Chapter 9 Flashcards
A company can achieve market power through ________.
Select one:
a. internalization advantages
b. horizontal integration
c. ownership advantages
d. vertical integration
d. vertical integration
According to the market imperfections theory, competition is a common market imperfection.
Select one:
True
False
False
Which of the following methods is being used when a host country provides lower tax rates and low-interest loans to firms from abroad for encouraging inflows of foreign direct investment?
Select one:
a. financial incentives
b. embargoes
c. local content requirements
d. sanctions
a. financial incentives
Volkswagen is a leading global auto-maker with production facilities in 48 countries. It sells eight million cars annually to customers in more than 150 countries. Some of VW’s well-known luxury brands include Bentley, Bugatti, Lamborghine and Porsche. Volkswagen attributes its remarkable success to paying its workers twice as much as do its American and Japanee competitors.
Select one:
True
False
False
Building a subsidiary abroad from the ground up is called a greenfield investment.
Select one:
True
False
True
Which of the following is a major driver of foreign direct investment?
Select one:
a. cultural diversity
b. horizontal integration
c. globalization
d. vertical integration
c. globalization
According to the eclectic theory that explains FDI, an ownership advantage is the advantage that arises from internalizing a business activity rather than leaving it to a relatively inefficient market.
Select one:
True
False
False
Which of the following is used by home country governments to limit outbound foreign direct investment?
Select one:
a. tax breaks
b. low-interest loans
c. differential tax rates
d. ownership restrictions
c. differential tax rates
Increasing globalization is causing a growing number of international companies from emerging markets to undertake FDI.
Select one:
True
False
True
When a U.S. subsidiary in another country remits profits back to its parent company in the U.S., the receipt of profits is recorded in the ________.
Select one:
a. income receipts account and given a minus sign
b. income payments account and given a plus sign
c. income receipts account and given a plus sign
d. income payments account and given a minus sign
c. income receipts account and given a plus sign
Which of the following accounts of a country’s balance of payments records transactions involving the export of services?
Select one:
a. transactional account
b. savings account
c. capital account
d. current account
d. current account
Scenario: Blickinstock at the Crossroads
Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To that end, Blickinstock is trying to decide whether to purchase an existing company in a remote region of Argentina or build its own subsidiary. Keith Moon, Blickinstock’s vice president of global business development, will be making a presentation to the board outlining the company’s options.
Blickinstock has identified a company that it can acquire or merge with. Which of the following statements would represent the least likely reason for Blickinstock to go ahead with the merger?
Select one:
a. The merger would help to fill the gaps in Blickinstock’s product line.
b. The merger would bring in increased cash-flows that Blickinstock can use to acquire other firms.
c. The merger would allow the company to get a foothold in the nascent Latin American market.
d. The merger would help increase Blickinstock’s global competitiveness.
b. The merger would bring in increased cash-flows that Blickinstock can use to acquire other firms.
Which of the following theories states that firms undertake foreign direct investment, when the features of a particular location combine with ownership and internalization advantages, to make the location appealing for investment?
Select one:
a. market power theory
b. eclectic theory
c. international product life cycle theory
d. market imperfections theory
b. eclectic theory
The possibility that a company will create a future competitor by charging another company for access to its knowledge is a market imperfection that can encourage foreign direct investment.
Select one:
True
False
True
The possibility that a company will create a future competitor by charging another company for access to its knowledge is a market imperfection that can encourage foreign direct investment.
Select one:
True
False
True
According to the market imperfections theory, competition is a common market imperfection.
Select one:
True
False
False
Which of the following countries would a watchmaker most prefer to manufacture its watches in, in order to capitalize on buyer perceptions of high quality?
Select one:
a. China
b. Switzerland
c. Thailand
d. Mexico
Switzerland
Which of the following methods is being used when a host country provides lower tax rates and low-interest loans to firms from abroad for encouraging inflows of foreign direct investment?
Select one:
a. financial incentives
b. sanctions
c. local content requirements
d. embargoes
a. financial incentives
The possibility that a company will create a future competitor by charging another company for access to its knowledge is a(n) ________ that can encourage FDI.
Select one:
a. market imperfection
b. trade barrier
c. internalization advantage
d. ownership advantage
a. market imperfection
Building a subsidiary abroad from the ground up is called a greenfield investment.
Select one:
True
False
True
Which of the following statements is true of rationalized production?
Select one:
a. It is an unethical method of production as it uses questionable labor practices to reduce costs.
b. It depends on a large number of distribution channels which leads to inefficiency.
c. It depends on a large number of distribution channels which increases the cost of production.
d. It can bring the entire production process to a standstill, if work is stopped in one country.
d. It can bring the entire production process to a standstill, if work is stopped in one country.
Scenario: Blickinstock at the Crossroads
Auto parts supplier, Blickinstock Ltd., would like to expand its presence in Latin America. To that end, Blickinstock is trying to decide whether to purchase an existing company in a remote region of Argentina or build its own subsidiary. Keith Moon, Blickinstock’s vice president of global business development, will be making a presentation to the board outlining the company’s options.
If Blickinstock’s home government tries to stop the company from investing in Latin America, the government is most likely trying to ________.
Select one:
a. prevent a monopoly situation from occurring
b. discourage the entry of a “sunset” company
c. protect the “sunset” companies in Latin America
d. protect its balance of payments
d. protect its balance of payments
Which of the following methods is used by a host country to restrict incoming foreign direct investment?
Select one:
a. differential tax rates for earnings abroad
b. performance demands
c. insurance to cover the risk of overseas investments
d. low-interest loans to investors
b. performance demands
A potential problem with a rationalized production model is that a work stoppage in one country can bring the entire production process to a standstill.
Select one:
True
False
True
