Chương 6 – 7e
Which of the following are cost-related motives for direct foreign investment?
a. entering profitable markets
b. using foreign technology and raw materials
c. reacting to trade restrictions
d. All of the answers are correct.
correct: b
2
Firms should always locate production where the cost of labor is cheapest.
True
False
correct: false
3
Examples of techniques MNCs use for foreign direct investment are joint ventures, acquisitions, and the
establishment of new subsidiaries.
True
False
correct: true
4
Many governments have a tradition of limited foreign majority ownership.
True
False
correct: true
5
Firms often use direct foreign investment as a defensive strategy to circumvent barriers to trade.
True
False
correct: true
6
What are some drawbacks to direct foreign investment?
a. A substantial investment is usually required.

your answer:
10
Which of the following is true regarding joint ventures?
a. Joint ventures are not a form of DFI.
b. Joint ventures involve collaboration between two or more firms.
c. Joint ventures typically involve less of an initial investment than an acquisition.
d. None of the answers are correct.
status: not answered ()
correct: b
your answer:
11
The Single European Act encouraged U.S. MNCs to consolidate their European plants and recognize
gains from economies of scale.
True
False
status: not answered ()
correct: true
your answer:
12
Acquisitions are the best way to obtain or learn about a key strategic technology available in a foreign
market.
True
False
status: not answered ()
correct: false
your answer:
13
Which of the following is correct regarding the decision to remit funds to parents or to use funds for
the subsidiary?
a.

product market aspects when making a DFI decision.
True
False
status: not answered ()
correct: true
your answer:
17
Direct foreign investment, through the effects of diversification, pushes out the efficient frontier for
multiproduct MNCs.
True
False
status: not answered ()
correct: true
your answer:
18
An example of a red-tape barrier to direct foreign investment is bureaucracy.
True
False
status: not answered ()
correct: true
your answer:
19
Direct foreign investment refers to:
a. investment in real assets in a foreign country.
b. investment in a portfolio of stocks on their own exchange.
c. buying stock and bonds through a broker in the home country.
d. None of the answers are correct.
status: not answered ()
correct: a
your answer:

Which of the following is a revenue-related motive for direct foreign investment?
a. benefiting from economies of scale
b. using foreign factors of production
c. exploiting monopolistic advantages
d. All of the answers are correct.
status: not answered ()
correct: c
your answer:
24
Which of the following are true regarding international diversification?
a.
When global crises occur, MNCs may not be completely insulated, but those that are diversified
among several countries will likely face less of an impact than those that have concentrated
operations.
b.
Firms should invest in projects where the returns are highly positively correlated with each other
and with the projects of the firm in the home country.
c.
An internationally diversified MNC should expect that the variation of returns will increase as a
result of locating production overseas.
d. All of the answers are correct.
status: not answered ()
correct: a
your answer:
25
Exploiting monopolistic advantages is an example of a cost-related motive for DFI.
True
False
status: not answered ()
correct: false

b.
Firms should always engage in direct foreign investment in countries where the cost of labor is
lowest.
c.
Firms can reduce their overall risk by making direct foreign investments that have a low
correlation of returns with home country returns.
d. All of the answers are correct.
status: not answered ()
correct: b
your answer:
30
During global crises, MNCs with direct foreign investment are completely isolated from adverse price
movements because they are diversified.
True
False
status: not answered ()
correct: false