IBUS 401 EXAM 3
T/F: when a foreign currency is perceived by a firm to be
undervalued, the firm may consider direct foreign investment in that
country, as the initial outlay should be relatively low - ANSWERS-
true
If a US parent is setting up a French subsidiary, and funds from the
subsidiary will be periodically sent to the parent, the ideal situation
from the parent's perspective is a _______ after the subsidiary is
established.
- strengthening euro
- stable euro
- weak euro
- both B and C are ideal - ANSWERS-strengthening euro
Assume an MNC establishes a subsidiary where it has no other
existing business. The present value of parent cash flows from this
subsidiary is more sensitive to change rate movements when:
- the subsidiary finances the entire investment by local borrowing
- the subsidiary finances most of the investment by local borrowing
- the parent finances most of the investment
- the parent finances the entire investment - ANSWERS-the parent
finances the entire investment
, Other things being equal, a blocked funds restriction is more likely to
have a significant adverse effect on a project if the currency of that
country is expected to _______ over time, and if the interest rate in
that country is relatively _________.
- appreciate; low
- appreciate; high
- depreciate; high
- depreciate; low - ANSWERS-depreciate; low
A country with high unemployment could best increase its
employment by:
- encouraging foreign firms to establish subsidiaries that produce the
same products local firms produce
- encouraging foreign firms to establish licensing arrangements for
products local firms produce
- encouraging foreign firms to establish subsidiaries that produce
products local firms do not produce
- none of the above would reduce employment - ANSWERS-
encouraging foreign firms to establish subsidiaries that produce
products local firms do not produce
the checklist approach:
- requires the use of discriminant analysis to assess country risk
- requires rating and weights to be assigned to all factors relevant in
assessing country risk
T/F: when a foreign currency is perceived by a firm to be
undervalued, the firm may consider direct foreign investment in that
country, as the initial outlay should be relatively low - ANSWERS-
true
If a US parent is setting up a French subsidiary, and funds from the
subsidiary will be periodically sent to the parent, the ideal situation
from the parent's perspective is a _______ after the subsidiary is
established.
- strengthening euro
- stable euro
- weak euro
- both B and C are ideal - ANSWERS-strengthening euro
Assume an MNC establishes a subsidiary where it has no other
existing business. The present value of parent cash flows from this
subsidiary is more sensitive to change rate movements when:
- the subsidiary finances the entire investment by local borrowing
- the subsidiary finances most of the investment by local borrowing
- the parent finances most of the investment
- the parent finances the entire investment - ANSWERS-the parent
finances the entire investment
, Other things being equal, a blocked funds restriction is more likely to
have a significant adverse effect on a project if the currency of that
country is expected to _______ over time, and if the interest rate in
that country is relatively _________.
- appreciate; low
- appreciate; high
- depreciate; high
- depreciate; low - ANSWERS-depreciate; low
A country with high unemployment could best increase its
employment by:
- encouraging foreign firms to establish subsidiaries that produce the
same products local firms produce
- encouraging foreign firms to establish licensing arrangements for
products local firms produce
- encouraging foreign firms to establish subsidiaries that produce
products local firms do not produce
- none of the above would reduce employment - ANSWERS-
encouraging foreign firms to establish subsidiaries that produce
products local firms do not produce
the checklist approach:
- requires the use of discriminant analysis to assess country risk
- requires rating and weights to be assigned to all factors relevant in
assessing country risk
