Exam 1: Multinational Financial Management: An Overview

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

Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are stable over time.

Jensen Co. wants to establish a new subsidiary in Mexico that will sell computers to Mexican customers and remit earnings back to the U.S. parent. The value of this project will be favorably affected if the value of the peso ____ while Jensen establishes the new subsidiary and ____ when the subsidiary starts operations.

Which of the following does not constitute a form of direct foreign investment?​

A U.S.-based MNC has many foreign subsidiaries in Europe and does not expect to increase its investment there. Its value should increase if the value of the euro weakens over time.

If a U.S.-based MNC focused entirely on importing, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time.

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:

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

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

A decentralized management style results in relatively high agency costs for an MNC.

If managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they automatically maximize the value of the entire corporation.

The valuation of an MNC is reduced if the required rate of return on its investments in foreign countries is reduced.

A macroeconomic perspective focuses on the financial management decisions that affect the value of an MNC.

The goal of a multinational corporation (MNC) is the maximization of shareholder wealth.

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

The imperfect markets theory states that factors of production are somewhat immobile, allowing firms to capitalize on a foreign country's resources.

International trade is the most common form of direct foreign investment (DFI).

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

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