University of Washington       Geography 349       Professor Harrington        Winter 1999

THIRD  IN-CLASS  TEST

Answer the questions below, as directed, in the space provided (ask for more paper if you need it).  You have 110 minutes.
 

DEFINITIONS
Write a brief definition for each of the following.

Eurocurrency

foreign tax credit

transfer pricing
 

VERY  SHORT  ANSWERS
Answer each of the following questions, in the spaces provided.

1.  Imagine a market-oriented, manufacturing FDI into the U.S.  What effects would this likely have on the U.S. balance-of-payments table, in the year of and in the years after the investment?   (Hint:  you need only write something in the four item rows (within rows 1-64) that face a fairly clear impact, and in each of the Memoranda rows given.  I only need a word or two in each cell, but if you want to give your reasoning, you could continue elsewhere).

                                                                              Year of the FDI                                                 In subsequent years
1 Exports of goods, services, income
2      Goods, excluding military
3      Services
11      Income receipts on US assets abroad
15 Imports of goods, services, and income
16      Goods, excluding military
17      Services
25      Income paid on foreign assets in US
29 Unilateral transfers, net
33 U.S. assets abroad, net change
48 Foreign assets in U.S., net change
64 Statistical discrepancy
 Memoranda:
65 Balance on goods
66 Balance on services
71 Balance on current account

2.  If a U.S. company earns a profit from export sales, when is the profit taxed?
 
 

3.  If a foreign branch of a U.S. company earns a profit from its operations, when is the profit taxed by the U.S.?
 
 

4.  If a wholly owned, foreign subsidiary of a U.S. company earns a profit from its sale of products made in its local country, when is the profit taxed by the U.S.?
 
 
 

ESSAYS
Write two thoughtful essays, based on two of the following three topics.  Respond to all components of a given question.

1.  We made use of the “OLI” (organization, location, and internalization) framework to understand that the form of IB most appropriate to a given situation is the form that allows the company to maximize its return from abroad on its asset(s).  Explain this framework,
· by explaining and giving examples of O, L, and I, and then
· by using any text or HBS case we’ve studied to explain the utility (and, perhaps, shortcomings) of the framework in understanding and prescribing the best form and location of IB.
 

2.  What are the reasons a country might want to monitor and control inward FDI?  Using Chapter 11's beginning case (FDI in China) and ending case (foreign real estate in the US), as well as material you've read about Canada, relate MOFTEC (Chinese Ministry of Foreign Trade and Economic Cooperation) to FIRA (Canada’s 1980s Foreign Investment Review Act) and to the U.S. Agricultural Foreign Investment Disclosure Act:   what are the relative motivations, goals, and effectiveness of these regulatory measures?  Think about the Nike/Reebok case along these lines, as well).
 

3.  Write an essay that relates:

[In case that's not clear, let me rephrase:  How do company strategy and global geographies combine to influence company decisions about (two of) organization, logistics, accounting, finance, or staffing?]  Make use of contingencies (“A company that is characterized by … should do ...”) and examples from any of the textbook or HBS cases that we’ve read.