Chapter 01 Globalization and the Multinational Firm

13. Suppose Mexico is a major export market for your U.S.-based company and the Mexican peso depreciates drastically against the U.S. dollar, as it did in December 1994. This means
A. your company's products can be priced out of the Mexican market, as the peso price of American imports will rise following the peso's fall.
B. your firm will be able to charge more in dollar terms while keeping peso prices stable.
C. your domestic competitors will enjoy a period of facing little price competition from Mexican imports.
D. both b) and c) are correct

14. Suppose that you are a U.S. producer of a commodity good competing with foreign producers. Your inputs of production are priced in dollars and you sell your output in dollars. If the U.S. currency depreciates against the currencies of our trading partners,
A. your competitive position is likely improved.
B. your competitive position is likely worsened.
C. your competitive position is unchanged.

15. Undoubtedly, we are now living in a world where all the major economic functions—consumption, production, and investment
A. are still inherently local.
B. are still regional in nature.
C. are slowly becoming globalized.
D. are highly globalized.

16. Most governments at least try to make it difficult for people to cross their borders illegally. This barrier to the free movement of labor is an example of
A. information asymmetry.
B. excessive transactions costs.
C. racial discrimination.
D. a market imperfection.

17. Although the world economy is much more integrated today than was the case 10 or 20 years ago, a variety of barriers still hamper free movements of people, goods, services, and capital across national boundaries. These barriers include
A. legal restrictions.
B. excessive transportation costs.
C. information asymmetry.
D. all of the above

18. The Japanese automobile company Honda decided to establish production facilities in Ohio, mainly to
A. circumvent trade barriers.
B. reduce transportation costs.
C. reduce transactions costs.
D. both a) and b)

19. When individual investors become aware of overseas investment opportunities and are willing to diversify their portfolios internationally,
A. they trade one market imperfection, information asymmetry, for another, exchange rate risk.
B. they benefit from an expanded opportunity set.
C. they should not bother to read or to understand the prospectus, since it's probably written in a foreign language.
D. they should invest only in dollars or euros.

20. The Nestlé Corporation, a well-known Swiss MNC, used to issue two different classes of common stock, bearer shares and registered shares, and foreigners were allowed to hold only
A. registered shares.
B. bearer shares.
C. voting shares.
D. convertible shares.