Chapter 1—Multinational Financial Management: An Overview Correct and Verified Answers Graded A

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Chapter 1—Multinational Financial
Management: An Overview Correct and
Verified Answers Graded A

Question 1: The commonly accepted goal of the MNC is to:

Correct Answer: B. maximize shareholder wealth.

Question 2: With regard to corporate goals, an MNC is mostly concerned with maximizing
____, and a purely domestic firm is mostly concerned with maximizing ____.

Correct Answer: b. shareholder wealth; shareholder wealth

Question 3: For the MNC, agency costs are typically:

Correct Answer: larger than agency costs of a small purely domestic firm.

Question 4: Which of the following could reduce agency problems for an MNC?

Correct Answer: all of the above are forms of corporate control that could reduce agency
problems for an MNC.

Question 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 ____.

Correct Answer: b. increase; appreciate

Question 6: Which of the following theories identifies specialization as a reason for
international business?

Correct Answer: A. theory of comparative advantage.

Question 7: Which of the following theories identifies the non-transferability of resources
as a reason for international business?

Correct Answer: b. imperfect markets theory.

Question 8: Which of the following theories suggests that firms seek to penetrate new
markets over time?

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Correct Answer: c. product cycle theory.

Question 9: Which of the following industries would most likely take advantage of lower
costs in some less developed foreign countries?

Correct Answer: a. assembly line production.

Question 10: Due to the risks involved in international business, firms should:

Correct Answer: d. none of the above

Question 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.

Correct Answer: b. False

Question 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 benefit.

Correct Answer: a. True

Question 13: The agency costs of an MNC are likely to be lower if it:

Correct Answer: c. uses a centralized management style.

Question 14: An MNC may be more exposed to agency problems if most of its shares are
held by:

Correct Answer: b. a widely dispersed set of individual investors

Question 15: The Sarbanes-Oxley Act improves corporate governance of MNCs because it:

Correct Answer: a. makes executives more accountable for verifying financial statements

Question 16: MNCs can improve their internal control process by all of the following,
except:

Correct Answer: c. ensuring that the MNC always borrows from countries where interest
rates are lowest

Question 17: Franchising is the process by which national governments sell state owned
operations to corporations and other investors.

Correct Answer: b. False

Question 18: The parent of MNC can implement compensation plans that directly reward
the subsidiary managers for enhancing the value of the MNC.