Ch016-Foreign-Direct-Investment-and-Cross-Border-A

Eun/Resnick201Eun&Resnick4eCHAPTER16ForeignDirectInvestmentandCross-BorderAcquisitionsGlobalTrendsinFDIWhyDoFirmsInvestOverseas?TradeBarriersImperfectLaborMarketIntangibleAssetsVerticalIntegrationProductLifeCycleInternationalFinanceinPractice:LinearSequenceinManufacturing:Singer&CompanyShareholderDiversificationServicesCross-BorderMergersandAcquisitionsPoliticalRiskandFDIInternationalFinanceinPractice:DaimlerChrysler:TheFirstGlobalCarColossusInternationalFinanceinPractice:StoriesPastandPresentSummaryMINICASE:EnronversusBombayPoliticians1Undera1981VoluntaryTradeAgreementJapaneseautomobilemanufacturerswerenotallowedtoincreasetheirexportstotheU.S.market.Asaresult:a)Theyexitedthemarketb)Hondawasmotivatedtocircumventthetradebarriers.c)Honda’sFDImayhavebeenpartofanoverallcorporatestrategydesignedtobolstertheircompetitivepositionvis-à-vistheirdomesticrivalssuchasToyotad)Bothb)andc)Answer:d)2FollowingHonda’sFDIintheU.S.,a)TheU.S.governmentimposedaVoluntaryTradeAgreementunderwhichJapaneseautomobilemanufacturerswerenotallowedtoincreasetheirexportstotheU.S.market.b)ToyotaandNissanmadedirectinvestmentsinAmericac)SalesofHondasdeclinedd)noneoftheaboveAnswer:b)3Honda’sdecisiontobuildaplaninOhioa)WaswelcomedbytheUnitedAutoWorkersb)WasencouragedbyassistancefromthestateofOhio,includingimprovedinfrastructurearoundtheplantandabatementofpropertytaxes.c)InvolvedsettingupaspecialforeigntradezonethatallowedHondatoimportautopartsfromJapanatareducedtariffrate.d)AlloftheaboveAnswer:d)Eun/Resnick2024WhenfirmsundertakeFDI,a)TheybecomeMNCsb)Theyreducetheirtaxratesincetheycantelleachcountrythattheydobusinessinthattheypaidtheirtaxesinothercountries.c)Thecanexploitworkersbypayingthembelow-marketwagesindepreciatingcurrencies.d)AlloftheaboveAnswer:a)5FDIcantaketheformof:a)Greenfieldinvestmentb)Cross-borderM&Ac)Establishingnewproductionfacilitiesinaforeigncountryd)AlloftheaboveAnswer:d)6TheFordMotorCompanyrecentlyacquiredMazda,aJapaneseautomaker,andJaguar,aBritishautomaker.a)Thisisanexampleofcross-borderM&Ab)ThiswasaGreenfieldinvestmentc)Botha)andb)d)NoneoftheaboveAnswer:a)7AccordingtoarecentUNsurvey,theworldFDIstockgrewatwhatraterelativetoworldwideexportsofgoodsandservices?a)TheworldFDIstockgrewtwiceasfastasworldwideexportsofgoodsandservices.b)TheworldFDIstockgrewatthesamerateasworldwideexportsofgoodsandservices.c)TheworldFDIstockgrewhalfasfastasworldwideexportsofgoodsandservices.d)NoneoftheaboveAnswer:a)GlobalTrendsinFDI8JapanplaysamajorroleasanexporterofFDI.AsarecipientofFDIa)JapanreceivesasmuchFDIasitexports,makingitamajorplayeronbothfronts.b)Japanplaysarelativelyminorrole,reflectingavarietyoflegal,economic,andculturalbarrierstoFDI.c)Japan’sreceiptsofFDIarethirdintheworldd)NoneoftheaboveAnswer:b)Eun/Resnick2039ThethirdmostimportanthostcountryforFDIisa)TheUnitedStatesb)Japanc)Chinad)MexicoAnswer:c)10MNCshaveinvestedinChinaa)Bylowermaterialcosts.b)Bylowerlaborcosts.c)ByadesiretopreempttheentryofrivalsintoChina’spotentiallyhugemarket.d)AlloftheaboveAnswer:d)11FDIstocksa)Arethecommonsharesofmultinationalcompaniesthatinvestabroadb)AremutualfundsthatinvestinFDIc)Representtheaccumulationofpreviousyear’sFDIflowsd)AtthesumtotalofcurrentyearFDIflowsAnswer:c)12ThedominantsourceofFDIoutflowsa)Severaldevelopedcountriesb)Afewunderdevelopedcountriesnexttowealthyneighbors,likeMexicoc)AfricaandChinad)NoneoftheaboveAnswer:a)WhyDoFirmsInvestOverseas?13Thekeyfactorsthatareimportantinafirm’sdecisiontoinvestoverseasare:a)Tradebarriers,imperfectlabormarket,andintangibleassetsb)verticalintegration,productlifecycle,andshareholderdiversificationservicesc)profitmaximization,globalprestige,andcompetitiond)a)andb)Answer:d)14Whydofirmslocateproductionoverseasratherthanexportingfinishedgoods?a)Shippingcostsb)Firmsseektoextendcorporatecontroloverseasc)Imperfectfactormarketsd)AlloftheaboveAnswer:d)Eun/Resnick20415WhilethereisnocomprehensivetheoryofFDI,manyexistingtheoriesemphasize:a)Imperfectionsinproductmarkets.b)Imperfectionsincapitalmarketsc)Imperfectionsinlabormarketsd)AlloftheaboveAnswer:d)TradeBarriers16Internationalmarketsforgoodsandservicesareoftenimperfect.WhichistheMOSTcommonandMOSTimportant?a)Actsofgovernments.b)Naturalbarrierslikedistancec)Culturalbarriersd)LackofknowledgeAnswer:a)17Whydogovernmentsregulateinternationaltrade?a)Toraiserevenueb)Protectdomesticindustriesc)Pursueothereconomicobjectivesd)AlloftheaboveAnswer:d)18Tradebarrierscanarisenaturally.Whichofthefollowingrepresentanaturalbarriertotrade?a)Transportationcostsb)Quotasc)Tariffsd)TransactionscostsAnswer:a)ImperfectLaborMarket19InapushtoservetheNorthAmericanmarketSamsung,aKoreanfirm,chosetolocateproductionfacilitiesinMexico,mainlybecausea)OflowerlaborcostsinMexicob)TocircumventtradebarriersimposedbyNAFTAc)BecauseofcolderweatherinCanadad)NoneoftheaboveAnswer:a)Rationale:thisiswhatthebooksays,butconsiderpartialcreditforb)Eun/Resnick20520Laborservicesinacountrymightbeunderpricedrelativetoproductivitybecause:a)Workersarenotallowedtofreelymoveracrossnationalboundariestoseekhigherwages.b)Somecountriesdo