FIN 4213 Exam Questions And Answer
Assume that an American firm wants to engage in international business in which it establishes a large
subsidiary in the foreign country. This strategy definitely represents - ANSWER -direct foreign
investment
The agency costs of an MNC are likely to be higher if it - ANSWER -scatters its subsidiaries across many
foreign countries.
Compared to international trade, direct foreign investment generally results in ____ exposure to
international political risk and ____ exposure to international economic conditions. - ANSWER -higher;
higher
Which of the following is mentioned in the text as a theory of international business? - ANSWER -All of
the above are mentioned in the text as theories of international business.
The valuation of an MNC should decline when an event causes the expected cash flows from foreign
subsidiaries to ____ and when the foreign currencies denominating these cash flows are expected to
____. - ANSWER -decrease; depreciate
According to the text, the valuation of an MNC with foreign subsidiaries is directly affected by: -
ANSWER -It is affected by all of the above.
Which of the following is not one of the more common methods used by MNCs to improve their internal
control process? - ANSWER -requiring executives to forecast future exchange rates
Zest Co. has a subsidiary in Mexico. The expected cash flows in pesos to be received in the future from
this subsidiary have not changed since last month, but the valuation of Zest Co. has increased since last
month. What could have caused this increase in value? - ANSWER -appreciation of the Mexican peso
, Which of the following is the most direct example of political risk in Spain for a U.S.-based MNC with a
subsidiary in Spain? - ANSWER -Spain's government may impose special taxes on the subsidiary.
The Sarbanes-Oxley Act caused corporate governance of MNCs to _________; it makes executives ____
accountable for verifying financial statements. - ANSWER -improve; more
Which of the following statements is not true? - ANSWER -Outsourcing means that an MNC has initiated
the exporting of its products.
If a country's government removes a tariff on imported goods, that country's current account balance
will likely ____ (assuming no other changes in tariffs by other governments). - ANSWER -decrease
Country Y is Country X's sole trading partner. Which of the following would increase the current account
of Country X? - ANSWER -The currency of Country X depreciates against the currency of Country Y.
If the home currency begins to depreciate against other currencies, this should ____ the current account
balance, other things being equal (assume that substitutes are readily available in other countries, and
that the prices charged by firms remain the same). - ANSWER -increase
The demand for U.S. exports tends to decrease when - ANSWER -U.S. inflation rises.
The United States typically has a balance-of-trade deficit in its trade with ____. - ANSWER -China and
Japan
A low home inflation rate relative to other countries would ____ the home country's current account
balance, other things being equal. Low growth in the home income level relative to other countries
would ____ the home country's current account balance, other things being equal. - ANSWER -increase;
increase
A large reduction in the current account deficit will place ____ pressure on the home currency value,
other things being equal. - ANSWER -upward
Assume that an American firm wants to engage in international business in which it establishes a large
subsidiary in the foreign country. This strategy definitely represents - ANSWER -direct foreign
investment
The agency costs of an MNC are likely to be higher if it - ANSWER -scatters its subsidiaries across many
foreign countries.
Compared to international trade, direct foreign investment generally results in ____ exposure to
international political risk and ____ exposure to international economic conditions. - ANSWER -higher;
higher
Which of the following is mentioned in the text as a theory of international business? - ANSWER -All of
the above are mentioned in the text as theories of international business.
The valuation of an MNC should decline when an event causes the expected cash flows from foreign
subsidiaries to ____ and when the foreign currencies denominating these cash flows are expected to
____. - ANSWER -decrease; depreciate
According to the text, the valuation of an MNC with foreign subsidiaries is directly affected by: -
ANSWER -It is affected by all of the above.
Which of the following is not one of the more common methods used by MNCs to improve their internal
control process? - ANSWER -requiring executives to forecast future exchange rates
Zest Co. has a subsidiary in Mexico. The expected cash flows in pesos to be received in the future from
this subsidiary have not changed since last month, but the valuation of Zest Co. has increased since last
month. What could have caused this increase in value? - ANSWER -appreciation of the Mexican peso
, Which of the following is the most direct example of political risk in Spain for a U.S.-based MNC with a
subsidiary in Spain? - ANSWER -Spain's government may impose special taxes on the subsidiary.
The Sarbanes-Oxley Act caused corporate governance of MNCs to _________; it makes executives ____
accountable for verifying financial statements. - ANSWER -improve; more
Which of the following statements is not true? - ANSWER -Outsourcing means that an MNC has initiated
the exporting of its products.
If a country's government removes a tariff on imported goods, that country's current account balance
will likely ____ (assuming no other changes in tariffs by other governments). - ANSWER -decrease
Country Y is Country X's sole trading partner. Which of the following would increase the current account
of Country X? - ANSWER -The currency of Country X depreciates against the currency of Country Y.
If the home currency begins to depreciate against other currencies, this should ____ the current account
balance, other things being equal (assume that substitutes are readily available in other countries, and
that the prices charged by firms remain the same). - ANSWER -increase
The demand for U.S. exports tends to decrease when - ANSWER -U.S. inflation rises.
The United States typically has a balance-of-trade deficit in its trade with ____. - ANSWER -China and
Japan
A low home inflation rate relative to other countries would ____ the home country's current account
balance, other things being equal. Low growth in the home income level relative to other countries
would ____ the home country's current account balance, other things being equal. - ANSWER -increase;
increase
A large reduction in the current account deficit will place ____ pressure on the home currency value,
other things being equal. - ANSWER -upward
