University of Washington

University of Washington Geography 349 (Professor Harrington) Spring 2000

THIRD IN-CLASS TEST

Please write your name above, and answer all the questions below. Your score (out of 43) will be multiplied by 0.465 to yield your points (out of 20) toward the quarter’s total.

1. [10 points] Provide a brief definition for each of the terms below.

arm’s length

Eurocurrency

foreign tax credit

national treatment

transfer pricing

2. [4 points] For any one of these HBS cases, suggest the ways in which the foreign operations of Benetton (in the US), Whelan (for Varex), Nike, or Reebok would affect the balance-of-payments for the host country — by writing very briefly about which row would be affected in what direction and why, in the first year of the foreign operation and in subsequent years.

		First year of the foreign operation	In subsequent years
1	Exports of goods, services, income
2	Goods, excluding military
3	Services
11	Income receipts on host-country assets abroad
15	Imports of goods, services, and income
16	Goods, excluding military
17	Services
25	Income paid on foreign assets in host country
29	Unilateral transfers, net
33	Change in host-country assets abroad
48	Change in foreign assets in host country
64	Statistical discrepancy
	Memoranda:
65	Balance on goods
66	Balance on services
71	Balance on current account

3. [5 points] Provide an explanation of international currency crises: the basic government policies that allow a crisis to develop, a couple of possible reasons for a currency to be "over-valued," the way that financial actors can hasten the crisis, and ways that such crises can be mitigated. (You can rely on our class discussion, on the Brookings brief, or on the Krugman notes on-line.)

4. [24 points] For any one of the HBS cases that we studied (Benetton, Whelan, or Nike/Reebok), write an essay that relates:

(a) three functional decisions the company must make regarding international operations, for example:

the form of international business (import/export, FDI, etc. — relate this to the "make versus buy" decision),

the country location of foreign operations,

the location of decision making regarding the amount or characteristics of products ordered for the foreign market or produced in the foreign location,

selection of production or managerial personnel

(b) the O-L-I framework (you’ll need to identify the O, L, and I advantages, and relate them to each functional decision, in the ways we’ve discussed in class). (Make sure that you consider what one might call the "intermediate" forms of IB, besides import/export and FDI).

Assess the company’s decision about each functional decision (in the case of Nike or Reebok), or suggest what the company should do (in the other two cases), based on the O-L-I framework.

BONUS QUESTION (OPTIONAL; ADDITIONAL 5 POINTS)

Describe three ways in which international operations could reduce a company’s total tax liabilities (all three need not be complementary; may be useful under different circumstances). Provide brief examples from any cases.