INTERNATIONAL FINANCIAL MANAGEMENT 9TH EDITION
EUN| TEST QUESTIONS AND ANSWERS|A+ GRADED
1.Multinational Corporation - ANSWER Firms that engage in some form of international business.
2. MNCs - ANSWER Are based in the United States and that wholly own their foreign subsidiaries.
3. 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
4.How to finance expansion in a particular country - ANSWER Common Finance decisions include
Marketing
Management
5.Accounting and information systems - ANSWER Finance decisions are influenced by other business
discipline functions
6. Conflict of goals between managers and shareholders - ANSWER Agency problem
7. 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.
8.Subsidiary value versus overall MNC value. - ANSWER Agency costs are normally larger for MNCs than
for purely domestic firms
,9. Clear communication of the goals for each subsidiary and implementation of compensation plans to
align the interest - ANSWER Parent Control of agency problems
10. Threat of a takeover or actions by institutional investors - ANSWER Corporate control of agency
problems
11. 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.
12.Making executives more accountable for financial statements - ANSWER SOX act 2002 methods to
improve internal control process
13. Allows managers of the parent to control foreign subsidiaries and therefore reduce the power of
subsidiary managers - ANSWER Management Structure of MNC
14. Give more control to subsidiary managers who are closer to the subsidiary's operation and
environment - ANSWER Management Structure of MNC
15.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.
16. 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
17. 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
18.Establishing new foreign subsidiaries - ANSWER How firms engage in international business
Relatively conservative approach that can be used by firms to:
Penetrate markets (by exporting)
19. Obtain supplies at a low cost (by importing) - ANSWER International Trade
20.Firm does not put any of its capital at risk - ANSWER Minimal risk
Agreement to provide its technology (copyrights, patents, trademarks, or trade names) in exchange for
fees or some other specified benefits.
Allows firms to use their technology in foreign markets without a major investment and without
transportation costs that result from exporting.
21.Major disadvantage: difficult to ensure quality control in foreign production process - ANSWER
Licensing
Obligates firm to provide a specialized sales or service strategy, support assistance, and possibly an
initial investment in the franchise in exchange for periodic fees.
23.Allows penetration into foreign markets without a major investment in foreign countries. - ANSWER
Franchising
A venture that is jointly owned and operated by tow or more firms. A firm may enter the foreign market
by engaging in a joint venture with firms that reside in those markets.
24.Allows two firms to apply their respective cooperative advantages in a given project. - ANSWER Joint
Ventures
Acquisitions of firms in foreign countries allows firms to have full control over their foreign businesses
and to quickly obtain a large portion of foreign market share.
Subject to the risk of large losses because of larger investment.
EUN| TEST QUESTIONS AND ANSWERS|A+ GRADED
1.Multinational Corporation - ANSWER Firms that engage in some form of international business.
2. MNCs - ANSWER Are based in the United States and that wholly own their foreign subsidiaries.
3. 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
4.How to finance expansion in a particular country - ANSWER Common Finance decisions include
Marketing
Management
5.Accounting and information systems - ANSWER Finance decisions are influenced by other business
discipline functions
6. Conflict of goals between managers and shareholders - ANSWER Agency problem
7. 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.
8.Subsidiary value versus overall MNC value. - ANSWER Agency costs are normally larger for MNCs than
for purely domestic firms
,9. Clear communication of the goals for each subsidiary and implementation of compensation plans to
align the interest - ANSWER Parent Control of agency problems
10. Threat of a takeover or actions by institutional investors - ANSWER Corporate control of agency
problems
11. 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.
12.Making executives more accountable for financial statements - ANSWER SOX act 2002 methods to
improve internal control process
13. Allows managers of the parent to control foreign subsidiaries and therefore reduce the power of
subsidiary managers - ANSWER Management Structure of MNC
14. Give more control to subsidiary managers who are closer to the subsidiary's operation and
environment - ANSWER Management Structure of MNC
15.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.
16. 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
17. 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
18.Establishing new foreign subsidiaries - ANSWER How firms engage in international business
Relatively conservative approach that can be used by firms to:
Penetrate markets (by exporting)
19. Obtain supplies at a low cost (by importing) - ANSWER International Trade
20.Firm does not put any of its capital at risk - ANSWER Minimal risk
Agreement to provide its technology (copyrights, patents, trademarks, or trade names) in exchange for
fees or some other specified benefits.
Allows firms to use their technology in foreign markets without a major investment and without
transportation costs that result from exporting.
21.Major disadvantage: difficult to ensure quality control in foreign production process - ANSWER
Licensing
Obligates firm to provide a specialized sales or service strategy, support assistance, and possibly an
initial investment in the franchise in exchange for periodic fees.
23.Allows penetration into foreign markets without a major investment in foreign countries. - ANSWER
Franchising
A venture that is jointly owned and operated by tow or more firms. A firm may enter the foreign market
by engaging in a joint venture with firms that reside in those markets.
24.Allows two firms to apply their respective cooperative advantages in a given project. - ANSWER Joint
Ventures
Acquisitions of firms in foreign countries allows firms to have full control over their foreign businesses
and to quickly obtain a large portion of foreign market share.
Subject to the risk of large losses because of larger investment.
