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IBUS 401 Exam 3 (CH 13 - 17) Questions With Precise Answers
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IBUS 401 Exam 3 (CH 13 - 17) Questions With Precise Answers
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IBUS 401 Exam 3 (CH 13 - 17) QuestionsWith Precise Answers
Motives for DFI CORRECT ANSWERS 1. Revenue Related
2. Cost Related
Revenue Related Motives for Direct Foreign Investment CORRECT ANSWERS 1.
Attract New Sources of Demand
2. Enter Profitable Markets
3. Exploit Monopolistic Advantages
4. React to Trade Restrictions
5. Diversify Internationally
Cost Related Motives for Direct Foreign Investment CORRECT ANSWERS 1. Benefit
from Economies of Scale
2. Use Foreign Factors of Production
3. Use Foreign Raw Materials
4. Use Foreign Technology
5. React to Exchange Rate Movements
How is the Benefit from Economies of Scale a cost related motive for DFI CORRECT
ANSWERS increased production results in a lower average cost per unit
How does a MNC use DFI to react to Exchange Rate Movements CORRECT
ANSWERS if a firm perceives that a foreign currency is under valued, the firm may
consider DFI in that country, as the initial outlay should be relatively low
Benefits of International Diversification CORRECT ANSWERS 1. Reduces Exposure to
Domestic Economic Conditions
2. Reduce Cash Flow Risk by increasing stability
3. Reduce the Firm's Cost of Capital
4. International Project lower risk for same expected return
When using DFI to reduce risk by way of Intentional Diversification would an MNC
target:
A. countries whose economies are related (correlated) to the home country
B. countries whose economies are unrelated (not correlated) to the home country
CORRECT ANSWERS B. The MNC would Target countries whose economies are
UNRELATED (NOT CORRELATED) to the home country when attempting to
Internationally Diversify
What are the ideal effect of DFI on a Foreign Country CORRECT ANSWERS 1.
Reduces Unemployment of the country
2. Increases Countries Access to Technology
, 3. Doesn't take away business from local firms
What are the Barriers to DFI CORRECT ANSWERS 1. Protective Barriers
2. "Red Tape" Barriers
3. Industry Barries
4. Environmental Barries
Define protective barrier in regard to DFI CORRECT ANSWERS when an agency
prevents an MNC from acquiring companies if they believe the employees will be laid off
Define "red tape" barrier in regard to DFI CORRECT ANSWERS procedural and
documentation requirements
Define Industry barrier in regard to DFI CORRECT ANSWERS local firms may have
substantial influence on the government and may use their influence to prevent
competition from MNCs
Define Environmental barrier in regard to DFI CORRECT ANSWERS building codes,
disposal of production waste materials, and pollution controls
How does an MNC assess a potential DFI Project CORRECT ANSWERS General
Analysis
Describe the General Analysis of a potential DFI Project CORRECT ANSWERS screen
out many of the project opportunities in order to focus on the opportunities that off the
largest benefit
EOC 13: Which motives for DFI do you think encouraged Nike to expand its footwear
production in Latin America? CORRECT ANSWERS 1. New Sources of Demand (Latin
America offers additional sources of demand, as LA consumers have shown interest in
Nike footwear)
2. Foreign Factors of Production (Nike may be able to produce their athletic footwear at
relatively low costs in some LA countries, as production is labor-intensive and wages
are low)
3. Economies of scale (Producing large amount and exporting the additional shoes for
sale to nearby countries)
4. International Diversification (expansion to LA allows Nike to further diversify its
business internationally)
EOC 13: Packer, Inc., a U.S. producer of tablet computers, plans to establish a
subsidiary in Mexico in an effort to penetrate the Mexican market. Packer's executives
believe that the Mexican peso's value is relatively strong and will weaken against the
dollar over time. If their expectations about the peso's value are correct, how will this
trend affect the feasibility of the project? Explain. CORRECT ANSWERS If the peso's
value is relatively strong now, Packer Inc. will incur high costs of establishing a Mexican
subsidiary. In addition, if the peso weakens, future remitted earnings by the subsidiary
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