Study Guide for Final Exam

Chapter 7

1. Explain what is FDI (2 points) and why firms conduct FDI from the international product life cycle theory (6 points). 

-Purchase of physical assets or a significant amount of the ownership (stock) of a company in another country to gain a measure of management control.

-Portfolio investment:

   - Financial assets (stock, bonds);

   -Not involve a degree of control

why? –Licensing, Franchising Management contract, Export.

2. Why governments intervene in companies’ FDI? (8 points).

a. Protect cultural heritages, domestic companies, and jobs.

b. Balance of payments

 - Current account

 -Capital account

Chapter 13

3. List the four methods of export financing (6 points) in the order (2 points) of increasing importer’s risk.

Open account

 Documentary collection

 Letter of credit

 Advance payment

4. Explain what is WOS (2 points) and the advantages (3 points) and disadvantages (3 points) of WOS. 

Wholly Owned Subsidiaries, Facility entirely owned and controlled by a single parent company.

 Can take the form of:  Greenfield investments and Mergers and Acquisitions

• Advantages

Day-to-day control

Coordinate subsidiaries

• Disadvantages

Expensive

High risk

Chapter 8

5. Explain what is regionalism (2 points) and the advantages (3 points) and disadvantages of regionalism (3 points).

Regionalism: Countries in a geographic area cooperate to reduce or remove barriers for products, people, and capital.

Ad: trade creation, greater consensus, political cooperation, employment opportunities, corporate savings.

DisAd: Trade diversion, shifts in employment, loss of national sovereignty.

6. List levels of regional integration (6 points) in the order (2 points) of increasing integration. 

Free trade Area, customs union, common market, economic Union, political Union.

Greater integration, surrender more sovereignty.

Chapter 9

8. Given that on April 15. 2016, the exchange rate between US dollar and British pound is USD/GBP=1.41, and that on May 4. 2016, the exchange rate between US dollar and British pound changes to USD/GBP=1.46, what is the change in British pound (4 points) and what is the change in US dollar (4 points)?

Change in British Pound: [(1.46-1.41)/1.41]*100%= 3.55%

April 15: 1/1.41=0.7092 GBP/USD