FIN 582 Exam 1 Questions and Answers All Correct

FIN 582 Exam 1 Questions and Answers All Correct Theory of Competitive Advantage: - Answer-specialization increases production efficiency Imperfect Markets Theory: - Answer-factors of production are somewhat immobile providing incentive to seek out foreign opportunities Product Cycle Theory: - Answer-as a firm matures, it recognizes opportunities outside its domestic market How firms engage in international business: - Answer-1. international trade (easiest) 2. licensing 3. franchising 4. joint ventures 5. acquisitions of existing operations 6. establishing new foreign subsidiaries (most difficult) Multinational corporations (MNCs) are defined as: - Answer-firms that engage in some form of international business The commonly accepted goal of an MNC is to: - Answer-maximize shareholder wealth The conflict of goals between a firm's managers and shareholders is often referred to as the: - Answer-agency problem Three commonly held theories to explain why MNCs are motivated to expand their business international are the: - Answer-(1) theory of comparative advantage, (2) imperfect markets theory, and (3) product cycle theory Comparative advantages: - Answer-theory suggesting that specialization by countries can increase worldwide production Imperfect market: - Answer-the condition where, due to the costs to transfer labor and other resources used for production, firms may attempt to use foreign factors of production when they are less costly than local factors. International product life cycle: - Answer-(1) Firm creates product to accommodate local demand (2) Firm exports product to accommodate foreign demands (3) Firm establishes foreign subsidiary to establish presence in foreign country and possibly to reduce costs (4a) Firm differentiates product from competitors and/or expands product line in foreign country OR (4b) Firm's foreign business declines as its competitive advantages are eliminated Licensing: - Answer-an arrangement whereby one firm provides its technology (copyrights, patents, trademarks, or trade names) in exchange for fees or other considerations Under a franchising arrangement: - Answer-one firm provides a specialized sales or service strategy, support assistance, and possibly an initial investment in the franchise in exchange for periodic fees, allowing local residents to one and manage the units Direct foreign investment (DFI) - Answer-any method of increasing international business that requires a direct investment in foreign operations A joint venture is: - Answer-a venture that is jointly owned and operated by two or more firms T/F: The goal of an MNC is the maximization of shareholder wealth. - Answer-True T/F: If managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they automatically maximize the value of the entire corporation - Answer-False