Kirt C. Butler, Multinational Finance, 3rd edition
Test Bank
True/false questions
Multiple choice questions
Problems to accompany
Multinational Finance
by Kirt C. Butler
Third Edition
, lOMoARcPSD| 1935369
Kirt C. Butler, Multinational Finance, 3rd edition
PART I Overview and Background
Chapter 1 An Introduction to Multinational Finance
True/False
1. MNCs have investment or financial operations in more than one country.
ANS: True.
2. Because of globalization in the world‟s markets, a multinational financial manager is more
likely than a domestic financial manager to specialize in finance to the exclusion of other
fields of business.
ANS: False. The multinational financial manager must be well versed in each of the
business disciplines in which the MNC is involved.
3. The domestic financial manager must be knowledgeable in several areas within finance,
whereas the multinational financial manager usually specializes in a single area, such as
corporate finance, investments, or financial markets.
ANS: False. The multinational financial manager is likely to require knowledge of several
fields within finance.
4. The investment opportunity set is the set of investments available to the corporation; that is, the
set from which the company must select.
ANS: True.
5. Types of market efficiency used to describe the performance of financial markets are
allocational, operational, and transactional efficiency.
ANS: False. Three types of market efficiency are allocational, operational, and
informational.
6. An informationally efficient market is one with abundant information.
ANS: False. It is a market in which prices fully reflect available information.
7. Allocational efficiency refers to how efficiently a market channels capital toward its most
productive uses.
ANS: True.
8. Allocational efficiency refers to whether a market allocates capital to those investments
deemed most worthy by a host government.
ANS: False. Allocational efficiency refers to how efficiently a market channels capital
toward its most productive uses in an economic, rather than a political, sense.
9. Operational efficiency refers to how large an influence transactions costs and other market
frictions have on the operation of a market.
ANS: True.
10. The MNC faces greater constraints than the domestic corporation in the timing of its
investments.
ANS: False. Multinationals typically have more flexibility in timing, location, and
operation.
11. Risk exists whenever actual outcomes can differ from expected outcomes.
ANS: True.
2
, lOMoARcPSD| 1935369
12. Assets and liabilities are exposed to currency risk when their values can change with
unexpected changes in currency values.
ANS: True.
13. “Currency risk” and “currency risk exposure” refer to the same thing - the possibility that
currency values will differ from their expectations.
ANS: False. A firm is exposed to currency risk when its assets or liabilities can change in value
with unexpected changes in currency values.
14. Political risk is the risk that the business environment in a host country will change
unexpectedly due to political events.
ANS: True.
15. The terms “stakeholders” and “shareholders” are synonymous.
ANS: False. Stakeholders include all those with a stake in the firm. A broad definition of
stakeholders includes the firm‟s creditors, customers, suppliers, and employees.
16. Exporting through a foreign sales agent requires little resource commitment and helps to
insulate the exporter from the costs and risks of foreign market entry.
ANS: True.
17. Foreign direct investment is when a multinational corporation builds productive capacity in
a foreign country.
ANS: True.
18. The easiest mode of entry into foreign markets is foreign direct investment.
ANS: False. FDI is one of the most difficult entry modes.
19. Contract-based modes of entry into foreign markets include foreign sales agents and foreign
sales branches.
ANS: False. International licensing and franchising, reciprocal market agreements, and
management contracts are contract-based entry modes.
20. Foreign direct investment requires a relatively large resource commitment from the parent firm.
ANS: True.
21. The sales and marketing benefits of foreign direct investment are usually less than those of
export entry into foreign markets.
ANS: False. With established operations in the foreign country, multinational corporations
are able to promote their products and services more effectively.
22. Licensing provides quick and relatively low-risk entry into foreign markets as long as the
parent can protect its intellectual property rights.
ANS: True.
3
, lOMoARcPSD| 1935369
Kirt C. Butler, Multinational Finance, 3rd edition
23. The main reason for investment-based foreign market entry is to minimize cultural risk.
ANS: False. The main reasons are the potential for higher sales and lower costs.
24. According to product cycle theory, new products are typically tested in foreign markets and
then are introduced into the home market.
ANS: False. New products are usually introduced in the home market.
25. Corporations often try to extend their product life cycles by entering foreign markets.
ANS: True.
Multiple Choice
1. Entry modes into international markets include each of a) through d) except .
a. exporting
b. franchising
c. investment
d. licensing
e. each of the above is an entry mode
ANS: E
2. For manufacturing firms with patents, the most important difference between the various
foreign market entry modes for manufacturing firms is in whether or not the parent firm
maintains control of .
a. distribution
b. marketing
c. packaging
d. production
e. purchasing
ANS: D
3. Resource commitment is highest for which foreign market entry mode?
a. exporting through foreign sales agents
b. exporting through foreign sales branches
c. foreign direct investment
d. foreign joint venture
e. licensing
ANS: C
4. The fastest way to gain access to a foreign market is by .
a. exporting through foreign sales agents
b. exporting through foreign sales branches
c. foreign acquisition
d. foreign direct investment
e. foreign joint venture
ANS: A
5. The foreign market entry mode with the lowest sales potential is .
a. exporting through foreign sales agents
b. exporting through foreign sales branches
c. foreign direct investments
4
Test Bank
True/false questions
Multiple choice questions
Problems to accompany
Multinational Finance
by Kirt C. Butler
Third Edition
, lOMoARcPSD| 1935369
Kirt C. Butler, Multinational Finance, 3rd edition
PART I Overview and Background
Chapter 1 An Introduction to Multinational Finance
True/False
1. MNCs have investment or financial operations in more than one country.
ANS: True.
2. Because of globalization in the world‟s markets, a multinational financial manager is more
likely than a domestic financial manager to specialize in finance to the exclusion of other
fields of business.
ANS: False. The multinational financial manager must be well versed in each of the
business disciplines in which the MNC is involved.
3. The domestic financial manager must be knowledgeable in several areas within finance,
whereas the multinational financial manager usually specializes in a single area, such as
corporate finance, investments, or financial markets.
ANS: False. The multinational financial manager is likely to require knowledge of several
fields within finance.
4. The investment opportunity set is the set of investments available to the corporation; that is, the
set from which the company must select.
ANS: True.
5. Types of market efficiency used to describe the performance of financial markets are
allocational, operational, and transactional efficiency.
ANS: False. Three types of market efficiency are allocational, operational, and
informational.
6. An informationally efficient market is one with abundant information.
ANS: False. It is a market in which prices fully reflect available information.
7. Allocational efficiency refers to how efficiently a market channels capital toward its most
productive uses.
ANS: True.
8. Allocational efficiency refers to whether a market allocates capital to those investments
deemed most worthy by a host government.
ANS: False. Allocational efficiency refers to how efficiently a market channels capital
toward its most productive uses in an economic, rather than a political, sense.
9. Operational efficiency refers to how large an influence transactions costs and other market
frictions have on the operation of a market.
ANS: True.
10. The MNC faces greater constraints than the domestic corporation in the timing of its
investments.
ANS: False. Multinationals typically have more flexibility in timing, location, and
operation.
11. Risk exists whenever actual outcomes can differ from expected outcomes.
ANS: True.
2
, lOMoARcPSD| 1935369
12. Assets and liabilities are exposed to currency risk when their values can change with
unexpected changes in currency values.
ANS: True.
13. “Currency risk” and “currency risk exposure” refer to the same thing - the possibility that
currency values will differ from their expectations.
ANS: False. A firm is exposed to currency risk when its assets or liabilities can change in value
with unexpected changes in currency values.
14. Political risk is the risk that the business environment in a host country will change
unexpectedly due to political events.
ANS: True.
15. The terms “stakeholders” and “shareholders” are synonymous.
ANS: False. Stakeholders include all those with a stake in the firm. A broad definition of
stakeholders includes the firm‟s creditors, customers, suppliers, and employees.
16. Exporting through a foreign sales agent requires little resource commitment and helps to
insulate the exporter from the costs and risks of foreign market entry.
ANS: True.
17. Foreign direct investment is when a multinational corporation builds productive capacity in
a foreign country.
ANS: True.
18. The easiest mode of entry into foreign markets is foreign direct investment.
ANS: False. FDI is one of the most difficult entry modes.
19. Contract-based modes of entry into foreign markets include foreign sales agents and foreign
sales branches.
ANS: False. International licensing and franchising, reciprocal market agreements, and
management contracts are contract-based entry modes.
20. Foreign direct investment requires a relatively large resource commitment from the parent firm.
ANS: True.
21. The sales and marketing benefits of foreign direct investment are usually less than those of
export entry into foreign markets.
ANS: False. With established operations in the foreign country, multinational corporations
are able to promote their products and services more effectively.
22. Licensing provides quick and relatively low-risk entry into foreign markets as long as the
parent can protect its intellectual property rights.
ANS: True.
3
, lOMoARcPSD| 1935369
Kirt C. Butler, Multinational Finance, 3rd edition
23. The main reason for investment-based foreign market entry is to minimize cultural risk.
ANS: False. The main reasons are the potential for higher sales and lower costs.
24. According to product cycle theory, new products are typically tested in foreign markets and
then are introduced into the home market.
ANS: False. New products are usually introduced in the home market.
25. Corporations often try to extend their product life cycles by entering foreign markets.
ANS: True.
Multiple Choice
1. Entry modes into international markets include each of a) through d) except .
a. exporting
b. franchising
c. investment
d. licensing
e. each of the above is an entry mode
ANS: E
2. For manufacturing firms with patents, the most important difference between the various
foreign market entry modes for manufacturing firms is in whether or not the parent firm
maintains control of .
a. distribution
b. marketing
c. packaging
d. production
e. purchasing
ANS: D
3. Resource commitment is highest for which foreign market entry mode?
a. exporting through foreign sales agents
b. exporting through foreign sales branches
c. foreign direct investment
d. foreign joint venture
e. licensing
ANS: C
4. The fastest way to gain access to a foreign market is by .
a. exporting through foreign sales agents
b. exporting through foreign sales branches
c. foreign acquisition
d. foreign direct investment
e. foreign joint venture
ANS: A
5. The foreign market entry mode with the lowest sales potential is .
a. exporting through foreign sales agents
b. exporting through foreign sales branches
c. foreign direct investments
4
