Chapter 16

Fundamentals of Multinational Finance, 5e (Moffett et al.)
Chapter 16 Foreign Direct Investment and Political Risk

Multiple Choice and True/False Questions

16.1 Sustaining and Transferring Competitive Advantage

1) An example of economies of scale in financing includes
A) being able to access the Euroequity, Eurobond, and Eurocurrency markets.
B) being able to ship product in shiploads or carloads.
C) being able to use large-scale plant and equipment.
D) all of the above.
Answer: A
Diff: 1
Topic: 16.1 Sustaining and Transferring Competitive Advantage
Skill: Conceptual

16.2 The OLI Paradigm and Internationalization

1) The OLI paradigm is an attempt to create a framework to explain why MNEs choose ________ rather than some other form of international venture.
A) licensing
B) joint ventures
C) foreign direct investment
D) strategic alliances
Answer: C
Diff: 1
Topic: 16.2 The OLI Paradigm and Internationalization
Skill: Recognition

2) The O in OLI refers to an advantage in a firm's home market that is
A) operator independent.
B) owner-specific.
C) open-market.
D) official designation.
Answer: B
Diff: 1
Topic: 16.2 The OLI Paradigm and Internationalization
Skill: Recognition

5) The L in OLI refers to an advantage in a firm's home market that is a
A) liability in the domestic market.
B) location-specific advantage.
C) longevity in a particular market.
D) none of the above.
Answer: B
Diff: 1
Topic: 16.2 The OLI Paradigm and Internationalization
Skill: Recognition

7) Investing in production facility in a country with low cost of labor is
A) example of location-specific advantage.
B) not prudent if there is no domestic market for the produced goods.
C) example of a market-driven advantage.
D) not prudent because the cost of labor will increase over time.
Answer: A
Diff: 1
Topic: 16.2 The OLI Paradigm and Internationalization
Skill: Recognition

8) The I in OLI refers to an advantage in a firm's home market that is an
A) internalization.