Question 1

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?

Accepted Answer

A)   International Trade
B)   Licensing
C)   Franchising
D)   Direct foreign investmentE) B) and D)
F) All of the above

Question 2

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 ____.

Accepted Answer

A)   decrease; appreciate
B)   increase; appreciate
C)   decrease; depreciate
D)   increase; depreciateE) All of the above
F) A) and C)

Question 3

The Sarbanes-Oxley Act improves corporate governance of MNCs because it:

Accepted Answer

A)   makes executives more accountable for verifying financial statements
B)   eliminates stock options as a form of compensation
C)   ties executive compensation to firm performance
D)   places a limit on the amount of funds that managers can spendE) A) and B)
F) B) and C)

Question 4

According to the text, a disadvantage of licensing is that:

Accepted Answer

A)   it prevents a firm from importing.
B)   it is difficult to ensure quality control of the production process.
C)   it prevents a firm from exporting.
D)   none of the aboveE) None of the above
F) All of the above

Question 5

Licensing allows firms to use their technology in foreign markets without a major investment in foreign countries.

Accepted Answer

A) True 
 B)False

Question 6

If markets were perfect, then labor and other costs of production would be easily transferable.

Accepted Answer

A) True 
 B)False

Question 7

The agency costs of an MNC are likely to be lower if it:

Accepted Answer

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.E) A) and B)
F) None of the above

Question 8

International trade:

Accepted Answer

A)   is a relatively conservative approach to foreign market penetration.
B)   entails minimal risk.
C)   does not require large amount of investment.
D)   all of the above.E) A) and C)
F) B) and C)

Question 9

A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs.

Accepted Answer

A) True 
 B)False

Question 10

International trade generally results in ____ exposure to international political risk and ____ exposure to international economic conditions, when compared to other methods of international business.

Accepted Answer

A)   higher; lower
B)   higher; higher
C)   lower; higher
D)   lower; lowerE) All of the above
F) B) and C)

Question 11

Which of the following theories suggests that firms seek to penetrate new markets over time?

Accepted Answer

A)   theory of comparative advantage.
B)   imperfect markets theory.
C)   product cycle theory.
D)   none of the aboveE) A) and B)
F) None of the above

Question 12

Imperfect markets represent conditions under which factors of production are immobile.

Accepted Answer

A) True 
 B)False

Question 13

MNCs can improve their internal control process by all of the following, except:

Accepted Answer

A)   establishing a centralized data base 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 discrepanciesE) B) and D)
F) None of the above

Question 14

The MNC's value depends on all of the following, except:

Accepted Answer

A)   MNC's required rate of return
B)   Amount of MNC's cash flows in particular currency
C)   The exchange rate at which cash flows are converted to dollars
D)   The value of MNC depends on all of the above factorsE) A) and B)
F) B) and D)

Question 15

Which of the following theories identifies the non-transferability of resources as a reason for international business?

Accepted Answer

A)   theory of comparative advantage.
B)   imperfect markets theory.
C)   product cycle theory.
D)   none of the aboveE) A) and D)
F) B) and C)

Question 16

Agency costs faced by multinational corporations (MNCs)  may be larger than those faced by purely domestic firms because

Accepted Answer

A)   Monitoring of managers located in foreign countries is more difficult.
B)   Foreign subsidiary managers raised in different cultures may not follow uniform goals.
C)   MNCs are relatively large.
D)   All of the above
E)   A and B onlyF) A) and B)
G) A) and E)

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not mentioned in the text as a theory of international business?

Accepted Answer

A)   Theory of Comparative Advantage
B)   Imperfect Markets Theory
C)   Product Cycle Theory
D)   Globalization of Business Theory
E)   All of the above are mentioned in the text as theories of international businessF) B) and C)
G) None of the above

Question 19

With regard to corporate goals, an MNC is mostly concerned with maximizing ____, and a purely domestic firm is mostly concerned with maximizing ____.

Accepted Answer

A)   shareholder wealth; short-term earnings
B)   shareholder wealth; shareholder wealth
C)   short-term earnings; sales volume
D)   short-term earnings; shareholder wealthE) A) and B)
F) All of the above

Question 20

Under the Product Cycle Theory, foreign demand can be initially satisfied by exporting.

Accepted Answer

A) True 
 B)False

Exam 1: Multinational Financial Management: An Overview

Under the Product Cycle Theory, foreign demand can be initially satisfied by exporting.

Correct AnswerverifiedShow Answer

International trade:

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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 ____.

Correct AnswerverifiedShow Answer

If markets were perfect, then labor and other costs of production would be easily transferable.

Correct AnswerverifiedShow Answer

Which of the following is not mentioned in the text as a theory of international business?

Correct AnswerverifiedShow Answer

The MNC's value depends on all of the following, except:

Correct AnswerverifiedShow Answer

Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic firms because

Correct AnswerverifiedShow Answer

According to the text, a disadvantage of licensing is that:

Correct AnswerverifiedShow Answer

The agency costs of an MNC are likely to be lower if it:

Correct AnswerverifiedShow Answer

International trade generally results in ____ exposure to international political risk and ____ exposure to international economic conditions, when compared to other methods of international business.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Which of the following theories identifies the non-transferability of resources as a reason for international business?

Correct AnswerverifiedShow Answer

Which of the following theories suggests that firms seek to penetrate new markets over time?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

With regard to corporate goals, an MNC is mostly concerned with maximizing ____, and a purely domestic firm is mostly concerned with maximizing ____.

Correct AnswerverifiedShow Answer

Imperfect markets represent conditions under which factors of production are immobile.

Correct AnswerverifiedShow Answer

MNCs can improve their internal control process by all of the following, except:

Correct AnswerverifiedShow Answer

Licensing allows firms to use their technology in foreign markets without a major investment in foreign countries.

Correct AnswerverifiedShow Answer

A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs.

Correct AnswerverifiedShow Answer

The Sarbanes-Oxley Act improves corporate governance of MNCs because it:

Correct AnswerverifiedShow Answer

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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 .

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International trade generally results in exposure to international political risk and exposure to international economic conditions, when compared to other methods of international business.

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With regard to corporate goals, an MNC is mostly concerned with maximizing , and a purely domestic firm is mostly concerned with maximizing .

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