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International Trade
International Trade MCQs
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Direct foreign investment allows firms to avoid
Exposure to political risk.
The cost of exchange rate fluctuations.
Trade restrictions imposed on foreign companies in the customers’ market.
Domestic regulations on the use of foreign technology.
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All of the following are valid reasons for expansion of international business by U.S. multinational corporations except to
Secure new sources for raw materials.
Find additional areas where their products can be successfully marketed.
Minimize their costs of production.
Protect their domestic market from competition from foreign manufacturers.
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Which one of the following statements concerning American Depository Receipts (ADRs) is false?
ADRs facilitate the banking procedures for U.S. multinational firms.
ADRs allow Americans to invest abroad.
ADRs allow foreigners to raise capital in the U.S.
ADRs are securities issued by American banks acting as custodians of shares of foreign firms.
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A British company currently has domestic operations only. It plans to invest equal amounts of money on projects either in the U.S. or in China. The co...
Positive correlation between the British return and the U.S. return.
Negative correlation between the U.S. return and the Chinese return.
Positive correlation between the U.S. return and the Chinese return.
Negative correlation between the Chinese return and the British return.
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Technocrat, Inc., located in Belgium, currently manufactures products at its domestic plant and exports them to the U.S. since it is less expensive to...
Expectation of more stringent trade restrictions by the U.S.
Depreciation of the U.S. dollar against Belgium’s currency.
Widening of the gap in production costs between the United States and Belgium locations.
Changing demand for the company’s exports to the U.S. due to exchange rate fluctuations.
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All of the following are concerns that are unique to foreign investments except
Exchange rate changes.
Purchasing power parity.
Changes in interest rates.
Expropriation.
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The cost of capital for foreign investment projects is higher because of all of the following factors except
Exchange-rate risk.
Political risk arising from possible expropriation.
Laws requiring specific forms of financing.
Trigger pricing.
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Which of the following is not a political risk of investing in a foreign country?
Rebellions could result in destruction of property.
Assets could be expropriated.
Foreign-exchange controls could limit the repatriation of profits.
A foreign customer might default on its debt.
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The benefits of direct foreign investment by multinational corporations include all of the following except
Easier access to scarce resources.
Improved earnings opportunities.
Improved international understanding.
More expropriation opportunities.
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Which of the following is a benefit to the home country of international diversification by multinational companies?
A better international monetary system.
Jobs may be lost to foreign subsidiaries.
Unions may be weakened.
Reduced flexibility of operation in a foreign political system.
?
The most likely benefit of a multinational company to its home country is
The competitive advantage of the multinational over its domestic rivals.
Access to resources.
New capital investment.
Remittance of profits outside the home country.
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The most likely benefit of a multinational company to its host country is
Net capital outflow.
Formation of cartels.
Increased tax revenues.
Establishment of transfer prices to minimize taxes.
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The most likely adverse effect on a multinational’s home country is
Flow of royalties and dividends out of the home country.
Manipulation of transfer prices.
Loss of technology.
Loss of tax revenues.
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Which of the following is not a method of financing international trade?
Forfaiting.
Cross-border factoring.
American depository receipts (ADRs).
Banker’s acceptances.
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For an American investor who wants to avoid legal restrictions on investing in equity securities of foreign companies, the most frequent means of maki...
Letters of credit.
Banker’s acceptances.
American depository receipts.
Global depository receipts.
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A letter of credit is a(n)
Letter documenting a line of credit on which a customer may draw at its bank.
Engagement by a financial institution to pay drafts or other demands for payment for its customer.
Letter by a buyer or seller of goods that credit is due the other party for defective or returned goods.
Credit reference given by a bank.
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A seller is paid in a bill of lading and letter of credit transaction when the bill of lading is given to the
Transport company.
Buyer.
Seller’s bank.
Correspondent bank.
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Which method of payment in an international trade transaction requires payment whenever an instrument is presented?
Consignment.
Time draft.
Sight draft.
Trade acceptance.
?
Commercial drafts are common in international business transactions. Such a draft
Is a two-party instrument.
Is payable to the importer.
Contains an order to the drawee.
Contains an order by the importer.
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From the seller’s perspective, what is the most risky form of payment used in international trade?
Letter of credit.
Open account.
Sight draft.
Time draft.
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From the seller’s perspective, the least risky form of payment in international trade is
Open account.
Letter of credit.
Prepayment.
Trade acceptance.
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An exporter delivers goods to a retailer for sale to the public. If the exporter is paid only after sale to third parties, the arrangement is a(n)
Consignment.
Trade acceptance.
Sale on open account.
Form of countertrade.
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The method of financing international trade that necessarily involves sale of medium- to long-term receivables is
Forfaiting.
Countertrade.
Cross-border factoring.
A banker’s acceptance.
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A banker’s acceptance is
A form of sight (demand) draft.
Created by a bank.
Sold at a premium in a primary market.
Guaranteed by a bank.
?
Which of the following is a form of barter?
Forfaiting.
Countertrade.
Cross-border factoring.
Consignment.
?
Cross-border factoring involves
Using a network of factors in other countries.
Bartering goods and services with factors in other countries.
Sale by exporters of long-term receivables to factors in other countries.
Consignment to factors in other countries.
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XCo is an American company that wants to sell widgets to DCo, a Danish Corporation. XCo is unsure about DCo’s ability to pay. XCo should
Not transact business with DCo.
Transact business with DCo because American law requires DCo to pay.
Transact business with DCo because Danish law requires DCo to pay.
Require DCo to obtain a letter of credit.
?
Which of the following is false concerning a bill of lading?
It is a receipt showing that a seller transferred possession of goods to a shipper.
It is a contract under which the shipper agrees to transport goods to the buyer.
It is an engagement by a bank or other person made at the customer’s request to pay drafts or other demands for its customer.
It shows who has ownership of the goods.
?
Which of the following statements is true with respect to international transfer pricing by a U.S. firm?
Transfer prices charged to foreign subsidiaries must be the same as those charged to domestic subsidiaries.
The existence of tariffs in the foreign country may necessitate a higher transfer price be charged a foreign subsidiary.
Limitations on taking profits out of a foreign country can be avoided by charging the foreign subsidiary a higher transfer price.
The transfer price must consider the Internal Revenue Code limitation that the amount of taxable income that can be claimed by a foreign subsidiary can be no more than 25% of the total (parent plus subsidiary) taxable income.
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A firm ships its product to a foreign subsidiary and charges a price that may increase import duties but lower the income taxes paid by the subsidiary...
Price is an arm’s-length price.
Price is a cost-plus price.
Transfer price is too low.
Transfer price is too high.
