3. Which of the following is not true with regard to direct investments?

A. U.S. direct investments abroad and foreign direct investment in the U.S. grew very rapidly from 1950 to 2001

B. The amount of U.S. direct investments abroad is similar to the amount of foreign direct investments in U.S.

*C. U.S. direct investments in Canada are higher than in Europe

D. U.S. Private holding of foreign long-term securities grew very rapidly from 1950 to 2001

4. Two-way international capital flows can be explained by the desire to: A. earn higher yields abroad B. avoid tariffs *C. diversify risks D. all of the above

5. Portfolio theory tells us that by investing in securities with yields that are inversely related over time:

A. a given yield can be obtained at a smaller risk B. a high yield can be obtained for the same level of risk

C. a two-way capital flow may be required achieve a balanced portfolio *D. all of the above

6. The reason the residents of nation do not borrow from other nations and themselves undertake real investments in their own nation is that:

*A. multinationals want to retain control over their own technology B. banks do not want to lend to foreigners C. vertical integration is not possible for foreigners D. multinationals want to avoid horizontal integration

7. Which is not a reason for private foreign direct investment? A. horizontal and vertical integration B. to maximize profits and diversify risks *C. to stimulate development D. to avoid tariffs

8. Which of the following is not a beneficial effect of direct investments on the investing country?

*A. the transfer of technology B. higher profits C. risk diversification

D. avoids the possible loss of export markets

9. Foreign direct investment benefits the host nation because it: A. increases the K/L ration

B. increases the productivity of labor C. increases per capita income *D. all of the above

10. U.S. labor generally

*A. opposes U.S. investments abroad B. favor U.S. investments abroad

C. is indifferent to U.S. investments abroad D. we cannot say without additional information

11.Labor in developing countries generally

A. opposes an inflow of foreign direct investment from abroad *B. favor an inflow of foreign direct investment from abroad C. is indifferent to foreign direct investment from abroad

D. we cannot say without additional information

12. Owners of capital in developing countries generally *A. opposes an inflow of foreign direct investment from abroad B. favor an inflow of foreign direct investment from abroad C. are indifferent to foreign direct investment from abroad D. we cannot say without additional information

13.The basic reason for the existence of MNC is the:

*A. competitive advantage of a global network of production and distribution B. incentives provided by the investing nation C. incentives provided by the host nation D. imperfections of international capital markets

14.Transfer pricing refers to: A. risk diversification

B. the pricing of the technology transferred

*C. the artificial overpricing of components shipped to an affiliate in a higher tax nation

D. portfolio theory

15. The brain drain refers to transfer of:

A. technology from developed to developing nations

B. skilled labor and professionals from developed to developing nations C. unskilled labor from developing to developed nations

*D. skilled labor and professionals from less advanced to more advanced nations Chapter 13: The Balance of Payments Multiple-choice Questions: 1. Which of the following is false?

A. A credit transaction leads to a payment from foreigners B. A debit transaction leads to a payment to foreigners *C. A credit transaction is entered with a negative sign

D. Double-entry bookkeeping refers to each transaction entered twice.

2. Which of the following is a debit? A. The export of goods B. The export of services

*C. Unilateral transfers given to foreigners D. Capital inflows

3. Capital inflows:

A. refer to an increase in foreign assets in the nation B. refer to a reduction in the nation's assets abroad C. lead to a payment from foreigners *D. all of the above

4. When a U.S. firm imports goods to be paid in three months the U.S. credits: A. the current account B. unilateral transfers *C. capital D. official reserves

5. The receipt of an interest payment on a loan made by a U.S. commercial bank to a foreign resident is entered in the U.S. balance of payments as a: A. credit in the capital account *B. credit in the current account C. credit in official reserves D. debit in unilateral transfers

6. The payment of a dividend by an American company to a foreign stockholder represents:

A. a debit in the U.S. capital account B. a credit in the U.S. capital account C. a credit in the U.S. official reserve account *D. a debit in the U.S. current account

7. When a U.S. firm imports a good from England a pays for it by drawing on its pound

sterling balances in a London Bank, the U.S. debits its current account and credits its:

A. official reserve account B. unilateral transfers account C. services in its current account *D. capital account

8. When the U.S. ships food aid to a developing nation, the U.S. debits: *A. unilateral transfers B. services C. capital D. official reserves

9. When the resident of a foreign nation (1) sells a U.S. stock and (2) deposits the proceeds in a U.S. bank, the U.S.:

A. credits capital for (1) and debits capital for (2) B. credits the current account and debits capital C. debits capital and credits official reserves *D. debits capital for (1) and credits capital for (2)