FIN 4213 EXAM 1 QUESTIONS AND ANSWERS
MNC - CORRECT ANSWER✅✅multinational corporation
Agency Problems - CORRECT ANSWER✅✅conflicts of interest between managers and stockholders
Agency Costs - CORRECT ANSWER✅✅the costs of the conflict of interest between stockholders and
management
Parent Control of Agency Problems - CORRECT ANSWER✅✅Clear communication of the goals for each
subsidiary and implementation of compensation plans to align the interests
Corporate control of agency problems - CORRECT ANSWER✅✅Entire management of the MNC must be
focused on maximizing shareholder wealth.
Sarbanes-Oxley Act - CORRECT ANSWER✅✅Ensures a more transparent process for managers to report
on the productivity and financial condition of their firm.
Agency Cost of MNC vs Agency Costs of Purely Domestic Firms - CORRECT ANSWER✅✅MNC costs are
much larger than purely domestic firms
Comparative Advantage Theory - CORRECT ANSWER✅✅states that to gain a trade advantage, a country
should specialize in products or services that it can provide more efficiently than can other countries
Imperfect Market Theory - CORRECT ANSWER✅✅factors of production are somewhat immobile
providing incentive to seek out foreign opportunities
Product Cycle Theory - CORRECT ANSWER✅✅Theory that describes the production of particular
product over time. Products are developed by small firms in a particular region, then the product
becomes standardized, and produced on a mass production scale, by larger companies.
, International trade - CORRECT ANSWER✅✅occurs when a firm exports goods or services to consumers
in another country
Licensing - CORRECT ANSWER✅✅the legal process whereby a licensor allows another firm to use its
manufacturing process, trademarks, patents, trade secrets, or other proprietary knowledge
Franchising - CORRECT ANSWER✅✅selling to a foreign organization the rights to use a brand name and
operating know-how in return for a lump-sum payment and a share of the profits
joint venture - CORRECT ANSWER✅✅A partnership in which two or more companies (often from
different countries) join to undertake a major project.
Acquisitions of existing operations - CORRECT ANSWER✅✅allows firms to have full control over their
foreign businesses and to quickly obtain a large portion of foreign market share
Establishing New Foreign Subsidiaries - CORRECT ANSWER✅✅- many MNCs use a combination of
methods to increase international business
- in general, any method of conducting business that requires a direct investment in foreign operations
is referred to as a direct foreign investment (DFI)
direct foreign investment (DFI) - CORRECT ANSWER✅✅the purchase by foreigners of real estate and
businesses in another country
examples of DFI - CORRECT ANSWER✅✅Amazon opening a new headquarters in Canada
Valuation of an MNC's cash flows over multiple periods - CORRECT ANSWER✅✅CFjt: Amount of cash
flows denominated in a particular foreign currency j at the end of period t
Sjt: Exchange rate at which the foreign currency can be converted to dollars at then end of period t.
K: weighted cost of capital used to discount estimated total dollar cash flow for each period
j - ask percentage spread - CORRECT ANSWER✅✅(Ask rate - Bid Rate)/Ask Rate
MNC - CORRECT ANSWER✅✅multinational corporation
Agency Problems - CORRECT ANSWER✅✅conflicts of interest between managers and stockholders
Agency Costs - CORRECT ANSWER✅✅the costs of the conflict of interest between stockholders and
management
Parent Control of Agency Problems - CORRECT ANSWER✅✅Clear communication of the goals for each
subsidiary and implementation of compensation plans to align the interests
Corporate control of agency problems - CORRECT ANSWER✅✅Entire management of the MNC must be
focused on maximizing shareholder wealth.
Sarbanes-Oxley Act - CORRECT ANSWER✅✅Ensures a more transparent process for managers to report
on the productivity and financial condition of their firm.
Agency Cost of MNC vs Agency Costs of Purely Domestic Firms - CORRECT ANSWER✅✅MNC costs are
much larger than purely domestic firms
Comparative Advantage Theory - CORRECT ANSWER✅✅states that to gain a trade advantage, a country
should specialize in products or services that it can provide more efficiently than can other countries
Imperfect Market Theory - CORRECT ANSWER✅✅factors of production are somewhat immobile
providing incentive to seek out foreign opportunities
Product Cycle Theory - CORRECT ANSWER✅✅Theory that describes the production of particular
product over time. Products are developed by small firms in a particular region, then the product
becomes standardized, and produced on a mass production scale, by larger companies.
, International trade - CORRECT ANSWER✅✅occurs when a firm exports goods or services to consumers
in another country
Licensing - CORRECT ANSWER✅✅the legal process whereby a licensor allows another firm to use its
manufacturing process, trademarks, patents, trade secrets, or other proprietary knowledge
Franchising - CORRECT ANSWER✅✅selling to a foreign organization the rights to use a brand name and
operating know-how in return for a lump-sum payment and a share of the profits
joint venture - CORRECT ANSWER✅✅A partnership in which two or more companies (often from
different countries) join to undertake a major project.
Acquisitions of existing operations - CORRECT ANSWER✅✅allows firms to have full control over their
foreign businesses and to quickly obtain a large portion of foreign market share
Establishing New Foreign Subsidiaries - CORRECT ANSWER✅✅- many MNCs use a combination of
methods to increase international business
- in general, any method of conducting business that requires a direct investment in foreign operations
is referred to as a direct foreign investment (DFI)
direct foreign investment (DFI) - CORRECT ANSWER✅✅the purchase by foreigners of real estate and
businesses in another country
examples of DFI - CORRECT ANSWER✅✅Amazon opening a new headquarters in Canada
Valuation of an MNC's cash flows over multiple periods - CORRECT ANSWER✅✅CFjt: Amount of cash
flows denominated in a particular foreign currency j at the end of period t
Sjt: Exchange rate at which the foreign currency can be converted to dollars at then end of period t.
K: weighted cost of capital used to discount estimated total dollar cash flow for each period
j - ask percentage spread - CORRECT ANSWER✅✅(Ask rate - Bid Rate)/Ask Rate
