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Investment (MCQs)

1. MNCs engage in DFI because they are interested in


a) Boosting revenues
b) Reducing Cost
c) Both a & b
d) None of these
ANSWER: C

2. Establish a subsidiary in a market where competitor are unable to produce the identical
product sell product in that country
a) Exploit monopolistic advantages
b) React to trade restrictions
c) Diversify internationally
d) Attract new source of demand
ANSWER: A

3. Establish a subsidiary in a new where the local currency is weak but is expected to
strengthen over time
a) React to exchange rate movements
b) Use foreign factor of production
c) Use foreign raw material
d) Use foreign technology
ANSWER: A
4. Host Government views of DFI
a) Incentives to encourage DFI
b) Barriers to DFI
c) Government imposed conditions on engaging in DFI
d) All of the above
ANSWER: D

5. Economies of scale
a) Lower average cost per unit resulting from increased production
b) Higher average cost per unit resulting from increased production
c) Medium average cost per unit resulting from increased production
d) Lower or higher average cost per unit resulting from increased production
ANSWER: A

6. MNCs use DFI as a defensive rather than an aggressive strategy


a) React to trade restriction
b) Diversify internationally
c) Enter profitable markets
d) Exploit monopolistic advantages
ANSWER: A

7. Government of some countries may prevent DFI


a) Protective barriers
b) Industry barriers
c) Regulatory barriers
d) Political instability
ANSWER: D
8. How many characteristics of input for multinational capital budgeting?
a) 3 characteristic
b) 6 characteristic
c) 8 characteristic
d) 10 characteristic
ANSWER: C
9. Capital budgeting analysis easier to apply in
a) Cost
b) Remitted funds
c) Initial investment
d) Salvage (liquidation) value
ANSWER: D

10. Spot rate of Singapore dollar is


a) $.25
b) $.50
c) $.70
d) $ 1.00
ANSWER: B

11. Multinational capital budgeting analysis could at least incorporate other scenarios for
exchange rate movements such as
a) Pessimistic scenarios
b) Optimistic Scenarios
c) Both A & B
d) None
ANSWER: C

12. Fluctuation in inflation should affects both cost and revenues in the same direction the
magnitude of their changes may be very different
a) Financing arrangement
b) Inflation
c) Parent financing
d) Exchange rate fluctuation
ANSWER: B

13. Subsidiary is borrowing funds to purchase the offices the lease payments
a) 1 million per year
b) 2 million per year
c) 3 million per year
d) 4 million per year
ANSWER: A

14. Countries require that earning generate by the subsidiary by reinvest locally for at least
a) 3 years
b) 7 years
c) 10 years
d) 25 years
ANSWER: A
15. Salvage value necessary to achieve z NPV for a project
a) Zero
b) Less than zero
c) Greater than zero
d) Neutral
ANSWER: A

16. The break-even salvage value for the project can be determined by
a) Estimating the present value of future cash flow (excluding the salvage value)
b) Subtracting the discounted cash flows from the initial outlay
c) Multiplying the difference by (1+k) n
d) All of the above
ANSWER: D

17. Greater the uncertainty about a project’s forecastedC cash flow the larger should be the
discount rate app;ied to cash flow
a) Simulation
b) Real options
c) Sensitivity analysis
d) Risk-adjusted discount rate
ANSWER: D

18. Computer software packages are available to perform


a) Real option
b) Sensitivity analysis
c) Simulation
d) Risk adjusted discount rate
ANSWER: B

19. Type of risk in which payments are interrupted by intervention of foreign governments is
considered as
a) channel risk
b) globalization risk
c) state risk
d) country risk

ANSWER: D

20. Global bond market consists of all bonds sold by issued companies, governments, or
other firms
a) within their own countries
b) outside their own countries
c) to London banks
d) to developing nations only

ANSWER: B

21. More instability in currency is called as


a) country risk
b) financial risk
c) currency risk
d) liquidity risk
ANSWER: C

22. Government may require special permits imposed extra taxes or subsidize competitors
a) Inefficient bureaucracy
b) War
c) Currency inconvertibility
d) Actions of host government
ANSWER: D

23. Multinational corporation including 3M, Dupont, IBM and Nike were adversely affected
by a weak European economy in the
a) 2008-2010
b) 2010-2011
c) 2011-2012
d) 2012-2013
ANSWER: A
24. Financial risk characteristics
a) Blockage of fund transfer
b) Corruption
c) War
d) Economic growth
ANSWER: D
25. Technique involve the collection of independent opinion without group discussion
a) Checklist
b) Delphi
c) Inspection
d) Combination
ANSWER: B

26. World Bank has established an affiliate called


a) Multilateral investment guarantee agency
b) Foreign direct investment
c) London interbank offer rate
d) World equity benchmark shares
ANSWER: A

27. Foreign expansion diversifies an MNCs sources of revenue and thus reduces its reliance
on
a) United Kingdom economy
b) China economy
c) United state economy
d) Pakistan economy
ANSWER: C

28. Multinational corporation that consider DFI need to recognize the influence that these local
firm have on the local government
a) Red tape barriers
b) Environment barriers
c) Regulatory barriers
d) Ethical barriers
ANSWER: B

29. International diversification is a common motive for


a) Multinational corporation (MNCs)
b) Foreign corrupt practices act (FCPA)
c) Direct foreign investment (DIF)
d) None of these
ANSWER: C
30. U.s firm might prefer to engage in direct foreign investment (DFI) in
a) Canada rather than Mexico
b) Canada rather than America
c) Canada rather than Singapore
d) Canada rather than hungry
ANSWER: A

31. An accretion swap is a swap in which the notional value is increased over time
a) Accretion swap
b) Zero coupon swap
c) Callable swap
d) Basis (floating for floating)
ANSWER: A

32. Garrett Co. is a U.S firm that is about to acquire a company in Singapore for
a) 150 million Singapore dollars
b) 200 million Singapore dollars
c) 250 million Singapore dollar
d) 300 million Singapore dollar
ANSWER: A

33. Boise can obtain a three year fixed rate dollar denominated loan is
a) 2 percent
b) 3 percent
c) 5 percent
d) 7 percent
ANSWER: D

34. Debt denomination to finance a project


a) Input necessary to conduct an analysis
b) Analysis of financing alternative for a project
c) Adjusting the analysis for other condition
d) All of the above
ANSWER: D

35. A swap between one year LIBOR and six month LIBOR is
a) Amortization swap
b) Forward swap
c) Basis (floating for floating) swap
d) Swaption
ANSWER: C
36. International swap and derivative association
a) Global trade
b) Local trade
c) Both a and b
d) None of these
ANSWER: A
37. ISDA’s two primary objectives are
a) Developing and maintaining documentation
b) Encouraging the development of sound risk management practices
c) Both a and b
d) None of these
ANSWER: A

38. Us firm enter a firm when the foreign country


a) Weak
b) Weakest
c) Strong
d) Strongest
ANSWER: A

39. Rock ford Co could estimate the net present value of the project under scenarios;
a) Scenarios = 11%
b) Scenarios = 12%
c) Scenarios = 13%
d) Scenarios = 15%

ANSWER: D
40. To the extent the yen strengthens paxson;s cost of financing when financing with yen could
be higher than when financing with
a) Yen
b) Pounds
c) Dollar
d) Euro
ANSWER: B