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MBA620 Exam 1 Questions and Correct
Answers
Livingston Co. has a subsidiary in Korea. The subsidiary reinvests
half of its net cash flows into operations and remits half to the
parent. Livingston's expected cash flows from domestic business
are $100,000 and the Korean subsidiary is expected to generate
100 million Korean won at the end of the year. The expected value
of won is $.0012. What are the expected dollar cash flows of
Livingston Co.? Ans: — 160,000
Assume that an American firm wants to engage in international
business without major investment in the foreign country. Which
method is least appropriate in this situation? Ans: — Direct
foreign investment
The least risky method by which firms conduct international
business is: Ans: — International Trade
For the MNC, agency costs are typically: Ans: — larger than agency
costs of a small purely domestic firm.
Which of the following is not mentioned in the text as an
additional risk resulting from international business? Ans: —
Interest rate risk
According to the text, a disadvantage of licensing is that: Ans: — it
is difficult to ensure quality control of the production process.
The commonly accepted goal of the MNC is to Ans: — maximize
shareholder wealth
Which of the following does not constitute a form of direct foreign
investment? Ans: — International trade
Which of the following is an example of direct foreign investment?
Ans: — purchasing existing companies in a country.
Assume that Live Co. has expected cash flows of $200,000 from
domestic operations, SF200,000 from Swiss operations, and
150,000 euros from Italian operations at the end of the year. The
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Swiss franc's value and euro's value are expected to be $.83 and
$1.29 respectively, at the end this year. What are the expected
dollar cash flows of Live Co? Ans: — 559,500
Without the international capital flows, there would be ____
funding available in the U.S. across all risk levels, and the cost of
funding would be ____ regardless of the firm's risk level. Ans: —
less; higher
The North American Free Trade Agreement (NAFTA) increased
restrictions on: Ans: — none of the above
Which of the following factors probably does not directly affect a
country's capital account and its components? Ans: — Inflation
An increase in the current account deficit will place ____ pressure
on the home currency value, other things equal. Ans: — downward
The World Bank was established to: Ans: — enhance economic
development through non-subsidized loans (at market interest
rates).
An increase in the current account deficit will place ____ pressure
on the home currency value, other things equal. Ans: — downward
The demand for U.S. exports tends to increase when: Ans: — the
currencies of foreign countries strengthen against the dollar
____ represent aid, grants, and gifts from one country to another.
Ans: — Transfer payments
If the home currency begins to appreciate against other currencies,
this should ____ the current account balance, other things equal
(assume that substitutes are readily available in the countries, and
that the prices charged by firms remain the same). Ans: — reduce
The International Financial Corporation was established to: Ans: —
enhance economic development of the private sector through
investment in stock of corporations.
The ____ is the difference between exports and imports. Ans: —
balance of trade
© 2025 All rights reserved
MBA620 Exam 1 Questions and Correct
Answers
Livingston Co. has a subsidiary in Korea. The subsidiary reinvests
half of its net cash flows into operations and remits half to the
parent. Livingston's expected cash flows from domestic business
are $100,000 and the Korean subsidiary is expected to generate
100 million Korean won at the end of the year. The expected value
of won is $.0012. What are the expected dollar cash flows of
Livingston Co.? Ans: — 160,000
Assume that an American firm wants to engage in international
business without major investment in the foreign country. Which
method is least appropriate in this situation? Ans: — Direct
foreign investment
The least risky method by which firms conduct international
business is: Ans: — International Trade
For the MNC, agency costs are typically: Ans: — larger than agency
costs of a small purely domestic firm.
Which of the following is not mentioned in the text as an
additional risk resulting from international business? Ans: —
Interest rate risk
According to the text, a disadvantage of licensing is that: Ans: — it
is difficult to ensure quality control of the production process.
The commonly accepted goal of the MNC is to Ans: — maximize
shareholder wealth
Which of the following does not constitute a form of direct foreign
investment? Ans: — International trade
Which of the following is an example of direct foreign investment?
Ans: — purchasing existing companies in a country.
Assume that Live Co. has expected cash flows of $200,000 from
domestic operations, SF200,000 from Swiss operations, and
150,000 euros from Italian operations at the end of the year. The
© 2025 All rights reserved
, 2 | Page
Swiss franc's value and euro's value are expected to be $.83 and
$1.29 respectively, at the end this year. What are the expected
dollar cash flows of Live Co? Ans: — 559,500
Without the international capital flows, there would be ____
funding available in the U.S. across all risk levels, and the cost of
funding would be ____ regardless of the firm's risk level. Ans: —
less; higher
The North American Free Trade Agreement (NAFTA) increased
restrictions on: Ans: — none of the above
Which of the following factors probably does not directly affect a
country's capital account and its components? Ans: — Inflation
An increase in the current account deficit will place ____ pressure
on the home currency value, other things equal. Ans: — downward
The World Bank was established to: Ans: — enhance economic
development through non-subsidized loans (at market interest
rates).
An increase in the current account deficit will place ____ pressure
on the home currency value, other things equal. Ans: — downward
The demand for U.S. exports tends to increase when: Ans: — the
currencies of foreign countries strengthen against the dollar
____ represent aid, grants, and gifts from one country to another.
Ans: — Transfer payments
If the home currency begins to appreciate against other currencies,
this should ____ the current account balance, other things equal
(assume that substitutes are readily available in the countries, and
that the prices charged by firms remain the same). Ans: — reduce
The International Financial Corporation was established to: Ans: —
enhance economic development of the private sector through
investment in stock of corporations.
The ____ is the difference between exports and imports. Ans: —
balance of trade
© 2025 All rights reserved
