Test Bank for International Financial Management, 11th
d d d d d d
Edition by Jeff Madura
d d d d
,Chapter 1—Multinational Financial Management
d d d
1. The commonly accepted goal of the MNC is to:
d d d d d d d d
a. maximize short-term earnings. d d
b. maximize shareholder wealth. d d
c. minimize risk. d
d. A and C. d d
e. maximize international sales. d d
ANS: B d PTS: d d 1
2. With regard to corporate goals, an MNC is mostly concerned with maximizing
d d d d d d d d d d d d , and a purely domestic firm is mostly
d d d d d d d
concerned with maximizing
d . d d d
a. shareholder wealth; short-term earnings d d d
b. shareholder wealth; shareholder wealth d d d
c. short-term earnings; sales volume d d d
d. short-term earnings; shareholder wealth d d d
ANS: B d PTS: d d 1
3. For the MNC, agency costs are typically:
d d d d d d
a. non-existent.
b. larger than agency costs of a small purely domestic firm.
d d d d d d d d d
c. smaller than agency costs of a small purely domestic firm.
d d d d d d d d d
d. the same as agency costs of a small purely domestic firm.
d d d d d d d d d d
ANS: B d PTS: d d 1
4. Which of the following could reduce agency problems for an MNC?
d d d d d d d d d d
a. stock options as managerial compensation.
d d d d
b. hostile takeover threat. d d
c. investor monitoring. d
d. all of the above are forms of corporate control that could reduce agency problems for an
d d d d d d d d d d d d d d d
MNC.
ANS: D d PTS: d d 1
5. The valuation of an MNC should rise when an event causes the expected cash flows from foreign to
d d d d d d d d d d d d d d d d d d and when foreign
d d
currencies denominating these cash flows are expected to
d d . d d d d d d d
a. decrease; appreciate d
b. increase; appreciate d
c. decrease; depreciate d
d. increase; depreciate d
ANS: B d PTS: d d 1
, 6. Which of the following theories identifies specialization as a reason for international business?
d d d d d d d d d d d d
a. theory of comparative advantage.
d d d
b. imperfect markets theory. d d
c. product cycle theory. d d
d. none of the above d d d
ANS: A d PTS: d d 1
7. Which of the following theories identifies the non-transferability of resources as a reason for international business?
d d d d d d d d d d d d d d d
a. theory of comparative advantage.
d d d
b. imperfect markets theory. d d
c. product cycle theory. d d
d. none of the above d d d
ANS: B d PTS: d d 1
8. Which of the following theories suggests that firms seek to penetrate new markets over time?
d d d d d d d d d d d d d d
a. theory of comparative advantage.
d d d
b. imperfect markets theory. d d
c. product cycle theory. d d
d. none of the above d d d
ANS: C d PTS: d d 1
9. Which of the following industries would most likely take advantage of lower costs in some less developed foreign countries?
d d d d d d d d d d d d d d d d d d
a. assembly line production. d d
b. specialized professional services. d d
c. nuclear missile planning. d d
d. planning for more sophisticated computer technology.
d d d d d
ANS: A d PTS: d d 1
10. Due to the risks involved in international business, firms should:
d d d d d d d d d
a. only consider international business in major countries.
d d d d d d
b. maintain international business to no more than 20% of total business.
d d d d d d d d d d
c. maintain international business to no more than 35% of total business.
d d d d d d d d d d
d. none of the above d d d
ANS: D d PTS: d d 1
11. A product cycle is the process by which a firm provides a specialized sales or service strategy, support assistance, and
d d d d d d d d d d d d d d d d d d d
possibly an initial investment in the franchise in exchange for periodic fees.
d d d d d d d d d d d d
a. True
b. False
ANS: F d PTS: d d 1
, 12. Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks, or trade names) in
d d d d d d d d d d d d d d d d d
exchange for fees or some other specified benefits.
d d d d d d d d
a. True
b. False
ANS: T d PTS: d d 1
13. The agency costs of an MNC are likely to be lower if it:
d d d d d d d d d d d d
a. scatters its subsidiaries across many foreign countries. d d d d d d
b. increases its volume of international business. d d d d d
c. uses a centralized management style. d d d d
d. A and B. d d
ANS: C d PTS: d d 1
14. An MNC may be more exposed to agency problems if most of its shares are held by:
d d d d d d d d d d d d d d d d
a. a few mutual funds d d d
b. a widely dispersed set of individual investors
d d d d d d
c. a few pension funds d d d
d. all of the above would prevent agency problems d d d d d d d
ANS: B d PTS: d d 1
15. The Sarbanes-Oxley Act improves corporate governance of MNCs because it:
d d d d d d d d d
a. makes executives more accountable for verifying financial statements d d d d d d d
b. eliminates stock options as a form of compensation d d d d d d d
c. ties executive compensation to firm performance d d d d d
d. places a limit on the amount of funds that managers can spend d d d d d d d d d d d
ANS: A d PTS: d d 1
16. MNCs can improve their internal control process by all of the following, except:
d d d d d d d d d d d d
a. establishing a centralized data base of information d d d d d d
b. ensuring that all data are reported consistently among subsidiaries d d d d d d d d
c. ensuring that the MNC always borrows from countries where interest rates are lowest d d d d d d d d d d d d
d. using a system that checks internal data for unusual discrepancies d d d d d d d d d
ANS: C d PTS: d d 1
17. Franchising is the process by which national governments sell state owned operations to corporations and other investors.
d d d d d d d d d d d d d d d d
a. True
b. False
ANS: F d PTS: d d 1
18. The parent of MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of
d d d d d d d d d d d d d d d d d d
the MNC. d d
a. True
b. False
ANS: T d PTS: d d 1
19. If a publicly-traded MNC's managers make poor decisions that reduce its value, it may encourage other firms to acquire it.
d d d d d d d d d d d d d d d d d d d
d d d d d d
Edition by Jeff Madura
d d d d
,Chapter 1—Multinational Financial Management
d d d
1. The commonly accepted goal of the MNC is to:
d d d d d d d d
a. maximize short-term earnings. d d
b. maximize shareholder wealth. d d
c. minimize risk. d
d. A and C. d d
e. maximize international sales. d d
ANS: B d PTS: d d 1
2. With regard to corporate goals, an MNC is mostly concerned with maximizing
d d d d d d d d d d d d , and a purely domestic firm is mostly
d d d d d d d
concerned with maximizing
d . d d d
a. shareholder wealth; short-term earnings d d d
b. shareholder wealth; shareholder wealth d d d
c. short-term earnings; sales volume d d d
d. short-term earnings; shareholder wealth d d d
ANS: B d PTS: d d 1
3. For the MNC, agency costs are typically:
d d d d d d
a. non-existent.
b. larger than agency costs of a small purely domestic firm.
d d d d d d d d d
c. smaller than agency costs of a small purely domestic firm.
d d d d d d d d d
d. the same as agency costs of a small purely domestic firm.
d d d d d d d d d d
ANS: B d PTS: d d 1
4. Which of the following could reduce agency problems for an MNC?
d d d d d d d d d d
a. stock options as managerial compensation.
d d d d
b. hostile takeover threat. d d
c. investor monitoring. d
d. all of the above are forms of corporate control that could reduce agency problems for an
d d d d d d d d d d d d d d d
MNC.
ANS: D d PTS: d d 1
5. The valuation of an MNC should rise when an event causes the expected cash flows from foreign to
d d d d d d d d d d d d d d d d d d and when foreign
d d
currencies denominating these cash flows are expected to
d d . d d d d d d d
a. decrease; appreciate d
b. increase; appreciate d
c. decrease; depreciate d
d. increase; depreciate d
ANS: B d PTS: d d 1
, 6. Which of the following theories identifies specialization as a reason for international business?
d d d d d d d d d d d d
a. theory of comparative advantage.
d d d
b. imperfect markets theory. d d
c. product cycle theory. d d
d. none of the above d d d
ANS: A d PTS: d d 1
7. Which of the following theories identifies the non-transferability of resources as a reason for international business?
d d d d d d d d d d d d d d d
a. theory of comparative advantage.
d d d
b. imperfect markets theory. d d
c. product cycle theory. d d
d. none of the above d d d
ANS: B d PTS: d d 1
8. Which of the following theories suggests that firms seek to penetrate new markets over time?
d d d d d d d d d d d d d d
a. theory of comparative advantage.
d d d
b. imperfect markets theory. d d
c. product cycle theory. d d
d. none of the above d d d
ANS: C d PTS: d d 1
9. Which of the following industries would most likely take advantage of lower costs in some less developed foreign countries?
d d d d d d d d d d d d d d d d d d
a. assembly line production. d d
b. specialized professional services. d d
c. nuclear missile planning. d d
d. planning for more sophisticated computer technology.
d d d d d
ANS: A d PTS: d d 1
10. Due to the risks involved in international business, firms should:
d d d d d d d d d
a. only consider international business in major countries.
d d d d d d
b. maintain international business to no more than 20% of total business.
d d d d d d d d d d
c. maintain international business to no more than 35% of total business.
d d d d d d d d d d
d. none of the above d d d
ANS: D d PTS: d d 1
11. A product cycle is the process by which a firm provides a specialized sales or service strategy, support assistance, and
d d d d d d d d d d d d d d d d d d d
possibly an initial investment in the franchise in exchange for periodic fees.
d d d d d d d d d d d d
a. True
b. False
ANS: F d PTS: d d 1
, 12. Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks, or trade names) in
d d d d d d d d d d d d d d d d d
exchange for fees or some other specified benefits.
d d d d d d d d
a. True
b. False
ANS: T d PTS: d d 1
13. The agency costs of an MNC are likely to be lower if it:
d d d d d d d d d d d d
a. scatters its subsidiaries across many foreign countries. d d d d d d
b. increases its volume of international business. d d d d d
c. uses a centralized management style. d d d d
d. A and B. d d
ANS: C d PTS: d d 1
14. An MNC may be more exposed to agency problems if most of its shares are held by:
d d d d d d d d d d d d d d d d
a. a few mutual funds d d d
b. a widely dispersed set of individual investors
d d d d d d
c. a few pension funds d d d
d. all of the above would prevent agency problems d d d d d d d
ANS: B d PTS: d d 1
15. The Sarbanes-Oxley Act improves corporate governance of MNCs because it:
d d d d d d d d d
a. makes executives more accountable for verifying financial statements d d d d d d d
b. eliminates stock options as a form of compensation d d d d d d d
c. ties executive compensation to firm performance d d d d d
d. places a limit on the amount of funds that managers can spend d d d d d d d d d d d
ANS: A d PTS: d d 1
16. MNCs can improve their internal control process by all of the following, except:
d d d d d d d d d d d d
a. establishing a centralized data base of information d d d d d d
b. ensuring that all data are reported consistently among subsidiaries d d d d d d d d
c. ensuring that the MNC always borrows from countries where interest rates are lowest d d d d d d d d d d d d
d. using a system that checks internal data for unusual discrepancies d d d d d d d d d
ANS: C d PTS: d d 1
17. Franchising is the process by which national governments sell state owned operations to corporations and other investors.
d d d d d d d d d d d d d d d d
a. True
b. False
ANS: F d PTS: d d 1
18. The parent of MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of
d d d d d d d d d d d d d d d d d d
the MNC. d d
a. True
b. False
ANS: T d PTS: d d 1
19. If a publicly-traded MNC's managers make poor decisions that reduce its value, it may encourage other firms to acquire it.
d d d d d d d d d d d d d d d d d d d
