TEST BANK
INTERNATIONAL FINANCIAL
MANAGEMENT
,Chapter 1—Multinational Financial Management
1. The Commonly Accepted Goal Of The Mnc Is To:
A. Maximize Short-Term
Earnings.
B. Maximize Shareholder Wealth.
C. Minimize Risk.
D. A And C.
E. Maximize International Sales.
Ans: B Pts: 1
2. 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
Ans: B Pts: 1
3. For The Mnc, Agency Costs Are Typically:
A. Non-Existent.
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.
Ans: B Pts: 1
4. 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.
Ans: D Pts: 1
5. The Valuation Of An Mnc Should Rise When An Event Causes The Expected Cash Flows From Foreign To And
When Foreign Currencies Denominating These Cash Flows Are Expected To .
A. Decrease; Appreciate
B. Increase; Appreciate
C. Decrease; Depreciate
D. Increase; Depreciate
Ans: B Pts: 1
, 6. 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
Ans: A Pts: 1
7. Which Of The Following Theories Identifies The Non-Transferability 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
Ans: B Pts: 1
8. 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
Ans: C Pts: 1
9. Which Of The Following Industries 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 Planning.
D. Planning For More Sophisticated Computer
Technology.
Ans: A Pts: 1
10. 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
Ans: D Pts: 1
11. 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 The Franchise In Exchange For Periodic Fees.
a. True
b. False
Ans: F Pts: 1
,12. 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.
a. True
b. False
Ans: T Pts: 1
13. 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.
Ans: C Pts: 1
14. 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
Ans: B Pts: 1
15. The Sarbanes-Oxley Act Improves Corporate Governance Of Mncs Because It:
A. Makes Executives More Accountable For Verifying Financial
Statements
B. Eliminates Stock Options As A Form Of Compensation
C. Ties Executive Compensation To Firm Performance
D. Places A Limit On The Amount Of Funds That Managers Can Spend
Ans: A Pts: 1
16. Mncs Can Improve Their Internal Control Process By All Of The Following, Except:
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
Ans: C Pts: 1
17. Franchising Is The Process By Which National Governments Sell State Owned Operations To Corporations And Other Investors.
a. True
b. False
Ans: F Pts: 1
18. The Parent Of Mnc Can Implement Compensation Plans That Directly Reward The Subsidiary Managers For Enhancing The
Value Of The Mnc.
a. True
b. False
Ans: T Pts: 1
19. If A Publicly-Traded Mnc's Managers Make Poor Decisions That Reduce Its Value, It May Encourage Other Firms To Acquire
It.
, a. True
b. False
Ans: T Pts: 1
20. 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.
a. True
b. False
Ans: F Pts: 1
21. In Comparing Exporting To Direct Foreign Investment (Dfi), An Exporting Operation Will Likely Incur Fixed
Production Costs And Transportation
Costs Than Dfi.
A. Higher;
Higher
B. Higher; Lower
C. Lower;
Lower
D. Lower; Higher
Ans: D Pts: 1
22. Which Of The Following Is An Example Of Direct Foreign Investment?
A. Exporting To A Country.
B. Establishing Licensing Arrangements In A Country.
C. Purchasing Existing Companies In A Country.
D. Investing Directly (Without Brokers) In Foreign
Stocks.
Ans: C Pts: 1
23. According To The Text, A Disadvantage Of Licensing Is That:
A. It Prevents A Firm From Importing.
B. It Is Difficult To Ensure Quality Control Of The Production
Process.
C. It Prevents A Firm From Exporting.
D. None Of The Above
Ans: B Pts: 1
24. Are Most Commonly Classified As A Direct Foreign Investment.
A. Foreign Acquisitions
B. Purchases Of International
Stocks
C. Licensing Agreements
D. Exporting Transactions
Ans: A Pts: 1
25. Imperfect Markets Represent Conditions Under Which Factors Of Production Are Immobile.
a. True
b. False
Ans: T Pts: 1
26. The Sarbanes-Oxley Act (Sox) Was Enacted In 2002 Required Mncs And Other Firms To Implement An Internal
Reporting Process That Could Be Easily Monitored By Executives And The Board Of Directors.
a. True
, b. False
Ans: T Pts: 1
27. If Markets Were Perfect, Then Labor And Other Costs Of Production Would Be Perfectly Stable (No Movement Across
Borders).
a. True
b. False
Ans: F Pts: 1
28. The Valuation Of An Mnc Is Reduced If The Required Return On Its Investments In Foreign Countries Is Reduced.
a. True
b. False
Ans: F Pts: 1
29. Which Of The Following Is Not Mentioned In The Text As An Additional Risk Resulting From International Business?
A. Exchange Rate Fluctuations.
B. Political Risk.
C. Interest Rate Risk.
D. Exposure To Foreign
Economies.
Ans: C Pts: 1
30. Licensing Obligates A Firm To Provide , While Franchising Obligates A Firm To Provide .
A. A Specialized Sales Or Service Strategy; Its Technology
B. Its Technology; A Specialized Sales Or Service Strategy
C. Its Technology; Its Technology
D. A Specialized Sales Or Service Strategy; A Specialized Sales Or Service
Strategy
E. Its Technology; An Initial Investment
Ans: B Pts: 1
31. Which Of The Following Is Not A Way In Which Agency Problems Can Be Reduced Through Corporate Control?
A. Executive Compensation.
B. Threat Of Hostile Takeover.
C. Acquisition Of A Foreign
Subsidiary.
D. Monitoring By Large Shareholders.
Ans: C Pts: 1
32. The Goal Of A Multinational Corporation (Mnc) Is The Maximization Of Shareholder Wealth.
a. True
b. False
Ans: T Pts: 1
33. A Centralized Management Style, Where Major Decisions About A Foreign Subsidiary Are Made By The Parent
Company, Results In An Increase In Agency Costs.
a. True
b. False
Ans: F Pts: 1
,34. 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.
a. true
b. false
ans: f pts: 1
35. although mncs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are
stable over time.
a. true
b. false
ans: f pts: 1
36. one of the most prevalent factors conflicting with the realization of the goal of an mnc is the existence of agency problems.
a. true
b. false
ans: t pts: 1
37. a centralized management style for an mnc results in relatively high agency costs.
a. true
b. false
ans: f pts: 1
38. the imperfect markets theory states that factors of production are somewhat immobile, allowing firms to capitalize on a
foreign country's resources.
a. true
b. false
ans: t pts: 1
39. 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.
a. true
b. false
ans: t pts: 1
40. the acquisition of a foreign subsidiary is commonly considered by mncs because the cost is less expensive than
establishing a new subsidiary of the same size.
a. true
b. false
ans: f pts: 1
41. 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.
a. true
b. false
ans: f pts: 1
,42. if markets were perfect, then labor and other costs of production would be easily transferable.
a. true
b. false
ans: t pts: 1
43. international trade:
a. is a relatively conservative approach to foreign market penetration.
b. entails minimal risk.
c. does not require large amount of investment.
d. all of the above.
ans: d pts: 1
44. assume that an american firm wants to engage in international business without major investment in the foreign country.
which method is least appropriate in this situation?
a. international trade
b. licensing
c. franchising
d. direct foreign investment
ans: d pts: 1
45. the valuation of mnc accounts for all the cash flows received by the foreign subsidiaries plus all the cash flows remitted by
the subsidiaries.
a. true
b. false
ans: f pts: 1
46. the mnc's value depends on all of the following, except:
a. mnc's required rate of return
b. amount of mnc's cash flows in particular currency
c. the exchange rate at which cash flows are converted to dollars
d. the value of mnc depends on all of the above factors
ans: d pts: 1
47. which of the following is not an example of political risk?
a. government may impose taxes on subsidiary
b. government may impose barriers on subsidiary
c. consumers may boycott the mnc
d. consumers' income levels will decrease, thus decreasing consumption.
ans: d pts: 1
48. a microeconomic perspective focuses on external forces such as economic conditions that can affect the value of an mnc.
a. true
b. false
ans: f pts: 1
49. 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.
, a. true
b. false
ans: f pts: 1
50. international trade generally results in exposure to international political risk and exposure to international
economic conditions, when compared to other methods of international business.
a. higher; lower
b. higher; higher
c. lower; higher
d. lower; lower
ans: d pts: 1
51. assume that boca co. wants to expand its business to japan, and wants complete control over the operations in japan. which
method of international business is most appropriate for boca co?
a. joint venture
b. licensing
c. partial acquisition of existing japanese firm
d. establishment of japanese subsidiary
ans: b pts: 1
52. a decentralized management style of mnc results in relatively high agency costs.
a. true
b. false
ans: t pts: 1
53. the establishment of a new subsidiary is commonly considered by mncs because the cost is less expensive than acquiring a
foreign subsidiary of the same size.
a. true
b. false
ans: t pts: 1
54. assume that live co. has expected cash flows of $200,000 from domestic operations, sf200,000 from swiss operations, and
150,000 euros from italian operations at the end of the year. the swiss franc's value and euro's value are expected to be $.83
and $1.29 respectively, at the end this year. what are the expected dollar cash flows of live co?
a. $200,000
b. $559,500
c. $582,500
d. $393,500
ans: b pts: 1
55. saller co. has a subsidiary in mexico. the expected cash flows in pesos to be received in the future from this subsidiary have
not changed since last month, but the valuation of saller co. has declined since last month. what could've caused this decline
in value?
a. a weaker mexican economy
b. lower mexican interest rates
c. depreciation of the mexican peso
d. appreciation of the mexican peso.
, ans: c pts: 1
56. 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 it establishes
the new subsidiary and when the subsidiary starts operations.
a. depreciates; appreciates
b. appreciates; appreciates
c. appreciates; depreciates
d. depreciates; depreciates
ans: a pts: 1
57. a macroeconomic perspective focuses on the financial management decisions that affect the value of mnc.
a. true
b. false
ans: f pts: 1
58. an mnc will always use the same required rate of return in the valuation of foreign projects, as it would for its domestic
projects.
a. true
b. false
ans: f pts: 1
59. livingston co. has a subsidiary in korea. the subsidiary reinvests half of its net cash flows into operations and remits half to
the parent. livingston's expected cash flows from domestic business are $100,000 and the korean subsidiary is expected to
generate 100 million korean won at the end of the year. the expected value of won is $.0012. what are the expected dollar
cash flows of livingston co.?
a. $100,000
b. $200,000
c. $160,000
d. $60,000
ans: c pts: 1
60. 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.
a. true
b. false
ans: f pts: 1
61. if managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they
automatically maximize the value of the entire corporation.
a. true
b. false
ans: f pts: 1
62. a decentralized management style, where subsidiary managers make the relevant decisions regarding their subsidiary, may
result in better decision making, as subsidiary managers are generally better informed about their subsidiary's operations.
a. true
b. false
INTERNATIONAL FINANCIAL
MANAGEMENT
,Chapter 1—Multinational Financial Management
1. The Commonly Accepted Goal Of The Mnc Is To:
A. Maximize Short-Term
Earnings.
B. Maximize Shareholder Wealth.
C. Minimize Risk.
D. A And C.
E. Maximize International Sales.
Ans: B Pts: 1
2. 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
Ans: B Pts: 1
3. For The Mnc, Agency Costs Are Typically:
A. Non-Existent.
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.
Ans: B Pts: 1
4. 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.
Ans: D Pts: 1
5. The Valuation Of An Mnc Should Rise When An Event Causes The Expected Cash Flows From Foreign To And
When Foreign Currencies Denominating These Cash Flows Are Expected To .
A. Decrease; Appreciate
B. Increase; Appreciate
C. Decrease; Depreciate
D. Increase; Depreciate
Ans: B Pts: 1
, 6. 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
Ans: A Pts: 1
7. Which Of The Following Theories Identifies The Non-Transferability 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
Ans: B Pts: 1
8. 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
Ans: C Pts: 1
9. Which Of The Following Industries 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 Planning.
D. Planning For More Sophisticated Computer
Technology.
Ans: A Pts: 1
10. 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
Ans: D Pts: 1
11. 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 The Franchise In Exchange For Periodic Fees.
a. True
b. False
Ans: F Pts: 1
,12. 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.
a. True
b. False
Ans: T Pts: 1
13. 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.
Ans: C Pts: 1
14. 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
Ans: B Pts: 1
15. The Sarbanes-Oxley Act Improves Corporate Governance Of Mncs Because It:
A. Makes Executives More Accountable For Verifying Financial
Statements
B. Eliminates Stock Options As A Form Of Compensation
C. Ties Executive Compensation To Firm Performance
D. Places A Limit On The Amount Of Funds That Managers Can Spend
Ans: A Pts: 1
16. Mncs Can Improve Their Internal Control Process By All Of The Following, Except:
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
Ans: C Pts: 1
17. Franchising Is The Process By Which National Governments Sell State Owned Operations To Corporations And Other Investors.
a. True
b. False
Ans: F Pts: 1
18. The Parent Of Mnc Can Implement Compensation Plans That Directly Reward The Subsidiary Managers For Enhancing The
Value Of The Mnc.
a. True
b. False
Ans: T Pts: 1
19. If A Publicly-Traded Mnc's Managers Make Poor Decisions That Reduce Its Value, It May Encourage Other Firms To Acquire
It.
, a. True
b. False
Ans: T Pts: 1
20. 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.
a. True
b. False
Ans: F Pts: 1
21. In Comparing Exporting To Direct Foreign Investment (Dfi), An Exporting Operation Will Likely Incur Fixed
Production Costs And Transportation
Costs Than Dfi.
A. Higher;
Higher
B. Higher; Lower
C. Lower;
Lower
D. Lower; Higher
Ans: D Pts: 1
22. Which Of The Following Is An Example Of Direct Foreign Investment?
A. Exporting To A Country.
B. Establishing Licensing Arrangements In A Country.
C. Purchasing Existing Companies In A Country.
D. Investing Directly (Without Brokers) In Foreign
Stocks.
Ans: C Pts: 1
23. According To The Text, A Disadvantage Of Licensing Is That:
A. It Prevents A Firm From Importing.
B. It Is Difficult To Ensure Quality Control Of The Production
Process.
C. It Prevents A Firm From Exporting.
D. None Of The Above
Ans: B Pts: 1
24. Are Most Commonly Classified As A Direct Foreign Investment.
A. Foreign Acquisitions
B. Purchases Of International
Stocks
C. Licensing Agreements
D. Exporting Transactions
Ans: A Pts: 1
25. Imperfect Markets Represent Conditions Under Which Factors Of Production Are Immobile.
a. True
b. False
Ans: T Pts: 1
26. The Sarbanes-Oxley Act (Sox) Was Enacted In 2002 Required Mncs And Other Firms To Implement An Internal
Reporting Process That Could Be Easily Monitored By Executives And The Board Of Directors.
a. True
, b. False
Ans: T Pts: 1
27. If Markets Were Perfect, Then Labor And Other Costs Of Production Would Be Perfectly Stable (No Movement Across
Borders).
a. True
b. False
Ans: F Pts: 1
28. The Valuation Of An Mnc Is Reduced If The Required Return On Its Investments In Foreign Countries Is Reduced.
a. True
b. False
Ans: F Pts: 1
29. Which Of The Following Is Not Mentioned In The Text As An Additional Risk Resulting From International Business?
A. Exchange Rate Fluctuations.
B. Political Risk.
C. Interest Rate Risk.
D. Exposure To Foreign
Economies.
Ans: C Pts: 1
30. Licensing Obligates A Firm To Provide , While Franchising Obligates A Firm To Provide .
A. A Specialized Sales Or Service Strategy; Its Technology
B. Its Technology; A Specialized Sales Or Service Strategy
C. Its Technology; Its Technology
D. A Specialized Sales Or Service Strategy; A Specialized Sales Or Service
Strategy
E. Its Technology; An Initial Investment
Ans: B Pts: 1
31. Which Of The Following Is Not A Way In Which Agency Problems Can Be Reduced Through Corporate Control?
A. Executive Compensation.
B. Threat Of Hostile Takeover.
C. Acquisition Of A Foreign
Subsidiary.
D. Monitoring By Large Shareholders.
Ans: C Pts: 1
32. The Goal Of A Multinational Corporation (Mnc) Is The Maximization Of Shareholder Wealth.
a. True
b. False
Ans: T Pts: 1
33. A Centralized Management Style, Where Major Decisions About A Foreign Subsidiary Are Made By The Parent
Company, Results In An Increase In Agency Costs.
a. True
b. False
Ans: F Pts: 1
,34. 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.
a. true
b. false
ans: f pts: 1
35. although mncs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are
stable over time.
a. true
b. false
ans: f pts: 1
36. one of the most prevalent factors conflicting with the realization of the goal of an mnc is the existence of agency problems.
a. true
b. false
ans: t pts: 1
37. a centralized management style for an mnc results in relatively high agency costs.
a. true
b. false
ans: f pts: 1
38. the imperfect markets theory states that factors of production are somewhat immobile, allowing firms to capitalize on a
foreign country's resources.
a. true
b. false
ans: t pts: 1
39. 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.
a. true
b. false
ans: t pts: 1
40. the acquisition of a foreign subsidiary is commonly considered by mncs because the cost is less expensive than
establishing a new subsidiary of the same size.
a. true
b. false
ans: f pts: 1
41. 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.
a. true
b. false
ans: f pts: 1
,42. if markets were perfect, then labor and other costs of production would be easily transferable.
a. true
b. false
ans: t pts: 1
43. international trade:
a. is a relatively conservative approach to foreign market penetration.
b. entails minimal risk.
c. does not require large amount of investment.
d. all of the above.
ans: d pts: 1
44. assume that an american firm wants to engage in international business without major investment in the foreign country.
which method is least appropriate in this situation?
a. international trade
b. licensing
c. franchising
d. direct foreign investment
ans: d pts: 1
45. the valuation of mnc accounts for all the cash flows received by the foreign subsidiaries plus all the cash flows remitted by
the subsidiaries.
a. true
b. false
ans: f pts: 1
46. the mnc's value depends on all of the following, except:
a. mnc's required rate of return
b. amount of mnc's cash flows in particular currency
c. the exchange rate at which cash flows are converted to dollars
d. the value of mnc depends on all of the above factors
ans: d pts: 1
47. which of the following is not an example of political risk?
a. government may impose taxes on subsidiary
b. government may impose barriers on subsidiary
c. consumers may boycott the mnc
d. consumers' income levels will decrease, thus decreasing consumption.
ans: d pts: 1
48. a microeconomic perspective focuses on external forces such as economic conditions that can affect the value of an mnc.
a. true
b. false
ans: f pts: 1
49. 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.
, a. true
b. false
ans: f pts: 1
50. international trade generally results in exposure to international political risk and exposure to international
economic conditions, when compared to other methods of international business.
a. higher; lower
b. higher; higher
c. lower; higher
d. lower; lower
ans: d pts: 1
51. assume that boca co. wants to expand its business to japan, and wants complete control over the operations in japan. which
method of international business is most appropriate for boca co?
a. joint venture
b. licensing
c. partial acquisition of existing japanese firm
d. establishment of japanese subsidiary
ans: b pts: 1
52. a decentralized management style of mnc results in relatively high agency costs.
a. true
b. false
ans: t pts: 1
53. the establishment of a new subsidiary is commonly considered by mncs because the cost is less expensive than acquiring a
foreign subsidiary of the same size.
a. true
b. false
ans: t pts: 1
54. assume that live co. has expected cash flows of $200,000 from domestic operations, sf200,000 from swiss operations, and
150,000 euros from italian operations at the end of the year. the swiss franc's value and euro's value are expected to be $.83
and $1.29 respectively, at the end this year. what are the expected dollar cash flows of live co?
a. $200,000
b. $559,500
c. $582,500
d. $393,500
ans: b pts: 1
55. saller co. has a subsidiary in mexico. the expected cash flows in pesos to be received in the future from this subsidiary have
not changed since last month, but the valuation of saller co. has declined since last month. what could've caused this decline
in value?
a. a weaker mexican economy
b. lower mexican interest rates
c. depreciation of the mexican peso
d. appreciation of the mexican peso.
, ans: c pts: 1
56. 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 it establishes
the new subsidiary and when the subsidiary starts operations.
a. depreciates; appreciates
b. appreciates; appreciates
c. appreciates; depreciates
d. depreciates; depreciates
ans: a pts: 1
57. a macroeconomic perspective focuses on the financial management decisions that affect the value of mnc.
a. true
b. false
ans: f pts: 1
58. an mnc will always use the same required rate of return in the valuation of foreign projects, as it would for its domestic
projects.
a. true
b. false
ans: f pts: 1
59. livingston co. has a subsidiary in korea. the subsidiary reinvests half of its net cash flows into operations and remits half to
the parent. livingston's expected cash flows from domestic business are $100,000 and the korean subsidiary is expected to
generate 100 million korean won at the end of the year. the expected value of won is $.0012. what are the expected dollar
cash flows of livingston co.?
a. $100,000
b. $200,000
c. $160,000
d. $60,000
ans: c pts: 1
60. 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.
a. true
b. false
ans: f pts: 1
61. if managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they
automatically maximize the value of the entire corporation.
a. true
b. false
ans: f pts: 1
62. a decentralized management style, where subsidiary managers make the relevant decisions regarding their subsidiary, may
result in better decision making, as subsidiary managers are generally better informed about their subsidiary's operations.
a. true
b. false
