Exam 1: Multinational Financial Management: An Overview

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

Licensing obligates a firm to provide ____, while franchising obligates a firm to provide ____.

Which of the following is an example of direct foreign investment?

The most risky method(s) by which firms conduct international business is (are):

If a U.S. firm sets up a plant in Mexico to benefit from low cost labor, it will likely have a comparative advantage over other firms in Mexico that sell the same product.

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

A purely domestic firm may be affected by exchange rate fluctuations if it faces at least some foreign competition.

One form of an exposure to political risk is terrorism.

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

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

When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a smaller amount of the home currency.

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

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.

The commonly accepted goal of the MNC is to:

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

Assume that an MNC has a subsidiary in Italy, which exports its products to various countries in Europe. Since all of the countries where it exports use Euro as their currency, this MNC is not subject to the exchange rate risk.

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

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

One of the most prevalent factors conflicting with the realization of the goal of an MNC is the existence of agency problems.

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