Deck 1: Multinational Financial Management: Opportunities and Challenges

Question 1

Multinational enterprises (MNEs)are firms,both for profit companies and not-for-profit organizations,that have operations in more than one country,and conduct their business through foreign subsidiaries,branches,or joint ventures with host country firms.

Answer 1

True

Question 2

BRICs is a term used in international finance to represent assets that are considered to be inexpensive and sturdy,but fundamentally unsound and and incapable of coping with the upheavals now apparent in international financial markets.

Answer 2

False

Question 3

The reference rate of interest in the eurocurrency market is the:

A)London Interbank Offered Rate.
B)Prima rate.
C)Federal funds rate.
D)Treasury rate.

Answer 3

London Interbank Offered Rate.

Question 4

Your authors suggest that one way to characterize the global financial marketplace is through its assets,institutions,and linkages.

Question 5

Eurocurrencies are domestic currencies of one country on deposit in a second country.

Question 6

Eurocurrency markets serve two valuable purposes: 1)Eurocurrency deposits are an efficient and convenient money market device for holding excess corporate liquidity;and 2)the Eurocurrency market is a major source of short-term bank loans to finance corporate working capital needs,including the financing of imports and exports.

Question 7

The modern eurocurrency market was born shortly after:

A)World War II.
B)World War I.
C)Korean War.
D)Bosnian War.

Question 8

A well-established,large China-based MNE will probably be most adversely affected by which of the following elements of firm value?

A)an open marketplace
B)high-quality strategic management
C)access to capital
D)access to qualified labor pool

Question 9

A eurodollar deposit is a demand deposit.

Question 10

Ownership,control,and governance changes radically across the world.The publicly traded company is not the dominant global business organization-the privately held or family-owned business is the prevalent structure-and their goals and measures of performance differ dramatically.

Question 11

The Eurocurrency market continues to thrive because it is a large international money market relatively free from governmental regulation and interference.Recent events may lead to greater regulation.

Question 12

The theme dominating global financial markets today is the complexity of risks associated with financial globalization.List and explain examples of the complexity of risks affecting the leading and managing of multinational firms in the rapidly moving marketplace.

Question 13

A major cost avoided in the eurocurrency markets is the payment of deposit insurance fees,such as:

A)Federal Deposit Insurance Corporation - FDIC.
B)Office of the Comptroller of the Currency - OCC.
C)International Monetary Fund - IMF.
D)World Bank - WB.

Question 14

Interest spreads in the eurocurrency market are small for many reasons EXCEPT:

A)Eurocurrency loans are secured loans.
B)Eurocurrency deposits and loans are made in amounts of $500,000 or more on an unsecured basis.
C)The eurocurrency is a wholesale market.
D)Borrowers are usually large corporations or government entities.

Question 15

Business involves the interaction of individuals and individual organizations for the exchange of products,services,and capital through markets.The global capital markets are critical for the conduct of this exchange.The authors suggest that one way to characterize the global financial marketplace is through its assets,institutions,and linkages.Explain how each of the three dimensions characterize the global financial marketplace.

Question 16

The key factor attracting both depositors and borrowers to the Eurocurrency loan market is the narrow interest rate spread within that market.

Question 17

A well-established,large U.S.-based MNE will probably NOT be able to overcome which of the following obstacles to maximizing firm value?

A)an open market place
B)high quality strategic management
C)access to capital
D)none of the above

Question 18

The theory that suggests specialization by country can increase worldwide production is:

A)the theory of comparative advantage.
B)the theory of foreign direct investment.
C)the international Fisher effect.
D)the theory of working capital management.

Question 19

Financial globalization has not resulted in:

A)continuing imbalances of balance of payments.
B)an increase in quantity and speed in the flow of capital across the world.
C)capital markets less open and a decrease in the availability of capital for many organizations.
D)uniform ways of ownership,control,and governance across the world.

Question 20

A well-established,large,Brazil-based MNE will probably be most adversely affected by which of the following elements of firm value?

A)an open marketplace
B)high-quality strategic management
C)access to capital
D)access to qualified labor pool

Question 21

Which of the following factors of production DO NOT flow freely between countries?

A)raw materials
B)financial capital
C)(non-military)technology
D)All of the above factors of production flow freely among countries.

Question 22

The concept of relative comparative advantage's origins lie in:

A)Adam Smith's work of 1776.
B)David Ricardo's work of 1776.
C)The Wealth of Nations book,published in 1887.
D)On the Principles of Political Economy and Taxation book,published in 1817.

Question 23

It would be safe to make the statement that modern telecommunications now take business activities to labor rather than moving labor to the places of business.

Question 24

The theory of comparative advantage owes it origins to Ben Bernanke as described in his book The Wealth of Bankers.

Question 25

Which of the following is not always understood by MNE management?

A)Culture,history,and institutions
B)Political risk
C)Foreign exchange risk
D)Financial instruments

Question 26

The concept of absolute comparative advantage's origins lie in:

A)Adam Smith's work of 1776.
B)David Ricardo's work of 1776.
C)The Wealth of Nations book,published in 1887.
D)On the Principles of Political Economy and Taxation book,published in 1817.

Question 27

As the general principle of comparative advantage is still valid,complete specializatoin remains a realistic case.

Question 28

When discussing comparative advantage,it is apparent that today at least two of the factors of production,capital and technology,now flow directly and easily between countries,rather than only indirectly through traded goods and services.

Question 29

________ investments are designed to promote and enhance the growth and profitability of the firm.________ investments are designed to deny those same opportunities to the firm's competitors.

A)Conservative;Aggressive
B)Defensive;Proactive
C)Proactive;Defensive
D)Aggressive;Proactive

Question 30

Although international trade might have approached the comparative advantage model during the nineteenth century,it certainly does not today,for a variety of reasons.Develop an argument as to why this is not happening today.

Question 31

Comparative advantage shifts over time as less developed countries become more developed and realize their latent opportunities.

Question 32

Comparative advantage is one of the underlying principles driving the growth of global business.

Question 33

Which of the following would NOT be a way to implement comparative advantage?

A)IBM exports computers to Egypt.
B)Computer hardware is designed in the United States but manufactured and assembled in Korea.
C)Water of the greatest purity is obtained from wells in Oregon,bottled,and exported worldwide.
D)All of the above are examples of ways to implement comparative advantage.

Question 34

Comparative advantage was once the cornerstone of international trade theory,but today it is archaic,simplistic,and irrelevant for explaining investment choices made by MNEs.

Question 35

Of the following,which would NOT be considered a way that government interferes with comparative advantage?

A)tariffs
B)managerial skills
C)quotas
D)other non-tariff restrictions

Question 36

In determining why a firm becomes multinational there are many reasons.One reason is that the firm is a market seeker.Which of the following is NOT a reason why market-seeking firms produce in foreign countries?

A)satisfaction of local demand in the foreign country
B)satisfaction of local demand in the domestic markets
C)political safety and small likelihood of government expropriation of assets
D)All of the above are market-seeking activities.

Question 37

International trade might have approached the comparative advantage model in the 19th century,and it does so even more today.

Question 38

Comparative advantage in the 21st century is based more on services and their cross border facilitation by telecommunications and the Internet.

Question 39

Which of the following is NOT a reason governments interfere with comparative advantage?

A)Governments attempt to achieve full employment.
B)Governments promote economic development.
C)national self-sufficiency in defense-related industries
D)All are reasons governments interfere with comparative advantage.

Question 40

Which of the following domestic financial instruments have NOT been modified for use in international financial management?

A)currency options and futures
B)interest rate and currency swaps
C)letters of credit
D)All of the above are domestic financial instruments that have also been modified for use in international financial markets.

Question 41

In determining why a firm becomes multinational there are many reasons.One reason is that the firm is a raw material seeker.Which of the following is NOT a reason why raw material seeker extract raw materials in foreign countries?

A)They extract raw materials wherever they can be found to export from the host country.
B)They extract raw materials wherever they can be found for sale in the host country.
C)They extract raw materials wherever they can be found for further processing in the host country.
D)All of the above.

Question 42

The twin agency problems limiting financial globalization are caused by these two groups acting in their own self-interests rather than the interests of the firm.

A)rulers of sovereign states and unsavory customs officials
B)corporate insiders and attorneys
C)corporate insiders and rulers of sovereign states
D)attorneys and unsavory customs officials

Question 43

Typically,a "greenfield" investment abroad is considered an investment having a greater foreign presence than a joint venture with a foreign firm.

Question 44

The objectives and responsibilities of the modern multinational have grown significantly more complex in the twenty-first century.Develop and argument as to why this is the case.

Question 45

In determining why a firm becomes multinational there are many reasons.One reason is that the firm is a knowledge seeker.They operate in foreign countries to exploit existing technological expertise.

Question 46

Domestic firms tend to make GREATER use of financial derivatives than MNEs because they can bear the greater risk presented by these financial instruments.

Question 47

Typically,a firm in its domestic stage of globalization has all financial transactions in its domestic currency.

Question 48

The authors describe the multinational phase of globalization for a firm as one characterized by the:

A)ownership of assets and enterprises in foreign countries.
B)potential for international competitors or suppliers even though all accounts are with domestic firms and are denominated in dollars.
C)imports from foreign suppliers and exports to foreign buyers.
D)requirement that all employees be multilingual.

Question 49

The five strategic motives driving the decision to invest abroad and become an MNE (market seekers,raw material seekers,production efficiency seekers,knowledge seekers,and political safety seekers)are mutually exclusive.

Question 50

Relative to MNEs,purely domestic firms tend to have GREATER political risk.

Question 51

Because countries have different financial regulations and customs,it is common for MNEs to apply their domestic rules and regulations when doing financial business in a foreign country.

Question 52

A firm in the International Trade Phase of Globalization:

A)makes all foreign payments in foreign currency units and all foreign receipts in domestic currency units.
B)receives all foreign receipts in foreign currency units and makes all foreign payments in domestic currency units.
C)bears direct foreign exchange risk.
D)none of the above

Question 53

For firms competing in a world characterized by oligopolistic competition,strategic motives can be subdivided into proactive and defensive investments.

Question 54

MNEs must modify finance theories like cost of capital and capital budgeting because of foreign complexities.

Question 55

Domestic firms do not have foreign exchange risk.

Question 56

The phase of the globalization process characterized by imports from foreign suppliers and exports to foreign buyers is called the:

A)domestic phase.
B)multinational phase.
C)international trade phase.
D)import-export banking phase.

Question 57

List and explain three strategic motives why firms become multinationals and give an example of each.

Question 58

Defensive measures are designed to enhance growth and profitability of the firm itself.

Question 59

Of the following,which was NOT mentioned by the authors as an increase in the demands of financial management services due to increased globalization by the firm?

A)evaluation of the credit quality of foreign buyers and sellers
B)foreign consumer method of payment preferences
C)credit risk management
D)evaluation of foreign exchange risk

Question 60

A number of financial instruments that are used in domestic financial management have been modified for use in international financial management.Examples are foreign currency options and futures,interest rate and currency swaps,and letters of credit.

Question 61

The authors argue that financial inefficiency caused by influential insiders may prove to be an increasingly troublesome barrier to international finance.

Question 62

Today it is widely assumed that there are NO LIMITS to financial globalization.

Question 63

Describe the structural and managerial changes and challenges experienced by a firm as it moves its operations from domestic to global (globalization process).

Question 64

The growth in the influence and self-enrichment of organizational insiders is seen as an impediment to the growth of financial globalization in general.

Question 65

The actions of corporate insiders and the actions of rulers of sovereign states are both agency costs that act as an impediment to the growth of globalization.

Question 66

The authors describe a process for development of a MNE that begins with a purely domestic phase,followed by the multinational phase,and topping out with the international trade phase.