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CH15

  • Maximizing economic value of the firm is more important than minimizing the firm’s worldwide tax burden.
  • The tax principle of morality suggests that not complying with tax law because non-compliance is common in a nation is acceptable.
  • The tax principle of neutrality is concerned with whether a tax motivates or incentivizes private economic behavior.
  • Foreign tax neutrality exists when foreign and domestic firms with equivalent activity and income are subject to the same tax liability in that tax jurisdiction. Essentially, foreign and domestic firms receive identical treatment by tax authorities in the jurisdiction if their circumstances are identical.
  • Domestic tax neutrality exists when income from foreign and domestic sources are subject to the same tax liability as if earned in a foreign tax jurisdiction. Essentially, foreign and domestic income receive similar treatment by tax authorities across nations.
  • Tax collection is by either a worldwide or a territorial approach. The worldwide approach applies a nation’s rate to all income earned by a firm. The territorial approach applies a nation’s rate only to income earned by a firm within the nation’s borders.
  • Transfer pricing allows a firm to recognize profits (and currency exposure) in nations with lower tax rates.
  • Transfer pricing strategies should be sensitive to government limits on transfer pricing related to market prices, resale prices, and cost-plus calculations.
  • Transfer pricing strategies are useful because they do not alter management incentives or complicate performance evaluation at subsidiaries.
  • Nations never use tax policy to try to attract businesses from other nations.

True

False

True

False

True

False

True

False

True

False

True

False

True

False

True

False

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False

CH16

1.International Trade Finance solutions deal with the Trade Dilemma that new counter-parties usually find it difficult to trust each other.

True

False

2. Which feature below is not part of an International Trade Finance solution?

One or more trusted third parties

Modifications to the timing of transaction cash flows

Exchange of share ownership

Insurance against types of non-performance or interference

3. Which type of counter-party most commonly requires International Trade Financing?

Affiliated Known Party

Affiliated Unknown Party

Unaffiliated Known Party

Unaffiliated Unknown Party

4. For what reason does a bank or a pair of banks often serve as trusted third parties?

The bank(s) can be known to both the importer and the exporter

The bank(s) pays the exporter

The bank(s) ship to the importer

The exporter ships to the bank(s)

5. Trade transactions involving banks require credit decisions. Insurance of trade transactions reduces risk to banks and counter-parties. Governments and trade associates sometimes offer trade related banking services and insurance to promote international trade.

True

False

CH17

1. The OLI Paradigm model identifies…

when licensing is optimal.

who are good joint venture partners.

when firms should invest directly in a country.

when management contracts are the best choice for international expansion.

2. Internalization of the value chain, the I in OLI, relates to

changing the boundaries of the firm.

taking advantage of resources specific to a country.

taking advantage of firm abilities in a new country.

changing the firm’s fortunes by operating in a new country.

3. Location of expansion, the L in OLI, relates to

changing the boundaries of the firm.

taking advantage of resources specific to a country.

taking advantage of firm abilities in a new country.

changing the firm’s fortunes by operating in a new country.

4. Owner, the O in OLI, relates to

changing the boundaries of the firm.

taking advantage of resources specific to a country.

taking advantage of firm abilities in a new country.

changing the firm’s fortunes by operating in a new country.

5. Which two international expansion pairs are more associated with ownership of resources?

Licensing & Management Contracts

Joint Ventures & Strategic Alliances

Management Contracts & Joint Ventures

Strategic Alliances & Licensing

6. Which of the following is not associated with Global Risks?

Regional Instability & Conflicts

Terrorism & Organized Crime

Failure of Country Institutions

Regional Poverty Trends

7. Greenfield investment involves developing production or service facilities from the ground up (building everything), whereas Brownfield investment involves developing production or service facilities using pre-existing infrastructure (re-purposing existing resource for new uses). Both are alternatives to a cross-border acquisition of a firm with existing resources.

True

False

8. Which of the following is not associated with Strategic Alliance goals?

Extending service network capabilities

Sharing research and development results

Combining production and marketing capabilities

Eliminating redundant back-office and headquarters management

9. Transfer risk relates to the movement of

money / currency

technology / patents

licensing / management

people / equipment

10. Which of the following is not a Cultural or Institutional Risk?

Acceptance of nepotism and corruption

Tolerance of intellectual property rights violations

Pressure to use locally sourced materials

Terrorism

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