Question 1

In comparing exporting to direct foreign investment (DFI), an exporting operation will likely incur ____ fixed production costs and ____ transportation costs than DFI.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; lower 
D)  lower; higher

Question 2

A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs.

Accepted Answer

A) True 
 B)False

Question 3

The Sarbanes-Oxley Act ensures a more transparent process for managers to report on the productivity and financial condition of their firm.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  Franchising. 
B)  The acquisitions of existing operations. 
C)  International Trade. 
D)  The establishment of new subsidiaries. 
E)  Licensing

Question 5

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

Accepted Answer

A)  Franchising 
B)  International trade 
C)  Joint ventures 
D)  Acquisitions of existing operations 
E)  Establishment of new foreign subsidiaries

Question 6

If markets were perfect, then labor and other costs of production would be perfectly stable (no movement across borders).

Accepted Answer

A) True 
 B)False

Question 7

Under the Imperfect Markets Theory, it is assumed that factors of production are entirely mobile, so that firms can capitalize on a foreign country's resources.

Accepted Answer

A) True 
 B)False

Question 8

U.S.-based MNCs are typically not monitored by mutual funds and pension funds, as these institutions rarely hold stock in MNCs.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

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

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following theories identifies the non-transferability of resources as a reason for international business?

Accepted Answer

A)  theory of comparative advantage. 
B)  imperfect markets theory. 
C)  product cycle theory. 
D)  none of the above

Question 12

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

Accepted Answer

A)  theory of comparative advantage. 
B)  imperfect markets theory. 
C)  product cycle theory. 
D)  none of the above

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

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.

Question 15

Institutional investors such as mutual funds or pension funds which 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

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Under the Product Cycle Theory, foreign demand can be initially satisfied by exporting.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  establishing a centralized data base 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

Question 19

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

Accepted Answer

A)  Franchising. 
B)  The acquisitions of existing operations. 
C)  The establishment of new subsidiaries. 
D)  All of the above 
E)  B and C only

Exam 1: Multinational Financial Management: an Overview

In comparing exporting to direct foreign investment (DFI) , an exporting operation will likely incur fixed production costs and transportation costs than DFI.

A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs.

The Sarbanes-Oxley Act ensures a more transparent process for managers to report on the productivity and financial condition of their firm.

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

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

If markets were perfect, then labor and other costs of production would be perfectly stable (no movement across borders).

Under the Imperfect Markets Theory, it is assumed that factors of production are entirely mobile, so that firms can capitalize on a foreign country's resources.

U.S.-based MNCs are typically not monitored by mutual funds and pension funds, as these institutions rarely hold stock in MNCs.

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

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

Which of the following theories identifies the non-transferability of resources as a reason for international business?

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

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.

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

Institutional investors such as mutual funds or pension funds which 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.

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

Under the Product Cycle Theory, foreign demand can be initially satisfied by exporting.

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

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

Exam 1: Multinational Financial Management: an Overview

In comparing exporting to direct foreign investment (DFI) , an exporting operation will likely incur ____ fixed production costs and ____ transportation costs than DFI.

A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs.

The Sarbanes-Oxley Act ensures a more transparent process for managers to report on the productivity and financial condition of their firm.

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

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

If markets were perfect, then labor and other costs of production would be perfectly stable (no movement across borders).

Under the Imperfect Markets Theory, it is assumed that factors of production are entirely mobile, so that firms can capitalize on a foreign country's resources.

U.S.-based MNCs are typically not monitored by mutual funds and pension funds, as these institutions rarely hold stock in MNCs.

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

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

Which of the following theories identifies the non-transferability of resources as a reason for international business?

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

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.

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

Institutional investors such as mutual funds or pension funds which 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.

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

Under the Product Cycle Theory, foreign demand can be initially satisfied by exporting.

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

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

In comparing exporting to direct foreign investment (DFI) , an exporting operation will likely incur fixed production costs and transportation costs than DFI.