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