Chapter 1—Multinational Financial Management: An Overview
1. The commonly accepted goal of the MNC is to:
a. maximize short-term earnings.
b. maximize shareholder wealth.
c. minimize risk.
d. A and C.
e. maximize international sales.
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
2. With regard to corporate goals, an MNC is mostly concerned with maximizing ____, and a purely
domestic firm is mostly concerned with maximizing ____.
a. shareholder wealth; short-term earnings
b. shareholder wealth; shareholder wealth
c. short-term earnings; sales volume
d. short-term earnings; shareholder wealth
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
3. For the MNC, agency costs are typically:
a. non-existent.
b. larger than agency costs of a small purely domestic firm.
c. smaller than agency costs of a small purely domestic firm.
d. the same as agency costs of a small purely domestic firm.
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
4. Which of the following could reduce agency problems for an MNC?
a. stock options as managerial compensation.
b. hostile takeover threat.
c. investor monitoring.
d. all of the above are forms of corporate control that could reduce agency problems for an
MNC.
ANS: D PTS: 1 DIF: Moderate OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
,5. The valuation of an MNC should rise when an event causes the expected cash flows from foreign
to ____ and when foreign currencies denominating these cash flows are expected to ____.
a. decrease; appreciate
b. increase; appreciate
c. decrease; depreciate
d. increase; depreciate
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.04
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
6. Which of the following theories identifies specialization as a reason for international business?
a. theory of comparative advantage.
b. imperfect markets theory.
c. product cycle theory.
d. none of the above
ANS: A PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
7. Which of the following theories identifies the non-transferability of resources as a reason for
international business?
a. theory of comparative advantage.
b. imperfect markets theory.
c. product cycle theory.
d. none of the above
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
8. Which of the following theories suggests that firms seek to penetrate new markets over time?
a. theory of comparative advantage.
b. imperfect markets theory.
c. product cycle theory.
d. none of the above
ANS: C PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
9. Which of the following industries would most likely take advantage of lower costs in some less
developed foreign countries?
a. assembly line production.
b. specialized professional services.
, c. nuclear missile planning.
d. planning for more sophisticated computer technology.
ANS: A PTS: 1 DIF: Moderate OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Application
10. Due to the risks involved in international business, firms should:
a. only consider international business in major countries.
b. maintain international business to no more than 20% of total business.
c. maintain international business to no more than 35% of total business.
d. none of the above
ANS: D PTS: 1 DIF: Moderate OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
11. A product cycle is the process by which a firm provides a specialized sales or service strategy,
support assistance, and possibly an initial investment in the franchise in exchange for periodic
fees.
a. True
b. False
ANS: F PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
12. Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks,
or trade names) in exchange for fees or some other specified benefits.
a. True
b. False
ANS: T PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.03
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
13. The agency costs of an MNC are likely to be lower if it:
a. scatters its subsidiaries across many foreign countries.
b. increases its volume of international business.
c. uses a centralized management style.
d. A and B.
ANS: C PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
, 14. An MNC may be more exposed to agency problems if most of its shares are held by:
a. a few mutual funds
b. a widely dispersed set of individual investors
c. a few pension funds
d. all of the above would prevent agency problems
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
15. The Sarbanes-Oxley Act improves corporate governance of MNCs because it:
a. makes executives more accountable for verifying financial statements
b. eliminates stock options as a form of compensation
c. ties executive compensation to firm performance
d. places a limit on the amount of funds that managers can spend
ANS: A PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
16. MNCs can improve their internal control process by all of the following, except:
a. establishing a centralized data base of information
b. ensuring that all data are reported consistently among subsidiaries
c. ensuring that the MNC always borrows from countries where interest rates are lowest
d. using a system that checks internal data for unusual discrepancies
ANS: C PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
17. Franchising is the process by which national governments sell state owned operations to
corporations and other investors.
a. True
b. False
ANS: F PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.03
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
18. The parent of MNC can implement compensation plans that directly reward the subsidiary
managers for enhancing the value of the MNC.
a. True
b. False
1. The commonly accepted goal of the MNC is to:
a. maximize short-term earnings.
b. maximize shareholder wealth.
c. minimize risk.
d. A and C.
e. maximize international sales.
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
2. With regard to corporate goals, an MNC is mostly concerned with maximizing ____, and a purely
domestic firm is mostly concerned with maximizing ____.
a. shareholder wealth; short-term earnings
b. shareholder wealth; shareholder wealth
c. short-term earnings; sales volume
d. short-term earnings; shareholder wealth
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
3. For the MNC, agency costs are typically:
a. non-existent.
b. larger than agency costs of a small purely domestic firm.
c. smaller than agency costs of a small purely domestic firm.
d. the same as agency costs of a small purely domestic firm.
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
4. Which of the following could reduce agency problems for an MNC?
a. stock options as managerial compensation.
b. hostile takeover threat.
c. investor monitoring.
d. all of the above are forms of corporate control that could reduce agency problems for an
MNC.
ANS: D PTS: 1 DIF: Moderate OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
,5. The valuation of an MNC should rise when an event causes the expected cash flows from foreign
to ____ and when foreign currencies denominating these cash flows are expected to ____.
a. decrease; appreciate
b. increase; appreciate
c. decrease; depreciate
d. increase; depreciate
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.04
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
6. Which of the following theories identifies specialization as a reason for international business?
a. theory of comparative advantage.
b. imperfect markets theory.
c. product cycle theory.
d. none of the above
ANS: A PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
7. Which of the following theories identifies the non-transferability of resources as a reason for
international business?
a. theory of comparative advantage.
b. imperfect markets theory.
c. product cycle theory.
d. none of the above
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
8. Which of the following theories suggests that firms seek to penetrate new markets over time?
a. theory of comparative advantage.
b. imperfect markets theory.
c. product cycle theory.
d. none of the above
ANS: C PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
9. Which of the following industries would most likely take advantage of lower costs in some less
developed foreign countries?
a. assembly line production.
b. specialized professional services.
, c. nuclear missile planning.
d. planning for more sophisticated computer technology.
ANS: A PTS: 1 DIF: Moderate OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Application
10. Due to the risks involved in international business, firms should:
a. only consider international business in major countries.
b. maintain international business to no more than 20% of total business.
c. maintain international business to no more than 35% of total business.
d. none of the above
ANS: D PTS: 1 DIF: Moderate OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
11. A product cycle is the process by which a firm provides a specialized sales or service strategy,
support assistance, and possibly an initial investment in the franchise in exchange for periodic
fees.
a. True
b. False
ANS: F PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.02
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
12. Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks,
or trade names) in exchange for fees or some other specified benefits.
a. True
b. False
ANS: T PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.03
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
13. The agency costs of an MNC are likely to be lower if it:
a. scatters its subsidiaries across many foreign countries.
b. increases its volume of international business.
c. uses a centralized management style.
d. A and B.
ANS: C PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
, 14. An MNC may be more exposed to agency problems if most of its shares are held by:
a. a few mutual funds
b. a widely dispersed set of individual investors
c. a few pension funds
d. all of the above would prevent agency problems
ANS: B PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
15. The Sarbanes-Oxley Act improves corporate governance of MNCs because it:
a. makes executives more accountable for verifying financial statements
b. eliminates stock options as a form of compensation
c. ties executive compensation to firm performance
d. places a limit on the amount of funds that managers can spend
ANS: A PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
16. MNCs can improve their internal control process by all of the following, except:
a. establishing a centralized data base of information
b. ensuring that all data are reported consistently among subsidiaries
c. ensuring that the MNC always borrows from countries where interest rates are lowest
d. using a system that checks internal data for unusual discrepancies
ANS: C PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.01
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
17. Franchising is the process by which national governments sell state owned operations to
corporations and other investors.
a. True
b. False
ANS: F PTS: 1 DIF: Easy OBJ: INFM.MADU.15.01.03
NAT: BUSPROG.INFM .MADU.15.03 STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
18. The parent of MNC can implement compensation plans that directly reward the subsidiary
managers for enhancing the value of the MNC.
a. True
b. False
