Question 21. Other things being equal, firms from a particular home country will

Question

Question 21. 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 22: 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 23: _______ 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 24. 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 25: 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 26: 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 27: 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 28: 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 29: 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 30: 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.

Explanation / Answer

Question 21: D) depreciate; low Question 22:
C) encouraging foreign firms to establish subsidiaries that produce products local firms do not produce.

Question 23: C) Political risk
Question 24: D) make the project’s return equal the required rate of return
Question 25: B) negatively.(If subsidiary currency is not changed)

Question 26: B) the firm benefits from existing customer relationships.

Question 27: B) the target’s previous acquisition history
Question 28: B) a less pronounced impact on revenues than on costs.

Question 29: A) the Chinese yuan would depreciate in the future.

Question 30: D) borrow funds from its parent rather than from the host country’s creditors.

Thank you....

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