Question 1

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

Accepted Answer

Multinational enterprises face additional complexities in their financial decision-making due to factors such as exchange rate fluctuations, political risk, and differing economic conditions in different countries. As a result, traditional finance theories like cost of capital and capital budgeting need to be modified to account for these foreign complexities.

Question 2

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

Accepted Answer

While the general principle of comparative advantage is still valid, complete specialization is not considered a realistic case because it ignores the risks associated with dependency on one particular product or service. Most countries and businesses today practice partial specialization, meaning they focus on producing a few products or services they have a comparative advantage in, while still maintaining some level of diversification to mitigate risks.

Question 3

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

Accepted Answer

Defensive measures are designed to protect the firm from potential threats and risks, rather than enhancing growth and profitability. Offensive measures, on the other hand, are used to increase growth and profitability.

Question 4

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

Accepted Answer

Political risk refers to the potential for political actions or events to negatively impact a company's profitability or operations. MNEs, being multinational in nature, have a greater exposure to political risk as they operate in various countries with different political systems and regulations. On the other hand, purely domestic firms operate within a single country, which may have a relatively stable political system, thereby facing less political risk.

Question 5

________ 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.

Accepted Answer

Proactive investments are designed to promote and enhance the growth and profitability of the firm, while defensive investments are designed to deny those same opportunities to the firm's competitors. Therefore, option C) is the correct choice.

Question 6

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

Accepted Answer

This statement is false. MNEs (Multinational Enterprises) generally have a higher exposure to currency and interest rate risks due to their global operations, hence they tend to make greater use of financial derivatives to manage these risks. Domestic firms, on the other hand, may have a more limited exposure to such risks and may not require as much use of financial derivatives.

Question 7

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

Accepted Answer

All the options listed (currency options and futures, interest rate and currency swaps, letters of credit) are domestic financial instruments that have been adapted for use in international financial markets to manage risks associated with currency exchange rates, interest rates, and international trade transactions.

Question 8

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

Accepted Answer

MNE (Multinational Enterprise) management may not always fully understand culture, history, and institutions, as these are complex, vary greatly between countries, and require deep local knowledge. Political risk, foreign exchange risk, and financial instruments are more standardized areas of knowledge in international business.

Question 9

Large international firms are better able to exploit product differentiation than are their local competitors.

Accepted Answer

Large international firms have a wider reach and greater resources to invest in research and development, marketing, and branding, which makes them better able to offer unique and distinct products that local competitors can't match. Additionally, they can sell their products at a premium and maintain high profit margins.

Question 10

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.

Accepted Answer

Many financial instruments used in domestic financial management have been modified for international use to manage risks associated with international business transactions, such as fluctuations in currency exchange rates and interest rates. Examples of these modified instruments include foreign currency options and futures, interest rate and currency swaps, and letters of credit.

Question 11

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

Accepted Answer

The answer of List and explain three strategic motives why...

Question 12

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.

Accepted Answer

The answer of In determining why a firm becomes multinational...

Question 13

Domestic firms do not have foreign exchange risk.

Accepted Answer

Domestic firms can have foreign exchange risk if they engage in foreign trade, investment or have overseas operations. Changes in exchange rates can affect the value of their assets, liabilities or cash flows denominated in foreign currencies.

Question 14

In the recent past, much of the business development in multinational firms was led by cross-functional teams, teams of professionals who are competent over a broader array of functional fields. Develop an argument as to why this is the case.

Accepted Answer

The answer of In the recent past, much of the...

Question 15

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.

Accepted Answer

MNEs are required to abide by the financial regulations and customs of the foreign country they are operating in, not their domestic rules and regulations. They may need to adjust their financial practices and comply with the local laws to avoid legal issues and maintain good relationships with stakeholders.

Question 16

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

Accepted Answer

Proactive investments are those made to gain a competitive advantage, while defensive investments are made to protect an existing advantage. In an oligopolistic market, where a small number of firms dominate, strategic investments are crucial to maintain and improve market position.

Question 17

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.

Accepted Answer

The answer of Although international trade might have approached the...

Question 18

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?

Accepted Answer

The answer of In determining why a firm becomes multinational...

Question 19

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.

Accepted Answer

The five strategic motives driving the decision to invest abroad and become an MNE are not mutually exclusive. A company can have multiple motives for investing abroad, such as seeking both market opportunities and raw materials.

Question 20

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?

Accepted Answer

Political safety and small likelihood of government expropriation of assets are reasons why firms engage in resource-seeking activities, not market-seeking activities. Market-seeking activities focus on expanding sales and satisfying local demand in foreign markets.

Quiz 1: Multinational Financial Management: Opportunities and Challenges

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

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

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

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

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.

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

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

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

Large international firms are better able to exploit product differentiation than are their local competitors.

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.

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

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.

Domestic firms do not have foreign exchange risk.

In the recent past, much of the business development in multinational firms was led by cross-functional teams, teams of professionals who are competent over a broader array of functional fields. Develop an argument as to why this is the case.

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.

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

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.

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?

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.

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?