INTERNATIONAL FINANCIAL MANAGEMENT
UPDATED ACTUAL QUESTIONS AND CORRECT
ANSWERS
◉ MNCs.
Answer: Are based in the United States and that wholly own their
foreign subsidiaries.
◉ Maximize shareholder wealth.
Answer: The commonly accepted goal of an MNC is to
◉ Whether to discontinue operations in a particular country
Whether to pursue new business in a particular country
Whether to expand business in a particular country
How to finance expansion in a particular country.
Answer: Common Finance decisions include
◉ Marketing
Management
Accounting and information systems.
Answer: Finance decisions are influenced by other business
discipline functions
,◉ Conflict of goals between managers and shareholders.
Answer: Agency problem
◉ Costs of ensuring that managers maximize shareholder wealth.
Answer: Agency costs
◉ The sheer size of the large MNC.
The scattering of distant subsidiaries.
The culture of foreign managers.
Subsidiary value versus overall MNC value..
Answer: Agency costs are normally larger for MNCs than for purely
domestic firms
◉ Clear communication of the goals for each subsidiary and
implementation of compensation plans to align the interest.
Answer: Parent Control of agency problems
◉ Threat of a takeover or actions by institutional investors.
Answer: Corporate control of agency problems
,◉ Ensures a more transparent process for managers to report on the
productivity and financial condition of their firm..
Answer: Sarbanes-Oxley Act (2002) SOX
◉ Establishing a centralized database of information.
Ensuring 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.
Answer: SOX act 2002 methods to improve internal control process
◉ Allows managers of the parent to control foreign subsidiaries and
therefore reduce the power of subsidiary managers.
Answer: Management Structure of MNC
◉ Give more control to subsidiary managers who are closer to the
subsidiary's operation and environment.
Answer: Management Structure of MNC
◉ Specialization by countries increases production efficiency.
, Each country should use its comparative advantage to specialize in
its production and rely on other countries to meet other needs..
Answer: Theory of Competitive Advantage.
◉ Facts of production are somewhat immobile providing incentive
to seek out foreign opportunities.
Because of imperfect markets, factors of production are immobile,
which encourages countries to specialize based on the resources
they have..
Answer: Imperfect markets theory
◉ As a firm matures, it recognizes opportunities outside its
domestic market.
Answer: Product cycle theory
◉ International trade
Licensing
Franchising
Joint Ventures
Acquisitions of existing operations
Establishing new foreign subsidiaries.
Answer: How firms engage in international business
UPDATED ACTUAL QUESTIONS AND CORRECT
ANSWERS
◉ MNCs.
Answer: Are based in the United States and that wholly own their
foreign subsidiaries.
◉ Maximize shareholder wealth.
Answer: The commonly accepted goal of an MNC is to
◉ Whether to discontinue operations in a particular country
Whether to pursue new business in a particular country
Whether to expand business in a particular country
How to finance expansion in a particular country.
Answer: Common Finance decisions include
◉ Marketing
Management
Accounting and information systems.
Answer: Finance decisions are influenced by other business
discipline functions
,◉ Conflict of goals between managers and shareholders.
Answer: Agency problem
◉ Costs of ensuring that managers maximize shareholder wealth.
Answer: Agency costs
◉ The sheer size of the large MNC.
The scattering of distant subsidiaries.
The culture of foreign managers.
Subsidiary value versus overall MNC value..
Answer: Agency costs are normally larger for MNCs than for purely
domestic firms
◉ Clear communication of the goals for each subsidiary and
implementation of compensation plans to align the interest.
Answer: Parent Control of agency problems
◉ Threat of a takeover or actions by institutional investors.
Answer: Corporate control of agency problems
,◉ Ensures a more transparent process for managers to report on the
productivity and financial condition of their firm..
Answer: Sarbanes-Oxley Act (2002) SOX
◉ Establishing a centralized database of information.
Ensuring 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.
Answer: SOX act 2002 methods to improve internal control process
◉ Allows managers of the parent to control foreign subsidiaries and
therefore reduce the power of subsidiary managers.
Answer: Management Structure of MNC
◉ Give more control to subsidiary managers who are closer to the
subsidiary's operation and environment.
Answer: Management Structure of MNC
◉ Specialization by countries increases production efficiency.
, Each country should use its comparative advantage to specialize in
its production and rely on other countries to meet other needs..
Answer: Theory of Competitive Advantage.
◉ Facts of production are somewhat immobile providing incentive
to seek out foreign opportunities.
Because of imperfect markets, factors of production are immobile,
which encourages countries to specialize based on the resources
they have..
Answer: Imperfect markets theory
◉ As a firm matures, it recognizes opportunities outside its
domestic market.
Answer: Product cycle theory
◉ International trade
Licensing
Franchising
Joint Ventures
Acquisitions of existing operations
Establishing new foreign subsidiaries.
Answer: How firms engage in international business
