Question 1

Which of the following could reduce agency problems for an MNC?
A)stock options as managerial compensation
B)hostile takeover threat
C)investor monitoring
D)all of the above are forms of corporate control that could reduce agency problems for an MNC.

Accepted Answer

Stock options as managerial compensation can align the interests of managers with the shareholders of the MNC, as they will benefit from an increase in the stock price. Hostile takeover threat creates a check on the actions of the managers, as they may lose their job in the event of a takeover. Investor monitoring can provide further scrutiny and oversight of the actions of the MNC's management. All of these forms of corporate control can limit the agency problems and ensure that managers act in the best interests of the MNC's shareholders.

Question 2

Which of the following theories identifies specialization as a reason for international business?
A)theory of comparative advantage
B)imperfect markets theory
C)product cycle theory
D)none of the above

Accepted Answer

The theory of comparative advantage argues that countries should specialize in producing goods in which they have lower opportunity costs, and then trade with other countries to obtain the goods they cannot produce efficiently themselves. This theory is a major reason for international business as it encourages specialization and trade across borders.

Question 3

The commonly accepted goal of an MNC is to:
A)maximize short-term earnings.
B)maximize shareholder wealth.
C)minimize risk.
D)A and C.
E)maximize international sales.

Accepted Answer

The commonly accepted goal of an MNC is to maximize shareholder wealth. This is achieved by increasing the value of the firm's stock, paying dividends, and increasing capital gains. Maximizing short-term earnings may not necessarily lead to maximizing shareholder wealth in the long term. Minimizing risk is a secondary objective for MNCs as they operate in uncertain international environments. Maximizing international sales is a means to achieve the primary objective of maximizing shareholder wealth.

Question 4

The valuation of an MNC should rise when an event causes the expected cash flows from foreign subsidiaries to ____ and when the foreign currencies denominating these cash flows are expected?to ____.
A)decrease; appreciate
B)increase; appreciate
C)decrease; depreciate
D)increase; depreciate

Accepted Answer

When the expected cash flows from foreign subsidiaries increase, it is likely that the MNC's overall cash flows will increase, leading to a rise in valuation. Similarly, when the foreign currencies denominating these cash flows appreciate, they will yield a higher return when converted back to the MNC's home currency, also resulting in an increase in valuation.

Question 5

For an MNC, agency costs are typically:
A)nonexistent
B)larger than agency costs of a small purely domestic firm.
C)smaller than agency costs of a small purely domestic firm.
D)the same as agency costs of a small purely domestic firm.

Accepted Answer

MNCs often have complex organizational structures, multinational operations, and diverse stakeholder interests, which increase the likelihood of agency problems. These issues may lead to higher agency costs compared to a small purely domestic firm.

Question 6

The parent of an MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of the MNC.

Accepted Answer

It is true that the parent of an MNC can implement compensation plans that directly reward subsidiary managers for enhancing the value of the MNC. This is a common strategy used by MNCs to align the interests of subsidiary managers with the overall goals and objectives of the parent company. These compensation plans can include bonus programs, equity-based incentive plans, and other forms of performance-based compensation. By tying the compensation of subsidiary managers to the success of the MNC as a whole, the parent company can motivate these managers to make decisions that benefit the entire organization, rather than just their individual subsidiaries.

Question 7

With regard to corporate goals, an MNC is mostly concerned with maximizing ____, and a purely domestic firm is mostly concerned with maximizing ____.
A)shareholder wealth; short-term earnings
B)shareholder wealth; shareholder wealth
C)short-term earnings; sales volume
D)short-term earnings; shareholder wealth

Accepted Answer

Both multinational corporations (MNCs) and purely domestic firms primarily aim to maximize shareholder wealth, reflecting the universal business goal of enhancing the value delivered to owners or shareholders.

Question 8

Which of the following theories identifies the nontransferability of resources as a reason for international business?
A)theory of comparative advantage
B)imperfect markets theory
C)product cycle theory
D)none of the above

Accepted Answer

The imperfect markets theory identifies the nontransferability of resources as a reason for international business. According to this theory, markets are imperfect, and resources may not be able to move freely between different countries due to various barriers such as transportation costs, government regulations, and cultural differences. As a result, firms may seek to invest in foreign markets in order to access valuable resources that are not available in their home markets.

Question 9

If a publicly traded MNC's managers make poor decisions that reduce its value, that may encourage other firms to acquire the MNC.

Accepted Answer

If a publicly traded MNC's managers make poor decisions that reduce its value, other firms may see it as an opportunity to acquire the MNC at a lower cost and turn it around through better management. This is known as a hostile takeover.

Question 10

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

Accepted Answer

A centralized management style allows for better control and coordination of the MNC's operations, reducing the likelihood of agency costs stemming from communication and coordination issues. Scattering subsidiaries can result in greater distances and cultural differences, making coordination and control more difficult. Increasing volume of international business does not necessarily impact agency costs.

Question 11

An MNC may be more exposed to agency problems if most of its shares are held by:
A)a few mutual funds.
B)a widely dispersed set of individual investors.
C)a few pension funds.
D)all of the above would prevent agency problems.

Accepted Answer

When a widely dispersed set of individual investors hold majority shares, it becomes harder for any one group to exercise control over management, thus reducing the risk of agency problems. In contrast, if a few mutual or pension funds hold majority shares, they may have more power to influence and control management, leading to potential conflicts of interest and agency problems.

Question 12

Which of the following theories suggests that firms seek to penetrate new markets over time?
A)theory of comparative advantage
B)imperfect markets theory
C)product cycle theory
D)none of the above

Accepted Answer

The product cycle theory suggests that firms seek to penetrate new markets over time, as a product reaches maturity in its domestic market, leading firms to seek new markets to sell their product. Choice A, the theory of comparative advantage, is a theory about trade between countries, not about firm behavior. Choice B, imperfect markets theory, deals with cases where markets are inefficient, and firms may seek to exploit market inefficiencies. However, this theory does not necessarily suggest that firms seek to penetrate new markets over time.

Question 13

MNCs can improve their internal control process by all of the following, except:
A)establishing a centralized database 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 discrepancies.

Accepted Answer

Ensuring that the MNC always borrows from countries where interest rates are lowest is not related to improving the internal control process. The other options listed, A, B, and D, would all help improve internal control processes.

Question 14

An industry based on which of the following would most likely take advantage of lower costs in some less developed foreign countries?
A)assembly line production
B)specialized professional services
C)nuclear missile programs
D)development of more sophisticated computer technology

Accepted Answer

Assembly line production is often labor-intensive and can benefit from lower labor costs in less developed countries. Specialized professional services, nuclear missile programs, and the development of more sophisticated computer technology may require higher levels of expertise and technology, making it less likely that they would take advantage of lower costs in less developed countries.

Question 15

Franchising is the process by which national governments sell state-owned operations to corporations and other investors.

Accepted Answer

Franchising involves selling the right to use a company's brand and operating system to a local operator, not selling state-owned operations to investors.

Question 16

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

Licensing involves a firm providing its technology to another party in exchange for compensation, which can come in the form of fees or other benefits.

Question 17

Due to the risks involved in international business, firms should:
A)only consider international business in major countries.
B)maintain international business to no more than 20% of total business.
C)maintain international business to no more than 35% of total business.
D)none of the above

Accepted Answer

None of the choices provided are appropriate for all firms in all situations. Making a blanket statement about percentage or country limits for international business is not practical as it depends on the specific industry, company, and market conditions. Instead, firms should carefully assess the risks and opportunities of each international venture and develop strategies to mitigate risks and capitalize on opportunities. This may involve entering into partnerships, conducting extensive research, creating contingency plans, and building a strong international network.

Question 18

Institutional investors such as mutual funds or pension funds that have large holdings of an MNC's stock do not normally want to take control of it and therefore have no influence over management of the MNC.

Accepted Answer

Institutional investors with large holdings of an MNC's stock often have the power to influence management decisions through voting on shareholder proposals and board of director elections. They may also engage in active shareholder activism to push for changes in company policies or governance.

Question 19

The Sarbanes-Oxley Act improved corporate governance of MNCs because it:
A)made executives more accountable for verifying financial statements.
B)eliminated stock options as a form of compensation.
C)tied executive compensation to firm performance.
D)placed a limit on the amount of funds that managers can spend.

Accepted Answer

The Sarbanes-Oxley Act made executives more accountable for verifying financial statements by requiring CEOs and CFOs to certify the accuracy of their firm's financial statements. This increased accountability strengthens corporate governance by ensuring that financial information provided to investors is accurate and reliable.

Question 20

A product cycle is the process by which a firm provides a specialized sales or service strategy, support assistance, and possibly an initial investment in a franchise in exchange for periodic fees.

Accepted Answer

The definition provided in the statement is actually describing franchising, not a product cycle. A product cycle refers to the stages that a product goes through from development to decline in sales.

Quiz 1: Multinational Financial Management: An Overview

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

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

The commonly accepted goal of an MNC is to:

The valuation of an MNC should rise when an event causes the expected cash flows from foreign subsidiaries to and when the foreign currencies denominating these cash flows are expected?to .

For an MNC, agency costs are typically:

The parent of an MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of the MNC.

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

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

If a publicly traded MNC's managers make poor decisions that reduce its value, that may encourage other firms to acquire the MNC.

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

An MNC may be more exposed to agency problems if most of its shares are held by:

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

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

An industry based on which of the following would most likely take advantage of lower costs in some less developed foreign countries?

Franchising is the process by which national governments sell state-owned operations to corporations and other investors.

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.

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

Institutional investors such as mutual funds or pension funds that have large holdings of an MNC's stock do not normally want to take control of it and therefore have no influence over management of the MNC.

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

A product cycle is the process by which a firm provides a specialized sales or service strategy, support assistance, and possibly an initial investment in a franchise in exchange for periodic fees.