Finance Flashcards

International Finance Chapter 1

Multinational Enterprise (MNE) A firm that has operating subsidiaries, branches, or affiliates located in foreign countries.
North American Free Trade Agreement (NAFTA) A treaty allowing free trade and investment between Canada, the United States, and Mexico
Terms of Trade the weighted average exchange ratio between a nations export prices and its import prices, used to measure gains from trade. Gains from trade refers to increases in total consumption resulting from production specialization and international trade.
comparative advantage. a theory that everyone gains if each nation specializes in the production of those goods that it produces relatively most efficiently and imports those goods that other countries produce relatively most efficiently the theory supports free trade arguments.
Quota a limit, manadatory or voluntary, set on the import of a product
Creation of value requires three things open market, high quality strategic management, access to capital.
international financial management requires an understanding of cultural, historical and institutional differences, such as those affecting corporate governance
MNE face risk factors such as political risks, foreign exchange risk,
firms become MNE’s because market seekers, raw material seekers, production seekers, knowledge seekers, political safety seekers
global transition 1 the firm buys materials from mexico and sells products in canada.
global transition 2 firm becomes MNE
An open market place. Which of the following are critical to a firm trying to reach the top of the “firm valuepyramid”?
None of the above A well-established, large U.S.-based MNE will probably NOT be able to overcome which ofthe following obstacles to maximizing firm value?A) An open market place.B) High quality strategic management.C) Access to capital.D) none of the above
An open marketplace. A well-established, large China-based MNE will probably be most adversely affected bywhich of the following elements of firm value?
Access to capital. A well-established, large, Brazil-based MNE will probably be most adversely affected bywhich of the following elements of firm value?
true 1 Three necessary conditions for a firm to reach the top of the “firm value pyramid” are an openmarket place, high quality strategic management, and access to capital.
True Comparative advantage is one of the underlying principles driving the growth of globalbusiness.
List and explain three strategic motives why firms become multinationals and give an exampleof each. The authors provide 5 strategic motives for firms to become multinationals: marketseekers, raw materials seekers, production efficiency seekers, knowledge seekers, and politicalsafety seekers.
the theory of comparative advantage The theory that suggests specialization by country can increase worldwide production is________.
All are reasons Which of the following is NOT a reason governments interfere with comparative advantage?A) Governments attempt to achieve full employment.B) Governments promote economic development.C) National self-sufficiency in defense-related industries.D) All are reasons governments interfere with comparative advantage.
Raw materials Which of the following factors of production DO NOT flow freely between countries?
All are reasons 1 Which of the following would NOT be a way to implement comparative advantage?A) IBM exports computers to Egypt.B) Computer hardware is designed in the United States but manufactured and assembled inKorea.C) Water of the greatest purity is obtained from wells in Oregon, bottled, and exportedworldwide.D) All of the above are examples of ways to implement comparative advantage.
Managerial Skills Of the following, which would NOT be considered a way that government interferes withcomparative advantage?
False International trade might have approached the comparative advantage model in the 19thcentury, and it does so even more today.
True. Comparative advantage shifts over time as less developed countries become more developedand realize their latent opportunities.
True.2 Comparative advantage in the 21st century is based more on services and their cross borderfacilitation by telecommunications and the Internet.
False. Comparative advantage was once the cornerstone of international trade theory, but today it isarchaic, simplistic, and irrelevant for explaining investment choices made by MNEs.
all of the above Which of the following domestic financial instruments have NOT been modified for use ininternational financial management?A) Currency options and futures.B) Interest rate and currency swaps.C) Letters of credit.
true.3 MNEs must modify finance theories like cost of capital and capital budgeting because offoreign complexities.
Political safely and small likelihood of government expropriation of assets. In determining why a firm becomes multinational there are many reasons. One reason is that the firm is a market seeker. Which of the following is NOT a reason why market seeking firms produce in foreign countries?A) Satisfaction of local demand in the foreign country.B) Satisfaction of local demand in the domestic markets.C) Political safely and small likelihood of government expropriation of assets.
Proactive; Defensive ________ investments are designed to promote and enhance the growth and profitability ofthe firm. ________ investments are designed to deny those same opportunities to the firm’scompetitors.A) Conservative; AggressiveB) Defensive; ProactiveC) Proactive; DefensiveD) Aggressive; Proactive
True.4 For firms competing in a world characterized by oligopolistic competition, strategic motives can be subdivided into proactive and defensive investments.
false.4 Defensive measures are designed to enhance growth and profitability of the firm itself.
international trade phase The phase of the globalization process characterized by imports from foreign suppliers and exports to foreign buyers is called the
ownership of assets and enterprises in foreign countries. The authors describe the multinational phase of globalization for a firm as one characterizedby the
bears direct foreign exchange risk. A firm in the International Trade Phase of Globalization
Foreign consumer method of payment preferences. Of the following, which was NOT mentioned by the authors as an increase in the demands offinancial management services due to increased globalization by the firm?
Corporate insiders and rulers of sovereign states. The twin agency problems limiting financial globalization are caused by these two groups acting in their own self-interests rather than the interests of the firm.
TRUE.5 Typically, a firm in its domestic stage of globalization has all financial transactions in itsdomestic currency.
true.6 Typically, a “greenfield” investment abroad is considered a greater foreign investment havinga greater foreign presence than a joint venture with a foreign firm.
True.7 The authors argue that financial inefficiency caused by influential insiders may prove to be anincreasingly troublesome barrier to international finance.

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