Chapter 01: Multinational Financial Management: An Overview
1. The commonly accepted goal of an MNC is to:
a.
maximize short-term earnings.
b.
maximize shareholder wealth.
c.
minimize risk.
d.
A and C.
e.
maximize international sales.
2. With regard to corporate goals, an MNC is mostly concerned with maximizing ____, and a purely domestic firm is
mostly concerned with maximizing ____.
a.
shareholder wealth; short-term earnings
b.
shareholder wealth; shareholder wealth
c.
short-term earnings; sales volume
d.
short-term earnings; shareholder wealth
3. For an MNC, agency costs are typically:
a.
b.
c.
d.
4. Which of the following could reduce agency problems for an MNC?
a.
stock options as managerial compensation
b.
hostile takeover threat
c.
investor monitoring
d.
all of the above are forms of corporate control that could reduce agency problems for an MNC.
5. The valuation of an MNC should rise when an event causes the expected cash flows from foreign subsidiaries to ____
and when the foreign currencies denominating these cash flows are expected
to ____.
a.
decrease; appreciate
b.
increase; appreciate
c.
decrease; depreciate
d.
increase; depreciate
6. Which of the following theories identifies specialization as a reason for international business?
a.
theory of comparative advantage
b.
imperfect markets theory
c.
product cycle theory
d.
none of the above
7. Which of the following theories identifies the nontransferability of resources as a reason for international business?
a.
theory of comparative advantage
b.
imperfect markets theory
c.
product cycle theory
d.
none of the above
8. Which of the following theories suggests that firms seek to penetrate new markets over time?
Chapter 01: Multinational Financial Management: An Overview
a.
theory of comparative advantage
b.
imperfect markets theory
c.
product cycle theory
d.
none of the above
9. An industry based on which of the following would most likely take advantage of lower costs in some less developed
foreign countries?
a.
assembly line production
b.
specialized professional services
c.
nuclear missile programs
d.
development of more sophisticated computer technology
10. Due to the risks involved in international business, firms should:
a.
only consider international business in major countries.
b.
maintain international business to no more than 20% of total business.
c.
maintain international business to no more than 35% of total business.
d.
none of the above
11. A product cycle is the process by which a firm provides a specialized sales or service strategy, support assistance, and
possibly an initial investment in a franchise in exchange for periodic fees.
a.
True
b.
False
12. Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks, or trade names) in
exchange for fees or some other specified benefits.
a.
True
b.
False
13. The agency costs of an MNC are likely to be lower if it:
a.
scatters its subsidiaries across many foreign countries.
b.
increases its volume of international business.
c.
uses a centralized management style.
d.
A and B.
14. An MNC may be more exposed to agency problems if most of its shares are held by:
a.
a few mutual funds.
b.
a widely dispersed set of individual investors.
c.
a few pension funds.
d.
all of the above would prevent agency problems.
15. The Sarbanes-Oxley Act improved corporate governance of MNCs because it:
a.
made executives more accountable for verifying financial statements.
b.
eliminated stock options as a form of compensation.
c.
tied executive compensation to firm performance.
d.
placed a limit on the amount of funds that managers can spend.
16. MNCs can improve their internal control process by all of the following, except:
a.
establishing a centralized database of information.
b.
ensuring that all data are reported consistently among subsidiaries.
c.
ensuring that the MNC always borrows from countries where interest rates are lowest.
d.
using a system that checks internal data for unusual discrepancies.
17. Franchising is the process by which national governments sell state-owned operations to corporations and other
investors.
a.
True
b.
False
18. The parent of an MNC can implement compensation plans that directly reward the subsidiary managers for enhancing
the value of the MNC.
a.
True
b.
False
19. If a publicly traded MNC’s managers make poor decisions that reduce its value, that may encourage other firms to
acquire the MNC.
a.
True
b.
False
20. Institutional investors such as mutual funds or pension funds that have large holdings of an MNC’s stock do not
normally want to take control of it and therefore have no influence over management of the MNC.
a.
True
b.
False
21. Four MNCs generate the same level of sales. The MNC that ______________________would likely have the most
direct foreign investment.
a.
exports all of its products
b.
produces and sells its products locally
c.
imports products from unrelated firms in other countries and sells them locally
d.
acquires a foreign firm that produces most of its products to be sold in that foreign country
22. Which of the following is an example of direct foreign investment?
a.
exporting to a country
b.
establishing licensing arrangements in a country
c.
purchasing existing companies in a country
d.
investing directly (without brokers) in foreign stocks
23. According to the text, licensing allows a firm to:
a.
import without being subject to government restrictions.
b.
provide its technology for a fee.
c.
export without government restrictions.
Chapter 01: Multinational Financial Management: An Overview
d.
none of the above
24. Assume that an MNC purchases a foreign building, and then leases the building to another party and allows that party
to operate the business in the building for 30 years if the party follows standards set by the MNC. This process is referred
to as:
a.
A foreign acquisition.
b.
franchising.
c.
a licensing agreement.
d.
exporting.
25. Imperfect markets reflect conditions under which factors of production are immobile.
a.
True
b.
False
26. The Sarbanes-Oxley Act (SOX), which was enacted in 2002, required MNCs and other firms to implement an internal
reporting process that could be easily monitored by executives and the board of directors.
a.
True
b.
False
27. If markets were perfect, then labor and other costs of production would be perfectly stable (no movement across
borders).
Chapter 01: Multinational Financial Management: An Overview
a.
True
b.
False
28. The valuation of an MNC is reduced if the required rate of return on its investments in foreign countries is reduced.
a.
True
b.
False
29. Which of the following is not mentioned in the text as an additional risk resulting from international business?
a.
exchange rate fluctuations
b.
political risk
c.
interest rate risk
d.
exposure to foreign economies
30. Licensing obligates a firm to provide ____, while franchising obligates a firm to provide ____.
a.
a specialized sales or service strategy; its technology
b.
its technology; a specialized sales or service strategy
c.
its technology; its technology
d.
a specialized sales or service strategy; a specialized sales or service strategy
e.
its technology; an initial investment
31. Which of the following is not a way in which agency problems can be reduced through corporate control?
a.
executive compensation
b.
threat of hostile takeover
c.
acquisition of a foreign subsidiary
d.
monitoring by large shareholders
32. The goal of a multinational corporation (MNC) is the maximization of shareholder wealth.
a.
True
b.
False
33. A centralized management style, where major decisions about a foreign subsidiary are made by the parent company,
results in an increase in agency costs.
a.
True
b.
False
34. If a U.S. firm sets up a plant in Mexico to benefit from low-cost labor, it will likely have a comparative advantage
over other firms in Mexico that sell the same product.
a.
True
b.
False
35. Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange
Chapter 01: Multinational Financial Management: An Overview
rates are stable over time.
a.
True
b.
False
36. One of the most prevalent factors conflicting with the realization of the goal of an MNC is the existence of agency
problems.
a.
True
b.
False
37. A centralized management style for an MNC results in relatively high agency costs.
a.
True
b.
False
38. The imperfect markets theory states that factors of production are somewhat immobile, allowing firms to capitalize on
a foreign country’s resources.
a.
True
b.
False
39. If a U.S.-based MNC focused entirely on importing, then its valuation would likely be adversely affected if most
currencies were expected to appreciate against the dollar over time.
a.
True
Chapter 01: Multinational Financial Management: An Overview
b.
False
40. MNCs commonly consider acquiring an existing foreign operation because the cost is less expensive than establishing
a new subsidiary of the same size.
a.
True
b.
False
41. If a U.S.-based MNC focused entirely on exporting, then its valuation would likely be adversely affected if most
currencies were expected to appreciate against the dollar over time.
a.
True
b.
False
42. If markets were perfect, then labor and other costs of production would be easily transferable.
a.
True
b.
False
43. International trade:
a.
is a relatively conservative approach to foreign market penetration.
b.
entails minimal risk.
c.
does not require a large amount of investment.
d.
all of the above.