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: