Title: Cat for Lesson 11 - The Financial System
Course: 383-303-FD-55-01 • International Economics

Test info catégorie

Q: Question

True or false?

Sélectionnez la bonne réponse pour chaque énoncé.

FDI is a type of investment with the main objective of obtaining a return on invested capital.
[...] Portfolio investments are considered very unstable: with the slightest negative shock in the country where they are located, investors withdraw them from the country and seek a better return elsewhere.
[...] Budget deficits of industrialized nations during the 1990s, privatization of public companies and deregulation of financial markets are all factors that contributed to the increase in the supply of shares on the capital markets.
[...] In the past, households were inclined to buy houses and buildings with their savings. Today, many of them, particularly future pensioners, are more inclined to hold financial assets that provide good returns.
[...] The main players on the FDI market are institutional investors.
[...] By making an FDI, the investor seeks to seize power, i.e., the investor wants to acquire 50% plus one share.[...]
A: Faux; Vrai; Vrai; Vrai; Faux; Faux
Gap 1 offers: Vrai; Faux
Gap 2 offers: Vrai; Faux
Gap 3 offers: Vrai; Faux
Gap 4 offers: Vrai; Faux
Gap 5 offers: Vrai; Faux
Gap 6 offers: Vrai; Faux

True or false? Justify your answer.

Question

If FDIs are directed towards a country's priority sectors and are well managed, they allow the country to benefit from the transfer of new technologies.

Sélectionnez la meilleure réponse puis justifiez votre choix.

Réponse | Choix de réponses
1 | True
2 | False

Justification
Feedback: La(es) bonne(s) réponse(s) est(sont): 1, As in industrialized countries, foreign direct investment results in higher wages and is an essential source of transfers of technology and managerial skills to the developing economies that benefit from it. This contributes to the prosperity of the developing countries in question. Moreover, FDIs stimulate the export of machines and other capital goods and increase the demand for intermediate goods, know-how and specialized services.
Feedback: La(es) bonne(s) réponse(s) est(sont): 1, As in industrialized countries, foreign direct investment results in higher wages and is an essential source of transfers of technology and managerial skills to the developing economies that benefit from it. This contributes to the prosperity of the developing countries in question. Moreover, FDIs stimulate the export of machines and other capital goods and increase the demand for intermediate goods, know-how and specialized services.

Question

Among the following four types of FDIs, which is currently the most popular?

Sélectionnez la meilleure réponse puis justifiez votre choix.

Réponse | Choix de réponses
1 | Licensing
2 | Subsidiary creation
3 | Offshoring
4 | Merger and acquisition

Justification
Feedback: La(es) bonne(s) réponse(s) est(sont): 4, During the 1990s and at the beginning of the 21st century, the most popular type of FDI was merger and acquisition. In fact, companies found it easier to expand or increase their capacities by joining forces with another company in a related field rather than creating a subsidiary company or offshoring. The trend was to make agreements that were suitable to both new partners rather than to start from scratch.
Feedback: La(es) bonne(s) réponse(s) est(sont): 4, During the 1990s and at the beginning of the 21st century, the most popular type of FDI was merger and acquisition. In fact, companies found it easier to expand or increase their capacities by joining forces with another company in a related field rather than creating a subsidiary company or offshoring. The trend was to make agreements that were suitable to both new partners rather than to start from scratch.

True or false? Justify your answer.

Question

To realize economies of scale means that a company lowers its unit production costs by increasing the number of units of output.

Sélectionnez la meilleure réponse puis justifiez votre choix.

Réponse | Choix de réponses
1 | True
2 | False

Justification
Feedback: La(es) bonne(s) réponse(s) est(sont): 1, By increasing the number of units of output, the company covers its fixed costs on a greater number of units and thus reduces its production costs.
Feedback: La(es) bonne(s) réponse(s) est(sont): 1, By increasing the number of units of output, the company covers its fixed costs on a greater number of units and thus reduces its production costs.

True or false? Justify your answer.

Question

In recent decisions on business transformation, five trends are taken into consideration: the scope of the technological advantage; the concentration of manufacturing capabilities; concentration in fields where the company performs best; customer confidence; and the high costs of R&D. All these factors favour small business to the detriment of large companies.

Sélectionnez la meilleure réponse puis justifiez votre choix.

Réponse | Choix de réponses
1 | True
2 | False

Justification
Feedback: La(es) bonne(s) réponse(s) est(sont): 2, Only the first item allows small business to take advantage of the situation if it holds a technological advantage, but the four other items greatly favour large companies. Moreover, this explains the high number of acquisitions and mergers lately.
Feedback: La(es) bonne(s) réponse(s) est(sont): 2, Only the first item allows small business to take advantage of the situation if it holds a technological advantage, but the four other items greatly favour large companies. Moreover, this explains the high number of acquisitions and mergers lately.

Question

Based on the Textbook, indicate whether the financial market is responsible for the Asian crisis. Justify your answer.

Entrez votre réponse ci-dessous.
Feedback: In the Textbook, the origin of this crisis is analyzed: the fragility of the Asian financial markets; the spread of financial panic beginning in July 1997; and the volatility of capital that first flowed into these countries and then quickly left (in the second quarter of 1997). Other factors that did not depend on the capital market also explain the Asian crisis: Asian countries' commitment to maintain a stable rate for their currency with the US dollar; the interdependence of exports from each of these economies; and strong speculation on their capital markets, which anticipated the bursting of this speculative bubble. The extremely unstable financial markets facilitated the financial crisis in these countries.
Feedback: In the Textbook, the origin of this crisis is analyzed: the fragility of the Asian financial markets; the spread of financial panic beginning in July 1997; and the volatility of capital that first flowed into these countries and then quickly left (in the second quarter of 1997). Other factors that did not depend on the capital market also explain the Asian crisis: Asian countries' commitment to maintain a stable rate for their currency with the US dollar; the interdependence of exports from each of these economies; and strong speculation on their capital markets, which anticipated the bursting of this speculative bubble. The extremely unstable financial markets facilitated the financial crisis in these countries.

Question

Present factors underlying the merger trend for each of the following industries:

a) Pharmaceutical industry

b) Oil industry

Entrez votre réponse ci-dessous.
Feedback: a) Pharmaceutical industry: 1. The capital markets initially encouraged firms to separate their activities in the chemical and pharmaceutical sectors. The pharmaceutical sector was in fact more profitable than the chemical sector. 2. The creation of companies in a single restricted sector (chemistry or pharmacy) favoured mergers within each industry. 3. For a pharmaceutical company to be viable, it must reinforce its presence on the large US market. 4. After doing research and development on a drug and obtaining permission from the US FDA to distribute it, good distribution channels must be found. By merging, firms combine their distribution channels and are thus more efficient. b) Oil industry: 1. Large oil companies generally operated as joint ventures with other firms in the same sector. They also shared the risks and results with OPEC members and others. 2. The Asian crisis intensified the poor results achieved over the last 15 years and led to the merger of industry members. 3. Then faced with falling prices, companies tried to reduce their operating costs (decrease major expenditures, reduce equipment, etc.). This also decreased their balance sheet value and made them more attractive to investors. 4. For companies that wanted to expand, it became more profitable to take over another company than to invest large sums in exploration. 5. A wave of buyouts made it possible to realize unexploited economies of scale. In fact, the companies' fixed costs remained the same, but the increase in total production allowed them to reduce variable costs. These cost reductions benefited shareholders but were a detriment to employment: lay-offs, closures of unproductive sites, etc. 6. In the long run, these mergers made the remaining companies stronger; they were jockeying for position with the OPEC member states, which form a cartel.
Feedback: a) Pharmaceutical industry: 1. The capital markets initially encouraged firms to separate their activities in the chemical and pharmaceutical sectors. The pharmaceutical sector was in fact more profitable than the chemical sector. 2. The creation of companies in a single restricted sector (chemistry or pharmacy) favoured mergers within each industry. 3. For a pharmaceutical company to be viable, it must reinforce its presence on the large US market. 4. After doing research and development on a drug and obtaining permission from the US FDA to distribute it, good distribution channels must be found. By merging, firms combine their distribution channels and are thus more efficient. b) Oil industry: 1. Large oil companies generally operated as joint ventures with other firms in the same sector. They also shared the risks and results with OPEC members and others. 2. The Asian crisis intensified the poor results achieved over the last 15 years and led to the merger of industry members. 3. Then faced with falling prices, companies tried to reduce their operating costs (decrease major expenditures, reduce equipment, etc.). This also decreased their balance sheet value and made them more attractive to investors. 4. For companies that wanted to expand, it became more profitable to take over another company than to invest large sums in exploration. 5. A wave of buyouts made it possible to realize unexploited economies of scale. In fact, the companies' fixed costs remained the same, but the increase in total production allowed them to reduce variable costs. These cost reductions benefited shareholders but were a detriment to employment: lay-offs, closures of unproductive sites, etc. 6. In the long run, these mergers made the remaining companies stronger; they were jockeying for position with the OPEC member states, which form a cartel.