Suppose a U

question 78

Multiple Choice

Suppose a U.S.firm builds a factory in China, staffs it with Chinese workers, uses materials supplied by Chinese companies, and finances the entire operation with a loan from a Chinese bank located in the same town as the factory.This firm is most likely trying to greatly reduce, or eliminate, which one of the following?

• A)Interest rate disparities
• B)Short-run exposure to exchange rate risk
• C)Long-run exposure to exchange rate risk
• D)Political risk associated with the foreign operations
• E)Translation exposure to exchange rate risk

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Definitions:

Production Capacities

The maximum output levels that a company or economy can achieve with the current resources and technology.

Vertically Integrated

A form of business organization where a company controls multiple stages of production or distribution within the same industry, from raw materials to final product delivery.

Divisions

The categorizations within a field or discipline based on different criteria or functions.

Finished Goods

Finished goods are products that have completed the manufacturing process and are ready to be sold to customers.