Question 1

Which of the following is an example of direct foreign investment for a U.S.-based MNC?

Accepted Answer

Purchasing existing companies in a foreign country is considered direct foreign investment, as the MNC is directly acquiring ownership and control of assets in another country.

Question 2

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

Accepted Answer

Using a centralized management style allows for better control and coordination of operations across subsidiaries, reducing the risk of agency costs such as duplication of efforts or conflicting strategies. Scattering subsidiaries across many countries increases the complexity of managing them, potentially leading to higher agency costs. Increasing the volume of international business may also lead to higher agency costs if not properly managed, such as conflict of interest among different subsidiaries. Therefore, the best choice is using a centralized management style to minimize agency costs.

Question 3

Which of the following theories identifies specialization as a reason for international business?

Accepted Answer

The theory of comparative advantage argues that countries specialize in producing goods and services in which they have a comparative advantage, which can be the result of natural resources, technology, or other factors. This specialization leads to international trade as countries seek to exchange their goods and services with others that are not as efficient in producing them.

Question 4

Due to the risks involved in international business, firms should:

Accepted Answer

None of the choices presented are accurate or helpful in determining how much international business a firm should engage in. The decision to enter international markets should be based on a thorough risk assessment and analysis of the potential benefits and drawbacks. Firms should also have appropriate risk management strategies and resources in place to mitigate any risks involved in international business. Each firm's optimal level of international business will vary based on their unique circumstances and goals.

Question 5

Which of the following is not one of the more common methods used by MNCs to improve their internal control process?

Accepted Answer

All the options listed (A through D) are indeed common methods used by multinational corporations (MNCs) to enhance their internal control processes. Establishing centralized databases, ensuring consistent data reporting, speeding up data access, and holding executives accountable for financial statement accuracy are all strategies aimed at improving oversight, efficiency, and reliability in financial reporting and operations.

Question 6

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

Accepted Answer

The product cycle theory suggests that firms seek to penetrate new markets over time. This theory proposes that a product goes through four stages: introduction, growth, maturity, and decline. As a product reaches maturity in its domestic market, firms seek to enter new markets to continue growth, leading to internationalization.

Question 7

Four MNCs generate the same level of sales. The MNC that _____________would likely have the most direct foreign investment.

Accepted Answer

The MNC that acquires a foreign firm that produces most of its products to be sold in that foreign country would likely have the most direct foreign investment, as acquiring a foreign firm involves investing directly in that foreign country's economy. The other options do not necessarily involve significant direct investment in foreign countries.

Question 8

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

Accepted Answer

All of the factors listed (required rate of return, cash flows in a particular currency, and exchange rate) can affect an MNC's value. Therefore, none of them can be excluded from consideration.

Question 9

The commonly accepted goal of an MNC is to:

Accepted Answer

The commonly accepted goal of a Multinational Corporation is to maximize shareholder wealth. This means that the company focuses on generating profits and increasing the value of its stocks for its shareholders. Maximizing short-term earnings or international sales might bring in profits in the short-term, but shareholders prioritize the long-term growth of the company. Similarly, minimizing risk is important, but not the primary goal.

Question 10

International trade:

Accepted Answer

International trade involves exporting and importing goods and services between countries, which requires investment, carries risk, and is not a conservative approach to foreign market penetration.

Question 11

According to the text, licensing allows a firm to:

Accepted Answer

Licensing allows a firm to provide its technology to another firm in exchange for a fee or royalty payment. It does not necessarily have anything to do with importing or exporting without government restrictions.

Question 12

Assume that Boca Co. wants to expand its business to Japan and wants complete control over the operations in Japan. Which method of international business is most appropriate for Boca Co?​

Accepted Answer

The answer of Assume that Boca Co. wants to expand...

Question 13

Compared to other methods of international business, international trade generally results in ____ exposure to international political risk and ____ exposure to international economic conditions. ​

Accepted Answer

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

Question 14

Which of the following could reduce agency problems for an MNC?

Accepted Answer

All three choices can reduce agency problems for an MNC. Stock options as managerial compensation aligns the interests of managers with those of shareholders, as the value of their options is tied to the performance of the company. A hostile takeover threat keeps management accountable and incentivized to perform well for fear of losing control. Investor monitoring, such as through activism or proxy voting, allows shareholders to have a voice in corporate decisions and pushes for greater transparency and accountability.

Question 15

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 the won is $.0012. What are the expected dollar cash flows of Livingston Co.?

Accepted Answer

To calculate the expected dollar cash flows of Livingston Co., we need to convert the Korean won to dollars.

First, we need to find out the total amount of Korean won that the subsidiary is expected to generate:

100 million Korean won * $.0012 = $120,000

Since the subsidiary reinvests half of its net cash flows into operations, it will remit half to the parent:

$120,000 / 2 = $60,000

Therefore, Livingston Co. can expect to receive $60,000 from its Korean subsidiary. Adding this to the expected cash flows from domestic business ($100,000), the total expected dollar cash flows of Livingston Co. are:

$60,000 + $100,000 = $160,000

Thus, the best choice is C.

Question 16

When conducting international business, firms generally face the most risk when they:

Accepted Answer

Both making acquisitions of existing operations and establishing new subsidiaries involve a significant investment of resources and entail substantial risk, such as cultural differences and regulatory barriers. These risks are greater than those associated with engaging in franchising or international trade.

Question 17

The least risky method by which firms conduct international business is:

Accepted Answer

International trade is the least risky method of conducting international business because it involves simply exporting goods or services to another country without committing significant resources or making long-term commitments. This method allows firms to test the waters in a foreign market without the financial investment required for other methods such as establishing subsidiaries or making acquisitions.

Question 18

Assume that an MNC purchases a foreign building, and then leases the building to another party and allows that party to operate the business in the building for 30 years if the party follows standards set by the MNC. This process is referred to as:

Accepted Answer

The answer of Assume that an MNC purchases a foreign...

Question 19

The goal of an MNC is to:​

Accepted Answer

The primary goal of an MNC is to maximize shareholder wealth, which is typically achieved by increasing profits, dividends, and share prices. While minimizing taxes may be a consideration, it is not the main objective. Establishing subsidiaries in countries where the returns exceed the cost of capital is also important, but only insofar as it contributes to maximizing shareholder wealth. The employment of foreign managers may have some social benefits, but this is not typically the primary objective of an MNC.

Quiz 1: Multinational Financial Management: an Overview

Which of the following is an example of direct foreign investment for a U.S.-based MNC?

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

Which of the following theories identifies specialization as a reason for international business?

Due to the risks involved in international business, firms should:

Which of the following is not one of the more common methods used by MNCs to improve their internal control process?

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

Four MNCs generate the same level of sales. The MNC that _____________would likely have the most direct foreign investment.

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

The commonly accepted goal of an MNC is to:

International trade:

According to the text, licensing allows a firm to:

Assume that Boca Co. wants to expand its business to Japan and wants complete control over the operations in Japan. Which method of international business is most appropriate for Boca Co?

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

Which of the following could reduce agency problems for an MNC?

When conducting international business, firms generally face the most risk when they:

The least risky method by which firms conduct international business is:

Assume that an MNC purchases a foreign building, and then leases the building to another party and allows that party to operate the business in the building for 30 years if the party follows standards set by the MNC. This process is referred to as:

The goal of an MNC is to:

Quiz 1: Multinational Financial Management: an Overview

Which of the following is an example of direct foreign investment for a U.S.-based MNC?

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

Which of the following theories identifies specialization as a reason for international business?

Due to the risks involved in international business, firms should:

Which of the following is not one of the more common methods used by MNCs to improve their internal control process?

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

Four MNCs generate the same level of sales. The MNC that _____________would likely have the most direct foreign investment.

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

The commonly accepted goal of an MNC is to:

International trade:

According to the text, licensing allows a firm to:

Assume that Boca Co. wants to expand its business to Japan and wants complete control over the operations in Japan. Which method of international business is most appropriate for Boca Co?​

Compared to other methods of international business, international trade generally results in ____ exposure to international political risk and ____ exposure to international economic conditions. ​

Which of the following could reduce agency problems for an MNC?

When conducting international business, firms generally face the most risk when they:

The least risky method by which firms conduct international business is:

Assume that an MNC purchases a foreign building, and then leases the building to another party and allows that party to operate the business in the building for 30 years if the party follows standards set by the MNC. This process is referred to as:

The goal of an MNC is to:​

Assume that Boca Co. wants to expand its business to Japan and wants complete control over the operations in Japan. Which method of international business is most appropriate for Boca Co?

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

The goal of an MNC is to: