct.

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Question 6
Multiple Choice

Production of goods and services has become globalized to a large extent as a result of

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A
natural resources being depleted in one country after another.
B
skilled labor being highly mobile.
C
multinational corporations' efforts to source inputs and locate production anywhere where costs are lower and profits higher.
D
common tastes worldwide for the same goods and services.
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Question 7
Multiple Choice

Recently,financial markets have become highly integrated.This development

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A
allows investors to diversify their portfolios internationally.
B
allows minority investors to buy and sell stocks.
C
has increased the cost of capital for firms.
D
answers a) and c) are both correct.
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Question 8
Multiple Choice

Japan has experienced large trade surpluses.Japanese investors have responded to this by

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A
liquidating their positions in stocks to buy dollar denominated bonds.
B
investing heavily in U.S.and other foreign financial markets.
C
lobbying the U.S.government to depreciate its currency.
D
lobbying the Japanese government to allow the yen to appreciate.
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Question 9
Multiple Choice

Suppose your firm invests $100,000 in a project in Italy.At the time the exchange rate is $1.25 = €1.00.One year later the exchange rate is the same,but the Italian government has expropriated your firm's assets paying only €80,000 in compensation.This is an example of

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A
exchange rate risk.
B
political risk.
C
market imperfections.
D
none of the above, since $100,000 = €80,000 $1.25/€1.00
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Question 10
Multiple Choice

Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2.One year later,the stock rises to £60.You are happy with your 20 percent return on the stock,but when you sell the stock and exchange your £60 for dollars,you only get $45 since the pound has fallen to £1 = $0.75.This loss of value is an example of

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A
exchange rate risk.
B
political risk.
C
market imperfections.
D
weakness in the dollar.
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Question 11
Multiple Choice

Suppose that Great Britain is a major export market for your firm,a U.S.-based MNC.If the British pound depreciates against the U.S.dollar,

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A
your firm will be able to charge more in dollar terms while keeping pound prices stable.
B
your firm may be priced out of the U.K.market, to the extent that your dollar costs stay constant and your pound prices will rise.
C
to protect U.K.market share, your firm may have to cut the dollar price of your goods to keep the pound price the same.
D
both b) and c) are correct
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Question 12
Multiple Choice

Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso appreciates drastically against the U.S.dollar.This means

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A
your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall.
B
your firm will be able to charge more in dollar terms while keeping peso prices stable.
C
your domestic competitors will enjoy a period of facing lessened price competition from Mexican imports.
D
both b) and c) are correct
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Question 13
Multiple Choice

Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso depreciates drastically against the U.S.dollar,as it did in December 1994.This means

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A
your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall.
B
your firm will be able to charge more in dollar terms while keeping peso prices stable.
C
your domestic competitors will enjoy a period of facing little price competition from Mexican imports.
D
both b) and c) are correct
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Question 14
Multiple Choice

Suppose that you are a U.S.producer of a commodity good competing with foreign producers.Your inputs of production are priced in dollars and you sell your output in dollars.If the U.S.currency depreciates against the currencies of our trading partners,

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A
your competitive position is likely improved.
B
your competitive position is likely worsened.
C
your competitive position is unchanged.
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Question 15
Multiple Choice

Undoubtedly,we are now living in a world where all the major economic functions-consumption,production,and investment

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A
are still inherently local.
B
are still regional in nature.
C
are slowly becoming globalized.
D
are highly globalized.
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Question 16
Multiple Choice

Most governments at least try to make it difficult for people to cross their borders illegally.This barrier to the free movement of labor is an example of

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A
information asymmetry.
B
excessive transactions costs.
C
racial discrimination.
D
a market imperfection.
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Question 17
Multiple Choice

Although the world economy is much more integrated today than was the case 10 or 20 years ago,a variety of barriers still hamper free movements of people,goods,services,and capital across national boundaries.These barriers include

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A
legal restrictions.
B
excessive transportation costs.
C
information asymmetry.
D
all of the above
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Question 18
Multiple Choice

The Japanese automobile company Honda decided to establish production facilities in Ohio,mainly to

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A
circumvent trade barriers.
B
reduce transportation costs.
C
reduce transactions costs.
D
both a) and b)
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Question 19
Multiple Choice

When individual investors become aware of overseas investment opportunities and are willing to diversify their portfolios internationally,

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A
they trade one market imperfection, information asymmetry, for another, exchange rate risk.
B
they benefit from an expanded opportunity set.
C
they should not bother to read or to understand the prospectus, since it's probably written in a foreign language.
D
they should invest only in dollars or euros.
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Question 20
Multiple Choice

The Nestlé Corporation,a well-known Swiss MNC,used to issue two different classes of common stock,bearer shares and registered shares,and foreigners were allowed to hold only

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A
registered shares.
B
bearer shares.
C
voting shares.
D
convertible shares.
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