CBA300 EXAM STUDY GUIDE WITH
VERIFIED SOLUTION
Which of the following is a difference between foreign portfolio investment (FPI) and
foreign direct investment (FDI)? - ANSWER FPI does not entail the active management of
foreign assets, whereas FDI entails hands-on management of foreign assets
In the context of foreign direct investment (FDI), _____ refers to producing the same
products or offering the same services in a host country as firms do at home - ANSWER
horizontal FDI
Unlike horizontal foreign direct investment, a vertical foreign direct investment (FDI)
involves a firm - ANSWER moving upstream or downstream in different value-chain
stages in a host country
A company did not engage in product distribution in its home country but invested in
product dealerships—a later activity in the value chain—in its host country. In the
context of foreign direct investment (FDI), this is an example of _____ - ANSWER
downstream vertical FDI
By definition, a multinational enterprise (MNE) is a firm that engages in _____ - ANSWER
foreign direct investment (FDI) when doing business abroad
An export company can become a multinational enterprise (MNE) by - ANSWER
undertaking foreign direct investment.
The rights to appoint key managers and establish control mechanisms are known as
____ rights - ANSWER management control
FDI inflow and outflow refer to - ANSWER the amount of foreign direct investment (FDI)
moving in and out of a country, respectively, in a given period of time, usually a year
Which of the following is NOT considered an OLI advantage? - ANSWER licensing
advantage
A clothing firm decides to operate in Pakistan because of its available cotton and low
labor costs. This is an example of a firm capitalizing on _____ advantage - ANSWER
location
Which of the following is a reason for companies to engage in foreign direct investment
(FDI)? - ANSWER To acquire ownership advantages
In the context of foreign direct investment (FDI), _____ refers to possession and
leveraging by a multinational enterprise (MNE) of certain valuable, rare, hard-to-imitate,
,and organizationally embedded (VRIO) assets overseas - ANSWER ownership
In the context of foreign direct investment (FDI), _____ advantages are those enjoyed by
firms because they do business in a certain place - ANSWER location
Vietnam's emergence as the preferred country for foreign direct investment (FDI) over
China is because of: - ANSWER China's increasing labor cost.
In the context of foreign direct investment (FDI), _____ refers to the replacement of
cross-border markets with one firm—the multinational enterprise (MNE)—locating and
operating in two or more countries. - ANSWER internalization
_____ refers to buying and selling technology and intellectual property. - ANSWER
Licensing
A firm chooses to assemble its product in another country via foreign direct investment
(FDI). This is an example of _____. - ANSWER internalization
Which of the following is a reason for companies to engage in foreign direct investment
(FDI)? - ANSWER To gain location and internalization advantages
The advantage of foreign direct investment (FDI) is that it: - ANSWER reduces the risk of
firm-specific resources and capabilities being appropriated
Firms prefer foreign direct investment (FDI) to licensing because: - ANSWER FDI
provides more direct and tighter control over foreign operations.
Which of the following is NOT a reason that firms prefer foreign direct investment (FDI)
to licensing? - ANSWER FDI requires a firm to only have an equity stake of less than 10
percent in a foreign-based enterprise
The possibility of unauthorized diffusion of firm-specific know-how is known as -
ANSWER Dissemination risk
Which of the following statements is true of explicit knowledge? - ANSWER it can be
written down and transferred without losing much of its richness.
Silicon Valley attracts and supports many technology companies. Because of its cluster
of resources Silicon Valley has become known one of the world's hotbeds of technology.
This phenomenon is known as - ANSWER agglomeration
When one firm enters a foreign country through foreign direct investment (FDI), its rivals
are likely to follow by undertaking additional FDI in a host country to acquire location
advantages. This is especially likely in _____. - ANSWER oligopolies
In the context of foreign direct investment (FDI), location advantages arise from the
clustering of economic activities in certain locations referred to as _____. - ANSWER
agglomeration
In the context of foreign direct investment (FDI), international transaction costs tend to -
, ANSWER increase with potential opportunism
Which of the following is most likely to reduce cross-border transaction costs that arise
from market failures? - ANSWER Replacing the external market with in-house link
Multinational enterprises (MNEs) can achieve internalization to combat market failures
by: - ANSWER establishing intrafirm trade between its subsidiaries in different countries
The radical view of foreign direct investment (FDI): - ANSWER considers FDI as an
instrument of imperialism
The political view that approves of foreign direct investment (FDI) only when its benefits
outweigh its costs is known as the: - ANSWER pragmatic nationalism view on FDI
Which of the following views on foreign direct investment (FDI) suggests that FDI,
unrestricted by government intervention, will enable countries to tap into their absolute
or comparative advantages by specializing in the production of certain goods and
services? - ANSWER . The free market view
After observing foreign technical knowledge and processes, local rivals may recognize
its feasibility and strive to imitate it. This is known as _____. - ANSWER the
demonstration effect
Which of the following is a disadvantage of foreign direct investment (FDI) to host
countries? - ANSWER Which of the following is a disadvantage
Which of the following is a possible disadvantage of foreign direct investment (FDI) to
home countries? - ANSWER b. It results in capital outflow.
Which of the following is the first step to be taken if a firm considers foreign direct
investment (FDI)? - ANSWER Assessing whether FDI is justified in light of other
possibilities such as outsourcing and licensing
A _____ is the price of one currency in terms of another. - ANSWER foreign exchange
rate
Which of the following is a disadvantage of using strategic hedging as a risk
management strategy? - ANSWER It is unrealistic for smaller and inexperienced firms
Which of the following statements is true of the supply demand law? - ANSWER Strong
demand will lead to price increase.
Which of the following is a strategy used by companies to cope with currency risks -
ANSWER Invoicing in one's own currency
The theory of purchasing power parity (PPP) suggests that in the: - ANSWER absence of
trade barriers, the price for identical products sold in different countries must be the
same.
VERIFIED SOLUTION
Which of the following is a difference between foreign portfolio investment (FPI) and
foreign direct investment (FDI)? - ANSWER FPI does not entail the active management of
foreign assets, whereas FDI entails hands-on management of foreign assets
In the context of foreign direct investment (FDI), _____ refers to producing the same
products or offering the same services in a host country as firms do at home - ANSWER
horizontal FDI
Unlike horizontal foreign direct investment, a vertical foreign direct investment (FDI)
involves a firm - ANSWER moving upstream or downstream in different value-chain
stages in a host country
A company did not engage in product distribution in its home country but invested in
product dealerships—a later activity in the value chain—in its host country. In the
context of foreign direct investment (FDI), this is an example of _____ - ANSWER
downstream vertical FDI
By definition, a multinational enterprise (MNE) is a firm that engages in _____ - ANSWER
foreign direct investment (FDI) when doing business abroad
An export company can become a multinational enterprise (MNE) by - ANSWER
undertaking foreign direct investment.
The rights to appoint key managers and establish control mechanisms are known as
____ rights - ANSWER management control
FDI inflow and outflow refer to - ANSWER the amount of foreign direct investment (FDI)
moving in and out of a country, respectively, in a given period of time, usually a year
Which of the following is NOT considered an OLI advantage? - ANSWER licensing
advantage
A clothing firm decides to operate in Pakistan because of its available cotton and low
labor costs. This is an example of a firm capitalizing on _____ advantage - ANSWER
location
Which of the following is a reason for companies to engage in foreign direct investment
(FDI)? - ANSWER To acquire ownership advantages
In the context of foreign direct investment (FDI), _____ refers to possession and
leveraging by a multinational enterprise (MNE) of certain valuable, rare, hard-to-imitate,
,and organizationally embedded (VRIO) assets overseas - ANSWER ownership
In the context of foreign direct investment (FDI), _____ advantages are those enjoyed by
firms because they do business in a certain place - ANSWER location
Vietnam's emergence as the preferred country for foreign direct investment (FDI) over
China is because of: - ANSWER China's increasing labor cost.
In the context of foreign direct investment (FDI), _____ refers to the replacement of
cross-border markets with one firm—the multinational enterprise (MNE)—locating and
operating in two or more countries. - ANSWER internalization
_____ refers to buying and selling technology and intellectual property. - ANSWER
Licensing
A firm chooses to assemble its product in another country via foreign direct investment
(FDI). This is an example of _____. - ANSWER internalization
Which of the following is a reason for companies to engage in foreign direct investment
(FDI)? - ANSWER To gain location and internalization advantages
The advantage of foreign direct investment (FDI) is that it: - ANSWER reduces the risk of
firm-specific resources and capabilities being appropriated
Firms prefer foreign direct investment (FDI) to licensing because: - ANSWER FDI
provides more direct and tighter control over foreign operations.
Which of the following is NOT a reason that firms prefer foreign direct investment (FDI)
to licensing? - ANSWER FDI requires a firm to only have an equity stake of less than 10
percent in a foreign-based enterprise
The possibility of unauthorized diffusion of firm-specific know-how is known as -
ANSWER Dissemination risk
Which of the following statements is true of explicit knowledge? - ANSWER it can be
written down and transferred without losing much of its richness.
Silicon Valley attracts and supports many technology companies. Because of its cluster
of resources Silicon Valley has become known one of the world's hotbeds of technology.
This phenomenon is known as - ANSWER agglomeration
When one firm enters a foreign country through foreign direct investment (FDI), its rivals
are likely to follow by undertaking additional FDI in a host country to acquire location
advantages. This is especially likely in _____. - ANSWER oligopolies
In the context of foreign direct investment (FDI), location advantages arise from the
clustering of economic activities in certain locations referred to as _____. - ANSWER
agglomeration
In the context of foreign direct investment (FDI), international transaction costs tend to -
, ANSWER increase with potential opportunism
Which of the following is most likely to reduce cross-border transaction costs that arise
from market failures? - ANSWER Replacing the external market with in-house link
Multinational enterprises (MNEs) can achieve internalization to combat market failures
by: - ANSWER establishing intrafirm trade between its subsidiaries in different countries
The radical view of foreign direct investment (FDI): - ANSWER considers FDI as an
instrument of imperialism
The political view that approves of foreign direct investment (FDI) only when its benefits
outweigh its costs is known as the: - ANSWER pragmatic nationalism view on FDI
Which of the following views on foreign direct investment (FDI) suggests that FDI,
unrestricted by government intervention, will enable countries to tap into their absolute
or comparative advantages by specializing in the production of certain goods and
services? - ANSWER . The free market view
After observing foreign technical knowledge and processes, local rivals may recognize
its feasibility and strive to imitate it. This is known as _____. - ANSWER the
demonstration effect
Which of the following is a disadvantage of foreign direct investment (FDI) to host
countries? - ANSWER Which of the following is a disadvantage
Which of the following is a possible disadvantage of foreign direct investment (FDI) to
home countries? - ANSWER b. It results in capital outflow.
Which of the following is the first step to be taken if a firm considers foreign direct
investment (FDI)? - ANSWER Assessing whether FDI is justified in light of other
possibilities such as outsourcing and licensing
A _____ is the price of one currency in terms of another. - ANSWER foreign exchange
rate
Which of the following is a disadvantage of using strategic hedging as a risk
management strategy? - ANSWER It is unrealistic for smaller and inexperienced firms
Which of the following statements is true of the supply demand law? - ANSWER Strong
demand will lead to price increase.
Which of the following is a strategy used by companies to cope with currency risks -
ANSWER Invoicing in one's own currency
The theory of purchasing power parity (PPP) suggests that in the: - ANSWER absence of
trade barriers, the price for identical products sold in different countries must be the
same.
