International Financial Management
Exam 1 Questions with Verified
Answers
T/F Agency problems arise when there is an alignment of interest between the
shareholders and the actions of managers of an multinational corporation (MNC). -
ANSWERSfalse
Suppose that an MNC attempts to alleviate agency problems by more closely
monitoring managers of their foreign subsidiaries.
This is an example of ________ control of agency problems.
T/F Under a centralized management style, the MNC parent managers usually make
more informed local business decisions than the managers of their foreign subsidiaries.
- ANSWERSparent; false
T/F Agency problems arise when there is a conflict of interest between the shareholders
and the managers of an multinational corporation (MNC). - ANSWERStrue
Individuals and groups with large equity holdings of an MNC may have influence to
remove managers who do not make decisions that maximize the stock price of the
MNC.
This is an example of ________ control of agency problems.
T/F Under a decentralized management style, more control is given to those managers
who are closest to the business operations of the foreign subsidiaries. -
ANSWERScorporate; true
The theory that countries are better off by specializing in the production of a particular
good, while trading for other necessary goods. - ANSWERSTheory of Competitive
Advantage
The theory that costs for factors of production vary across countries, due to the
immobility of these resources. - ANSWERSImperfect Markets Theory
The theory that a firm first produces goods domestically, then exports to foreign
markets, then establishes its own foreign operations. - ANSWERSProduct Cycle Theory
Suppose that California Co., a U.S.-based MNC that sells clothing domestically, owns a
subsidiary in Mexico that handles the manufacturing of their products. California Co.,
has chosen to have a subsidiary in Mexico due to their relative strengths in making
, clothing by hand. California Co., on the other hand, focuses their efforts on the digital
marketing and technological side of the business.
This reasoning for expanding their business internationally is best explained by the
_____. - ANSWERStheory of competitive advantage
Suppose that Dakota Co., a U.S.-based technology MNC, has recently decided to
conduct much of their software development in India. Dakota Co. management has
cited strict domestic immigration laws and lower labor costs abroad as the reason for
hiring software developers in India as opposed to the United States.
This reasoning for expanding their business internationally is best explained by the
_____. - ANSWERSimperfect markets theory
Suppose that Triloo Inc., a U.S.-based MNC that sells laptops in the United States.
Triloo laptops are already well established as the most popular laptops in the United
States. After conducting research and analysis, Triloo management believes there is
strong demand for their laptops overseas. For this reason, Triloo will begin exporting
and selling laptops abroad.
This reasoning for expanding their business internationally is best explained by the
_____. - ANSWERSproduct cycle theory
Exporting goods to sell in foreign markets, while importing inputs at lower cost -
ANSWERSinternational trade
An arrangement whereby two or more firms own and operate a business -
ANSWERSjoint ventures
An arrangement exchanging the right to use technology for fees - ANSWERSlicensing
Firms use a variety of methods to conduct business internationally.
Consider the case of an MNC conducting international business via the use of
investment in foreign subsidiaries.
When this method of conducting international business is used, cash inflows come from
_______ while cash outflows flow to _____. - ANSWERSforeign subsidiaries; foreign
subsidiaries
Setting up new business operations in a foreign country - ANSWERSestablishment of
new foreign subsidiaries
An arrangement with foreign residents exchanging specialized services, assistance, and
ownership of specific units in exchange for fees - ANSWERSfranchising
Firms use a variety of methods to conduct business internationally.
Consider the case of an MNC conducting international business via the use of
international trade.
Exam 1 Questions with Verified
Answers
T/F Agency problems arise when there is an alignment of interest between the
shareholders and the actions of managers of an multinational corporation (MNC). -
ANSWERSfalse
Suppose that an MNC attempts to alleviate agency problems by more closely
monitoring managers of their foreign subsidiaries.
This is an example of ________ control of agency problems.
T/F Under a centralized management style, the MNC parent managers usually make
more informed local business decisions than the managers of their foreign subsidiaries.
- ANSWERSparent; false
T/F Agency problems arise when there is a conflict of interest between the shareholders
and the managers of an multinational corporation (MNC). - ANSWERStrue
Individuals and groups with large equity holdings of an MNC may have influence to
remove managers who do not make decisions that maximize the stock price of the
MNC.
This is an example of ________ control of agency problems.
T/F Under a decentralized management style, more control is given to those managers
who are closest to the business operations of the foreign subsidiaries. -
ANSWERScorporate; true
The theory that countries are better off by specializing in the production of a particular
good, while trading for other necessary goods. - ANSWERSTheory of Competitive
Advantage
The theory that costs for factors of production vary across countries, due to the
immobility of these resources. - ANSWERSImperfect Markets Theory
The theory that a firm first produces goods domestically, then exports to foreign
markets, then establishes its own foreign operations. - ANSWERSProduct Cycle Theory
Suppose that California Co., a U.S.-based MNC that sells clothing domestically, owns a
subsidiary in Mexico that handles the manufacturing of their products. California Co.,
has chosen to have a subsidiary in Mexico due to their relative strengths in making
, clothing by hand. California Co., on the other hand, focuses their efforts on the digital
marketing and technological side of the business.
This reasoning for expanding their business internationally is best explained by the
_____. - ANSWERStheory of competitive advantage
Suppose that Dakota Co., a U.S.-based technology MNC, has recently decided to
conduct much of their software development in India. Dakota Co. management has
cited strict domestic immigration laws and lower labor costs abroad as the reason for
hiring software developers in India as opposed to the United States.
This reasoning for expanding their business internationally is best explained by the
_____. - ANSWERSimperfect markets theory
Suppose that Triloo Inc., a U.S.-based MNC that sells laptops in the United States.
Triloo laptops are already well established as the most popular laptops in the United
States. After conducting research and analysis, Triloo management believes there is
strong demand for their laptops overseas. For this reason, Triloo will begin exporting
and selling laptops abroad.
This reasoning for expanding their business internationally is best explained by the
_____. - ANSWERSproduct cycle theory
Exporting goods to sell in foreign markets, while importing inputs at lower cost -
ANSWERSinternational trade
An arrangement whereby two or more firms own and operate a business -
ANSWERSjoint ventures
An arrangement exchanging the right to use technology for fees - ANSWERSlicensing
Firms use a variety of methods to conduct business internationally.
Consider the case of an MNC conducting international business via the use of
investment in foreign subsidiaries.
When this method of conducting international business is used, cash inflows come from
_______ while cash outflows flow to _____. - ANSWERSforeign subsidiaries; foreign
subsidiaries
Setting up new business operations in a foreign country - ANSWERSestablishment of
new foreign subsidiaries
An arrangement with foreign residents exchanging specialized services, assistance, and
ownership of specific units in exchange for fees - ANSWERSfranchising
Firms use a variety of methods to conduct business internationally.
Consider the case of an MNC conducting international business via the use of
international trade.
