12.
International Investments.
U.S.-based MNCs commonly invest in foreign securities.
a. Assume that the dollar is presently weak and is expected to strengthen over time. How will these expectations affect the tendency of U.S. investors to invest in foreign securities?

ANSWER: It can be suggested that if the dollar is strong, we get more shares for the same amount of dollars than before. so the good choice of us is when dollar is weak and is expected to strengthen then investments will increase when dollars strengthens.

b. Explain how low U.S. interest rates can affect the tendency of U.S.-based MNCs to invest abroad.

ANSWER: The level of economic activity will be higher when the interest rate is low, which is same as fund are available at lower interest rates. so depends on this situation, the investors may prefer to invest in Us firms which have more chances of growth.

c. In general terms, what is the attraction of foreign investments to U.S. investors?

ANSWER: The main attraction is potentially higher returns. The international stock scan outperforms U.S. stocks, and international bonds can outperform U.S.bonds. However, there is no guarantee that the returns on international investments will be so favorable. Some investors may also pursue international investments to diversify their investment portfolio, which can possibly reduce risk.

14.
Impact of Government Policies on Trade Governments of many countries enact policies that can have a major impact on international trade flows.

a. Explain how governments might give their local firms a competitive advantage in the international trade arena.

ANSWER. The classic political solution is protectionism. By limiting foreign competition, either through tariffs or quotas, companies and workers limit the ability of foreign goods to restrain domestic price increases. The government can also subsidize domestic