,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
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
, 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
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
, 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
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
, 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
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
, 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
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in
a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
