Stuvia.com - The Marketplace to Buy and Sell your Study Material
fk fk fk fk fk fk fk fk fk fk
Downloaded by: TestBankStuvia |
fk fk fk fk Want to earn $1.236
fk fk fk
Distribution of this document is illegal
fk fk fk fk fk extra per year?
fk fk
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
fk fk fk fk fk fk fk fk fk fk
Created by AllNursingTestBanks
fk fk
Chapter 1 fk
Multinational Financial Management: An Overview fk fk fk fk
Lecture Outline fk
Managing the MNC fk fk
How Business Disciplines Are Used to Manage the MNC Agenc
fk fk fk fk fk fk fk fk fk
y Problems
fk
Management Structure of an MNC fk fk fk fk
Why Firms Pursue International Business
fk fk fk fk fk
Theory of Comparative Advantage Imperfe
fk fk fk f k
ct Markets Theory
fk fk
Product Cycle Theory fk fk
Methods to Conduct International Business
fk fk fk fk
International Trade L fk fk
icensing Franchising fk
Joint Ventures fk
Acquisitions of Existing Operations Est fk fk fk fk
ablishing New Foreign Subsidiaries Su fk fk fk fk
mmary of Methods fk fk
Valuation Model for an MNC Domesti fk fk fk fk fk
c Valuation Model Multinational Valuat
fk fk fk fk
ion Model fk
Uncertainty Surrounding an MNC’s Cash Flows Ho fk fk fk fk fk fk
w Uncertainty Affects the MNC’s Cost of Capital
fk fk fk fk fk fk fk
Organization of the Text fk fk fk
A+ Page 1
fk
Downloaded by: TestBankStuvia |
fk fk fk fk Want to earn $1.236
fk fk fk
Distribution of this document is illegal
fk fk fk fk fk extra per year?
fk fk
, Stuvia.com - The Marketplace to Buy and Sell your Study Material fk fk fk fk fk fk fk fk fk fk
Multinational Financial Management: An Overview 2 fk fk fk fk fk fk
Chapter Theme fk
This chapter introduces the multinational corporation as having similar goals to the purely domestic corp
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
oration, but a wider variety of opportunities. With additional opportunities come potential increased retur
fk fk fk fk fk fk fk fk fk fk fk fk fk
ns and other forms of risk to consider. The potential benefits and risks are introduced.
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
Topics to Stimulate Class Discussion fk fk fk fk
1. What is the appropriate definition of an MNC? fk fk fk fk fk fk fk
2. Why does an MNC expand internationally? fk fk fk fk fk
3. What are the risks of an MNC which expands internationally?
fk fk fk fk fk fk fk fk fk
4. Why must purely domestic firms be concerned about the international environment?
fk fk fk fk fk fk fk fk fk fk
POINT/COUNTER-POINT:
Should an MNC Reduce Its Ethical Standards to Compete Internationally?
fk fk fk fk fk fk fk fk fk
POINT: Yes. When a U.S.- fk fk fk fk
based MNC competes in some countries, it may encounter some business norms there that are not allowe
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
d in the U.S. For example, when competing for a government contract, firms might provide payoffs to the
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
government officials who will make the decision. Yet, in the United States, a firm will sometimes take a
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
client on an expensive golf outing or provide skybox tickets to events. This is no different than a payoff. I
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
f the payoffs are bigger in some foreign countries, the MNC can compete only by matching the payoffs p
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
rovided by its competitors. fk fk fk
COUNTER-POINT: No. A U.S.- f k fk fk
based MNC should maintain a standard code of ethics that applies to any country, even if it is at a disadvan
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
tage in a foreign country that allows activities that might be viewed as unethical. In this way, the MNC est
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ablishes more credibility worldwide. fk fk fk
WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you support? O
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ffer your own opinion on this issue.
fk fk fk fk fk fk
ANSWER: The issue is frequently discussed. It is easy to suggest that the MNC should maintain a standar
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
d code of ethics, but in reality, that means that it will not be able to compete in some cases. For example, e
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ven if it submits the lowest bid on a specific foreign government project, it will not receive the bid without
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
a payoff to the foreign government officials. The issue is especially a concern for large projects that may g
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
enerate substantial cash flows for the firm that is chosen to do the project. Ideally, the MNC can clearly de
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
monstrate to whoever oversees the decision process that it deserves to be selected. If there is just one decis
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ion-maker with no oversight, an MNC can not ensure that the decision will be ethical. But if the decision-
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
maker must be accountable to a department who oversees the decision, the MNC may be able to prompt th
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
e department to ensure that the process is ethical.
fk fk fk fk fk fk fk fk
Downloaded by: TestBankStuvia | fk fk fk fk Want to earn $1.236 fk fk fk
Distribution of this document is illegal fk fk fk fk fk extra per year? fk fk
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
fk fk fk fk fk fk fk fk fk fk
Multinational Financial Management: An Overview 3 fk fk fk fk fk fk
Answers to End of Chapter Questions fk fk fk fk fk
1. Agency Problems of MNCs. fk fk fk
a. Explain the agency problem of MNCs. fk fk fk fk fk
ANSWER: The agency problem reflects a conflict of interests between decision-
fk fk fk fk fk fk fk fk fk fk
making managers and the owners of the MNC. Agency costs occur in an effort to assure that manage
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
rs act in the best interest of the owners.
fk fk fk fk fk fk fk fk
b. Why might agency costs be larger for an MNC than for a purely domestic firm?
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ANSWER: The agency costs are normally larger for MNCs than purely domestic firms for the follo
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
wing reasons. First, MNCs incur larger agency costs in monitoring managers of distant foreign subsid
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
iaries. Second, foreign subsidiary managers raised in different cultures may not follow uniform goals
fk fk fk fk fk fk fk fk fk fk fk fk fk
, and some managers may focus on satisfying respective employees. Third, the sheer size of the large
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
r MNCs would also create large agency problems.
fk fk fk fk fk fk fk
2. Comparative Advantage. fk
a. Explain how the theory of comparative advantage relates to the need for international business.
fk fk fk fk fk fk fk fk fk fk fk fk fk
ANSWER: The theory of comparative advantage implies that countries should specialize in producti
fk fk fk fk fk fk fk fk fk fk fk fk
on, thereby relying on other countries for some products. Consequently, there is a need for internation
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
al business.
fk
b. Explain how the product cycle theory relates to the growth of an MNC.
fk fk fk fk fk fk fk fk fk fk fk fk
ANSWER: The product cycle theory suggests that at some point in time, the firm will attempt to capit
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
alize on its perceived advantages in markets other than where it was initially established.
fk fk fk fk fk fk fk fk fk fk fk fk fk
3. Imperfect Markets. fk
a. Explain how the existence of imperfect markets has led to the establishment of subsidiaries in f
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
oreign markets. fk
ANSWER: Because of imperfect markets, resources cannot be easily and freely retrieved by the M
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
NC. Consequently, the MNC must sometimes go to the resources rather than retrieve resources (su
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ch as land, labor, etc.).
fk fk fk fk
b. If perfect markets existed, would wages, prices, and interest rates among countries be more
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
similar or less similar than under conditions of imperfect markets? Why?
fk fk fk fk fk fk fk fk fk fk
ANSWER: If perfect markets existed, resources would be more mobile and could therefore be transf
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
erred to those countries more willing to pay a high price for them. As this occurred, shortages of resou
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
rces in any particular country would be alleviated and the costs of such resources would be similar ac
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ross countries. fk
4. International Opportunities. fk
Downloaded by: TestBankStuvia | fk fk fk fk Want to earn $1.236 fk fk fk
Distribution of this document is illegal fk fk fk fk fk extra per year? fk fk
fk fk fk fk fk fk fk fk fk fk
Downloaded by: TestBankStuvia |
fk fk fk fk Want to earn $1.236
fk fk fk
Distribution of this document is illegal
fk fk fk fk fk extra per year?
fk fk
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
fk fk fk fk fk fk fk fk fk fk
Created by AllNursingTestBanks
fk fk
Chapter 1 fk
Multinational Financial Management: An Overview fk fk fk fk
Lecture Outline fk
Managing the MNC fk fk
How Business Disciplines Are Used to Manage the MNC Agenc
fk fk fk fk fk fk fk fk fk
y Problems
fk
Management Structure of an MNC fk fk fk fk
Why Firms Pursue International Business
fk fk fk fk fk
Theory of Comparative Advantage Imperfe
fk fk fk f k
ct Markets Theory
fk fk
Product Cycle Theory fk fk
Methods to Conduct International Business
fk fk fk fk
International Trade L fk fk
icensing Franchising fk
Joint Ventures fk
Acquisitions of Existing Operations Est fk fk fk fk
ablishing New Foreign Subsidiaries Su fk fk fk fk
mmary of Methods fk fk
Valuation Model for an MNC Domesti fk fk fk fk fk
c Valuation Model Multinational Valuat
fk fk fk fk
ion Model fk
Uncertainty Surrounding an MNC’s Cash Flows Ho fk fk fk fk fk fk
w Uncertainty Affects the MNC’s Cost of Capital
fk fk fk fk fk fk fk
Organization of the Text fk fk fk
A+ Page 1
fk
Downloaded by: TestBankStuvia |
fk fk fk fk Want to earn $1.236
fk fk fk
Distribution of this document is illegal
fk fk fk fk fk extra per year?
fk fk
, Stuvia.com - The Marketplace to Buy and Sell your Study Material fk fk fk fk fk fk fk fk fk fk
Multinational Financial Management: An Overview 2 fk fk fk fk fk fk
Chapter Theme fk
This chapter introduces the multinational corporation as having similar goals to the purely domestic corp
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
oration, but a wider variety of opportunities. With additional opportunities come potential increased retur
fk fk fk fk fk fk fk fk fk fk fk fk fk
ns and other forms of risk to consider. The potential benefits and risks are introduced.
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
Topics to Stimulate Class Discussion fk fk fk fk
1. What is the appropriate definition of an MNC? fk fk fk fk fk fk fk
2. Why does an MNC expand internationally? fk fk fk fk fk
3. What are the risks of an MNC which expands internationally?
fk fk fk fk fk fk fk fk fk
4. Why must purely domestic firms be concerned about the international environment?
fk fk fk fk fk fk fk fk fk fk
POINT/COUNTER-POINT:
Should an MNC Reduce Its Ethical Standards to Compete Internationally?
fk fk fk fk fk fk fk fk fk
POINT: Yes. When a U.S.- fk fk fk fk
based MNC competes in some countries, it may encounter some business norms there that are not allowe
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
d in the U.S. For example, when competing for a government contract, firms might provide payoffs to the
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
government officials who will make the decision. Yet, in the United States, a firm will sometimes take a
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
client on an expensive golf outing or provide skybox tickets to events. This is no different than a payoff. I
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
f the payoffs are bigger in some foreign countries, the MNC can compete only by matching the payoffs p
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
rovided by its competitors. fk fk fk
COUNTER-POINT: No. A U.S.- f k fk fk
based MNC should maintain a standard code of ethics that applies to any country, even if it is at a disadvan
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
tage in a foreign country that allows activities that might be viewed as unethical. In this way, the MNC est
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ablishes more credibility worldwide. fk fk fk
WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you support? O
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ffer your own opinion on this issue.
fk fk fk fk fk fk
ANSWER: The issue is frequently discussed. It is easy to suggest that the MNC should maintain a standar
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
d code of ethics, but in reality, that means that it will not be able to compete in some cases. For example, e
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ven if it submits the lowest bid on a specific foreign government project, it will not receive the bid without
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
a payoff to the foreign government officials. The issue is especially a concern for large projects that may g
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
enerate substantial cash flows for the firm that is chosen to do the project. Ideally, the MNC can clearly de
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
monstrate to whoever oversees the decision process that it deserves to be selected. If there is just one decis
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ion-maker with no oversight, an MNC can not ensure that the decision will be ethical. But if the decision-
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
maker must be accountable to a department who oversees the decision, the MNC may be able to prompt th
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
e department to ensure that the process is ethical.
fk fk fk fk fk fk fk fk
Downloaded by: TestBankStuvia | fk fk fk fk Want to earn $1.236 fk fk fk
Distribution of this document is illegal fk fk fk fk fk extra per year? fk fk
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
fk fk fk fk fk fk fk fk fk fk
Multinational Financial Management: An Overview 3 fk fk fk fk fk fk
Answers to End of Chapter Questions fk fk fk fk fk
1. Agency Problems of MNCs. fk fk fk
a. Explain the agency problem of MNCs. fk fk fk fk fk
ANSWER: The agency problem reflects a conflict of interests between decision-
fk fk fk fk fk fk fk fk fk fk
making managers and the owners of the MNC. Agency costs occur in an effort to assure that manage
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
rs act in the best interest of the owners.
fk fk fk fk fk fk fk fk
b. Why might agency costs be larger for an MNC than for a purely domestic firm?
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ANSWER: The agency costs are normally larger for MNCs than purely domestic firms for the follo
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
wing reasons. First, MNCs incur larger agency costs in monitoring managers of distant foreign subsid
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
iaries. Second, foreign subsidiary managers raised in different cultures may not follow uniform goals
fk fk fk fk fk fk fk fk fk fk fk fk fk
, and some managers may focus on satisfying respective employees. Third, the sheer size of the large
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
r MNCs would also create large agency problems.
fk fk fk fk fk fk fk
2. Comparative Advantage. fk
a. Explain how the theory of comparative advantage relates to the need for international business.
fk fk fk fk fk fk fk fk fk fk fk fk fk
ANSWER: The theory of comparative advantage implies that countries should specialize in producti
fk fk fk fk fk fk fk fk fk fk fk fk
on, thereby relying on other countries for some products. Consequently, there is a need for internation
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
al business.
fk
b. Explain how the product cycle theory relates to the growth of an MNC.
fk fk fk fk fk fk fk fk fk fk fk fk
ANSWER: The product cycle theory suggests that at some point in time, the firm will attempt to capit
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
alize on its perceived advantages in markets other than where it was initially established.
fk fk fk fk fk fk fk fk fk fk fk fk fk
3. Imperfect Markets. fk
a. Explain how the existence of imperfect markets has led to the establishment of subsidiaries in f
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
oreign markets. fk
ANSWER: Because of imperfect markets, resources cannot be easily and freely retrieved by the M
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
NC. Consequently, the MNC must sometimes go to the resources rather than retrieve resources (su
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ch as land, labor, etc.).
fk fk fk fk
b. If perfect markets existed, would wages, prices, and interest rates among countries be more
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
similar or less similar than under conditions of imperfect markets? Why?
fk fk fk fk fk fk fk fk fk fk
ANSWER: If perfect markets existed, resources would be more mobile and could therefore be transf
fk fk fk fk fk fk fk fk fk fk fk fk fk fk
erred to those countries more willing to pay a high price for them. As this occurred, shortages of resou
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
rces in any particular country would be alleviated and the costs of such resources would be similar ac
fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk fk
ross countries. fk
4. International Opportunities. fk
Downloaded by: TestBankStuvia | fk fk fk fk Want to earn $1.236 fk fk fk
Distribution of this document is illegal fk fk fk fk fk extra per year? fk fk
