IBUS 401 Exam 1 UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS
Common finance decisions include: - CORRECT ANSWER Whether to discontinue, pursue,
expand, business in certain country or how to finance expansion
Finance decisions are influenced by: - CORRECT ANSWER Marketing, management,
accounting and information systems
Agency problem - CORRECT ANSWER The conflict of goals between managers and
shareholders
Agency costs - CORRECT ANSWER Cost of ensuring that managers maximize shareholder
wealth
Why are costs higher for mnc compared to domestic - CORRECT ANSWER Monitoring
managers of distant subsidiaries in foreign countries is more difficult, foreign subsidiary managers
raised in different cultures may not follow uniform goals, and sheer size of large Mncs can create
large agency problems
Parent control of agency problems - CORRECT ANSWER 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 - 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 there firm
How SOX Improved Corporate Governance of MNCs - CORRECT ANSWER Established a
centralized database of information, ensure that all data is reported consistently among subsidiaries,
checks for unusual discrepancies, speed process by which all departments and subsidiaries have
access to data needed, make executives more accountable for financial statements
, Centralized management style - CORRECT ANSWER Allows managers of parent to control
foreign subsidiaries and therefore reduce the power of subsidiary managers, reduces agency cost
Decentralized management style - CORRECT ANSWER Gives more control to subsidiary
managers who are closer to the subsidiary's operation and environment, increases agency costs
Theory of competitive advantage - CORRECT ANSWER specialization increases production
efficiency
Imperfect markets theory - CORRECT ANSWER factors of production are somewhat
immobile providing incentive to seek out foreign opportunities
Product cycle theory - CORRECT ANSWER As a firm matures, it recognizes opportunities
outside its domestic market
How firms engage in international business - CORRECT ANSWER International trade,
licensing, franchising, joint ventures, acquisitions of existing operations, establishment of new foreign
subsidiaries
International trade - CORRECT ANSWER Penetrate markets by exporting, obtain supplies at a
low cost by importing
Licensing - CORRECT ANSWER Obligated firm to provide technology (copyrights, patents,
trademarks) in exchange for fees or some other benefit... firm is able to generate more revenue from
foreign countries without establishing any production plants in foreign countries or transporting goods
to foreign countries
Franchising - CORRECT ANSWER 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, often requires direct foreign investment
Joint ventures - CORRECT ANSWER Venture jointly owned and operated by two or more
firms
QUESTIONS AND CORRECT ANSWERS
Common finance decisions include: - CORRECT ANSWER Whether to discontinue, pursue,
expand, business in certain country or how to finance expansion
Finance decisions are influenced by: - CORRECT ANSWER Marketing, management,
accounting and information systems
Agency problem - CORRECT ANSWER The conflict of goals between managers and
shareholders
Agency costs - CORRECT ANSWER Cost of ensuring that managers maximize shareholder
wealth
Why are costs higher for mnc compared to domestic - CORRECT ANSWER Monitoring
managers of distant subsidiaries in foreign countries is more difficult, foreign subsidiary managers
raised in different cultures may not follow uniform goals, and sheer size of large Mncs can create
large agency problems
Parent control of agency problems - CORRECT ANSWER 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 - 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 there firm
How SOX Improved Corporate Governance of MNCs - CORRECT ANSWER Established a
centralized database of information, ensure that all data is reported consistently among subsidiaries,
checks for unusual discrepancies, speed process by which all departments and subsidiaries have
access to data needed, make executives more accountable for financial statements
, Centralized management style - CORRECT ANSWER Allows managers of parent to control
foreign subsidiaries and therefore reduce the power of subsidiary managers, reduces agency cost
Decentralized management style - CORRECT ANSWER Gives more control to subsidiary
managers who are closer to the subsidiary's operation and environment, increases agency costs
Theory of competitive advantage - CORRECT ANSWER specialization increases production
efficiency
Imperfect markets theory - CORRECT ANSWER factors of production are somewhat
immobile providing incentive to seek out foreign opportunities
Product cycle theory - CORRECT ANSWER As a firm matures, it recognizes opportunities
outside its domestic market
How firms engage in international business - CORRECT ANSWER International trade,
licensing, franchising, joint ventures, acquisitions of existing operations, establishment of new foreign
subsidiaries
International trade - CORRECT ANSWER Penetrate markets by exporting, obtain supplies at a
low cost by importing
Licensing - CORRECT ANSWER Obligated firm to provide technology (copyrights, patents,
trademarks) in exchange for fees or some other benefit... firm is able to generate more revenue from
foreign countries without establishing any production plants in foreign countries or transporting goods
to foreign countries
Franchising - CORRECT ANSWER 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, often requires direct foreign investment
Joint ventures - CORRECT ANSWER Venture jointly owned and operated by two or more
firms
