,Chapter 1_Multinational Financial Management: An Overview
1. The commonly accepted goal of an MNC is to:
a. maximize short-term earnings.
b. maximize shareholder wealth.
c. minimize risk.
d. maximize short-term earnings AND minimize risk.
e. maximize international sales.
ANSWER: b
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
ANSWER: b
3. For an MNC, agency costs are typically:
a. nonexistent.
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.
ANSWER: b
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 these are forms of corporate control that could reduce agency problems for an MNC.
ANSWER: d
5. The valuation of an MNC should rise when an event causes the expected cash flows from foreign subsidiaries to ____
and when the foreign currencies denominating these cash flows are expected
to ____.
a. decrease; appreciate
b. increase; appreciate
c. decrease; depreciate
d. increase; depreciate
ANSWER: b
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 these are correct.
ANSWER: a
,7. Which of the following theories identifies the nontransferability of resources as a reason for international business?
a. theory of comparative advantage
b. imperfect markets theory
c. product cycle theory
d. None of these are correct.
ANSWER: b
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 these are correct.
ANSWER: c
9. An industry based on which of the following 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 programs
d. development of more sophisticated computer technology
ANSWER: a
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 these are correct.
ANSWER: d
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 a franchise in exchange for periodic fees.
a. True
b. False
ANSWER: False
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
ANSWER: True
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. scatters its subsidiaries across many foreign countries AND increases its volume of international business.
, ANSWER: c
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 these would prevent agency problems.
ANSWER: b
15. The Sarbanes-Oxley Act improved corporate governance of MNCs because it:
a. made executives more accountable for verifying financial statements.
b. eliminated stock options as a form of compensation.
c. tied executive compensation to firm performance.
d. placed a limit on the amount of funds that managers can spend.
ANSWER: a
16. MNCs can improve their internal control process by all of the following, except:
a. establishing a centralized database of information.
b. ensuring that all data are reported consistently among subsidiaries.
c. ensuring that the MNC always borrows from countries where interest rates are lowest.
d. using a system that checks internal data for unusual discrepancies.
ANSWER: c
17. Franchising is the process by which national governments sell state-owned operations to corporations and other
investors.
a. True
b. False
ANSWER: False
18. The parent of an MNC can implement compensation plans that directly reward the subsidiary managers for enhancing
the value of the MNC.
a. True
b. False
ANSWER: True
19. If a publicly traded MNC's managers make poor decisions that reduce its value, that may encourage other firms to
acquire the MNC.
a. True
b. False
ANSWER: True
20. Institutional investors such as mutual funds or pension funds that have large holdings of an MNC's stock do not
normally want to take control of it and therefore have no influence over management of the MNC.
a. True
b. False
ANSWER: False
21. Four MNCs generate the same level of sales. The MNC that _____________would likely have the most direct foreign
investment.
1. The commonly accepted goal of an MNC is to:
a. maximize short-term earnings.
b. maximize shareholder wealth.
c. minimize risk.
d. maximize short-term earnings AND minimize risk.
e. maximize international sales.
ANSWER: b
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
ANSWER: b
3. For an MNC, agency costs are typically:
a. nonexistent.
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.
ANSWER: b
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 these are forms of corporate control that could reduce agency problems for an MNC.
ANSWER: d
5. The valuation of an MNC should rise when an event causes the expected cash flows from foreign subsidiaries to ____
and when the foreign currencies denominating these cash flows are expected
to ____.
a. decrease; appreciate
b. increase; appreciate
c. decrease; depreciate
d. increase; depreciate
ANSWER: b
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 these are correct.
ANSWER: a
,7. Which of the following theories identifies the nontransferability of resources as a reason for international business?
a. theory of comparative advantage
b. imperfect markets theory
c. product cycle theory
d. None of these are correct.
ANSWER: b
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 these are correct.
ANSWER: c
9. An industry based on which of the following 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 programs
d. development of more sophisticated computer technology
ANSWER: a
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 these are correct.
ANSWER: d
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 a franchise in exchange for periodic fees.
a. True
b. False
ANSWER: False
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
ANSWER: True
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. scatters its subsidiaries across many foreign countries AND increases its volume of international business.
, ANSWER: c
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 these would prevent agency problems.
ANSWER: b
15. The Sarbanes-Oxley Act improved corporate governance of MNCs because it:
a. made executives more accountable for verifying financial statements.
b. eliminated stock options as a form of compensation.
c. tied executive compensation to firm performance.
d. placed a limit on the amount of funds that managers can spend.
ANSWER: a
16. MNCs can improve their internal control process by all of the following, except:
a. establishing a centralized database of information.
b. ensuring that all data are reported consistently among subsidiaries.
c. ensuring that the MNC always borrows from countries where interest rates are lowest.
d. using a system that checks internal data for unusual discrepancies.
ANSWER: c
17. Franchising is the process by which national governments sell state-owned operations to corporations and other
investors.
a. True
b. False
ANSWER: False
18. The parent of an MNC can implement compensation plans that directly reward the subsidiary managers for enhancing
the value of the MNC.
a. True
b. False
ANSWER: True
19. If a publicly traded MNC's managers make poor decisions that reduce its value, that may encourage other firms to
acquire the MNC.
a. True
b. False
ANSWER: True
20. Institutional investors such as mutual funds or pension funds that have large holdings of an MNC's stock do not
normally want to take control of it and therefore have no influence over management of the MNC.
a. True
b. False
ANSWER: False
21. Four MNCs generate the same level of sales. The MNC that _____________would likely have the most direct foreign
investment.
