Test Bank & Study Guide for International Financial Management Midterm Exam – Complete Review Page 1Test Bank & Study Guide for International Financial Management Midterm Exam – Complete Review.pdf
Test Bank & Study Guide for
International Financial
Management Midterm Exam
– Complete Review
Guidehttps://www.stuvia.com/dashboard!@_)#*)(@$)($@*($@)($@*_1 of 43
Page 1 of 43 2026-03-17
,International Financial Management Midterm Exam Page 2 International Financial Management Midterm Exam.pdf
Agency Problems
conflicts of interest between managers and stockholders
Agency costs
Cost of ensuring that managers maximize shareholder wealth
Parent Control of Agency Problems
Parent should clearly communicate the goals for each subsidiary to ensure managers focus on maximizing the value
of the subsidiary.
Corporate control of agency problems
Entire management of the MNC must be focused on maximizing shareholder wealth.
Sarbanes-Oxley Act (SOX)
Ensures a more transparent process for managers to report on the productivity and financial condition of their firm.
Page 2 of 43 2 of 43 2026-03-17
,International Financial Management Midterm Exam Page 3 International Financial Management Midterm Exam.pdf
How SOX Improved Corporate Governance of MNCs
establishing a centralized database of information; ensuring all that all data are reported consistently among
subsidiaries; implementing a system that automatically checks for unusual discrepancies relative to norms; speeding
the process by which all departments and subsidiaries have access to all the data they need; making executives more
accountable for financial statements
Centralized management structure
Allows managers of the parent to control foreign subsidiaries and therefore reduce the power of subsidiary managers
Decentralized management structure
Gives more control to subsidiary managers who are closer to the subsidiary's operation and environment
Theory of Competitive Advantage
specialization increases production efficiency
Imperfect Markets Theory
factors of production are somewhat immobile providing incentive to seek out foreign opportunities
Page 3 of 43 3 of 43 2026-03-17
, International Financial Management Midterm Exam Page 4 International Financial Management Midterm Exam.pdf
Product Cycle Theory
as a firm matures, it recognizes opportunities outside its domestic market
International Trade
Relatively conservative approach that can be used by firms to penetrate markets (by exporting) and obtain supplies
at a low cost (by importing)
-Minimal risk, no capital at risk
Licensing
-Obligates a firm to provide its technolog(including all patents, trademarks, or trade names) in exchange for fees
-Allows firms to use their technology in foreign markets w/out a major investment or transportation costs that result
from exporting
-Major disadvantage: difficult to ensure quality control in foreign production process
Franchising
-Obligates firm to provide a specialized sales or service strategy, support assistance, and possibly an initial
investment in exchange for periodic fees
-Allows penetration into foreign markets w/out a major investment in foreign countries.
Page 4 of 43 4 of 43 2026-03-17
Test Bank & Study Guide for
International Financial
Management Midterm Exam
– Complete Review
Guidehttps://www.stuvia.com/dashboard!@_)#*)(@$)($@*($@)($@*_1 of 43
Page 1 of 43 2026-03-17
,International Financial Management Midterm Exam Page 2 International Financial Management Midterm Exam.pdf
Agency Problems
conflicts of interest between managers and stockholders
Agency costs
Cost of ensuring that managers maximize shareholder wealth
Parent Control of Agency Problems
Parent should clearly communicate the goals for each subsidiary to ensure managers focus on maximizing the value
of the subsidiary.
Corporate control of agency problems
Entire management of the MNC must be focused on maximizing shareholder wealth.
Sarbanes-Oxley Act (SOX)
Ensures a more transparent process for managers to report on the productivity and financial condition of their firm.
Page 2 of 43 2 of 43 2026-03-17
,International Financial Management Midterm Exam Page 3 International Financial Management Midterm Exam.pdf
How SOX Improved Corporate Governance of MNCs
establishing a centralized database of information; ensuring all that all data are reported consistently among
subsidiaries; implementing a system that automatically checks for unusual discrepancies relative to norms; speeding
the process by which all departments and subsidiaries have access to all the data they need; making executives more
accountable for financial statements
Centralized management structure
Allows managers of the parent to control foreign subsidiaries and therefore reduce the power of subsidiary managers
Decentralized management structure
Gives more control to subsidiary managers who are closer to the subsidiary's operation and environment
Theory of Competitive Advantage
specialization increases production efficiency
Imperfect Markets Theory
factors of production are somewhat immobile providing incentive to seek out foreign opportunities
Page 3 of 43 3 of 43 2026-03-17
, International Financial Management Midterm Exam Page 4 International Financial Management Midterm Exam.pdf
Product Cycle Theory
as a firm matures, it recognizes opportunities outside its domestic market
International Trade
Relatively conservative approach that can be used by firms to penetrate markets (by exporting) and obtain supplies
at a low cost (by importing)
-Minimal risk, no capital at risk
Licensing
-Obligates a firm to provide its technolog(including all patents, trademarks, or trade names) in exchange for fees
-Allows firms to use their technology in foreign markets w/out a major investment or transportation costs that result
from exporting
-Major disadvantage: difficult to ensure quality control in foreign production process
Franchising
-Obligates firm to provide a specialized sales or service strategy, support assistance, and possibly an initial
investment in exchange for periodic fees
-Allows penetration into foreign markets w/out a major investment in foreign countries.
Page 4 of 43 4 of 43 2026-03-17
