Multinational Corporations Internalize Mnc Quiz Questions

68 Questions | Total Attempts: 1325

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Exam 2. . .


Questions and Answers
  • 1. 
    • A. 

      Makes a foreign direct investment

    • B. 

      Takes out a foreign loan

    • C. 

      Imports a foreign product

    • D. 

      Exports a foreign product

    • E. 

      Hires foreign workers

  • 2. 
    A multinational is a firm that controls and manages production facilities in
    • A. 

      Both developed and developing countries

    • B. 

      At least two countries

    • C. 

      One country but relies on multiple markets for the consumption of goods it produces

    • D. 

      At least two developed countries and one developing country

    • E. 

      One country, but relies on purchasing intermediate foods from companies in other countries

  • 3. 
    A foreign direct investment occurs when a company in country A invests in a company located in country B and thereby gives the investing company control over the management of the company receiving its investment.  A company does not have to be the sole investor in the foreign company
    • A. 

      True

    • B. 

      False

  • 4. 
    Locational advantages are based on which combination of the following specific country characteristics
    • A. 

      A large reserve of natural resources, a large local market and efficiency opportunities

    • B. 

      A small reserve of natural resources, a large local market and efficiency opportunities

    • C. 

      A small reserve of natural resources, a small local market and efficiency opportunities

    • D. 

      A large reserve of natural resources, a small local market and efficiency opportunities

    • E. 

      A small reserve of natural resources, a large local market but few efficiency opportunities

  • 5. 
    Horizontal integration occurs when
    • A. 

      Firm creates singular country production facilities, each of which produces different good or goods

    • B. 

      Firm creates multiple production facilities, each of which produces the same good or goods.

    • C. 

      Firm creates multiple production facilities, each of which produces different good or goods

    • D. 

      Firm creates singular country facilities, each of which produces the same good or goods

    • E. 

      Firm creates multiple production facilities, in multiple countries but with different technologies

  • 6. 
    Which of the following are examples of intangible assets?
    • A. 

      Natural resources and local markets

    • B. 

      Patented processes and natural resources

    • C. 

      Employee know-how and natural resources

    • D. 

      Local markets and natural resources

    • E. 

      Patented processes and employee know-how

  • 7. 
    Many MNCs have opted to remove many of their international transactions from the market and place them within a single corporate structure because
    • A. 

      They are usually required by the host country governments

    • B. 

      They are usually required by their home country governments

    • C. 

      They can usually earn substantially higher incomes by internalizing intangible and specific assets

    • D. 

      They will not be held accountable for raising the general welfare of their host countries

    • E. 

      This helps them stay clear of intrusive host government regulations

  • 8. 
    Although MNCs have a global reach, their activities are overwhelmingly concentrated in the advanced industrialized countries
    • A. 

      True

    • B. 

      False

  • 9. 
    Vertical integration refers to instances in which multinational corporations internalize (i.e., bring under their ownership and control) their transactions for intermediate goods
    • A. 

      True

    • B. 

      False

  • 10. 
    Immediately after WWII the central political concern for developing countries regarding MNCs ownership of critical natural resource industries was that
    • A. 

      It compromised the hard won national autonomy over their economies after achieving independence

    • B. 

      Governments would be unable to use these resources to promote ISI strategies.

    • C. 

      Extractive industries did not usually transfer technology

    • D. 

      Extractive industries used primarily underpaid domestic workers even though their skills were developed

    • E. 

      Extractive industries accelerated the depletion of non-renewable resources

  • 11. 
    Nationalization was common during the late 1960s and the first half of the 1970s.  Nationalizations occured most often in
    • A. 

      Banking and transportation

    • B. 

      Banking and public utilities

    • C. 

      Transportation and extractive industries

    • D. 

      Banking and extractive industries

    • E. 

      Extractive industries

  • 12. 
    Export Processing Zones are industrial areas set aside for MNCs with special rules or subsidies.  Foreign firms based in EPZs are primarily allowed to
    • A. 

      Import components free of taxes, as long as all of their output is exported

    • B. 

      Pay workers less than elsewhere in the country

    • C. 

      Pay workers more than elsewhere in the country

    • D. 

      Ignore safety and environmental regulations

    • E. 

      Imported components for assembly free of taxes, as long as none of their output is exported

  • 13. 
    Sovereign Wealth Funds (SWFs) are
    • A. 

      Royalty-owned funds that purchase private assets in foreign markets

    • B. 

      Royalty-owned funds that purchase public assets in foreign markets

    • C. 

      Government-owned funds that purchase public assets in domestic markets

    • D. 

      Government owned funds that purchase private assets in domestic markets

    • E. 

      Government-owned funds that purchase private assets in foreign markets

  • 14. 
    The Calvo Doctrine of 1868 concerns nationalization of private companies.  The doctrine asserts the rights of
    • A. 

      The home of country to intervene to protect its citizens' claims

    • B. 

      The home country to negotiate fair compensation with the host country

    • C. 

      The nationalized company to full compensation from the host country

    • D. 

      The host country to determine the value of full compensation

    • E. 

      The host country to determine fair compensation

  • 15. 
    Locational incentives are packages host countries offer to MNCs that
    • A. 

      Decrease the profits of a particular investment

    • B. 

      Increase the costs of that investment

    • C. 

      Increase the risk of that investment

    • D. 

      Provide subsidized loans for that investment

    • E. 

      Depreciate their investments at slower rates

  • 16. 
    The reason why there are no comprehensive international investment rules is that
    • A. 

      Governments have never tried to create multilateral rules

    • B. 

      The OCED and WTO rules have already created effective comprehensive guidelines.

    • C. 

      Conflict between capital-exporting advanced industrial countries and the capital-importing developing countries has prevented agreement of such rules

    • D. 

      Conflict between WTO and the group of 77 has prevented agreement on such rules

    • E. 

      MNCs have already created rules on their own initiative

  • 17. 
    Historically, international rules advocated by developed countries and governing FDI have been based on the following legal principles:
    • A. 

      Foreign investments are private property and should be treated less favorably than domestic private property.

    • B. 

      Governments must compensate the owner for the fair value of the expropriated property.

    • C. 

      Governments have the right to expropriate but only for public purposes

    • D. 

      Foreign investors cannot appeal to their home governments when they have disputes with the host government

    • E. 

      Expropriation, like foreign loan defaults, must be punished with no new investment in the defaulting country for seven years

  • 18. 
    The Multilateral Agreement on Investment (MAI) began to be negotiated in the OECD in May 1995 to further liberalize FDI and provide greater security to MNCs.  It was based on two central principles
    • A. 

      National treatment and most favored nation

    • B. 

      Domestic favoritism and most favored nation

    • C. 

      National treatment and least favored nation

    • D. 

      Fair compensation and remittance rights

    • E. 

      National treatment and fair compensation

  • 19. 
    A fixed exchange rate system refers to a relationship between currencies which is unchanging because it is backed by:
    • A. 

      Prevailing market conditions

    • B. 

      Government guarantees to maintain currency exchange rates

    • C. 

      Government fixing the price of gold

    • D. 

      Government basing the exchange rate on world productivity

    • E. 

      Government laws making currency speculation illegal

  • 20. 
    In a flexible or floating exchange-rate system
    • A. 

      Governments must commit themselves to maintaining a specific fixed price against other currencies

    • B. 

      Governments must allow their currencies to float freely with no government intervention

    • C. 

      Governments can intervene in the foreign exchange market to influence the value of their currencies

    • D. 

      Currency speculation is prohibited

    • E. 

      The market alone determines the value of currencies.

  • 21. 
    The current account of the balance of payments accounting system has several subcategories.  Which of the following IS NOT one of the subcategories?
    • A. 

      The trade account

    • B. 

      The service account

    • C. 

      The income account

    • D. 

      The foreign direct investment account

    • E. 

      Unilateral transfers account

  • 22. 
    Imports and Exports of activities such as banking, insurance, transportation, and tourism are registered in 
    • A. 

      The trade account

    • B. 

      The service account

    • C. 

      The income account

    • D. 

      The expense account

    • E. 

      Unilateral transfers account

  • 23. 
    Oatley claims that fixed exchange rates procide exchange rate stability but they also prevent governments from using monetary policy to manage domestic economic activity
    • A. 

      True

    • B. 

      False

  • 24. 
    Because the dollar served as the Bretton Wood's system's primary reserve asset, reducing the number of dollars circulating in the globaal economy would reduce the liquidity that financed world trade
    • A. 

      True

    • B. 

      False

  • 25. 
    In the 1985 Plaza Accord, the U.S., German, British, French and Japanese governments agreed to:
    • A. 

      Increase the value of the dollar against the European Monetary System currencies

    • B. 

      Reduce the value of the dollar against the Japanese yen and the German mark by 10-12 percent

    • C. 

      Reduce the value of the dollar against gold

    • D. 

      Reduce the value of the dollar against Special Drawing Rights

    • E. 

      Increase the value of the dollar against the British pound and French Franc