International Financial Management, 13th Edition by Jeff Madura. All Chapters|
Latest Edition.
Chapter 1: Multinational Financial Management: An Overview
1. The commonly accepted goal of an MNC is to:
a) maximize short-term earnings.
b) maximize shareholder wealth.
c) minimize risk.
d) A and C.
e) maximize international sales.
Answer: b
Rationale: The primary goal of a multinational corporation (MNC) is generally
accepted to be the maximization of shareholder wealth, which is reflected in the
firm's stock price. This long-term focus supersedes short-term earnings or purely
minimizing risk .
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
Answer: b
Rationale: Both MNCs and purely domestic firms ultimately aim to maximize
shareholder wealth. The difference is not in the ultimate goal but in the
complexity and risks involved in achieving it, such as exchange rate volatility and
political risk .
3. For an 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.
Answer: b
Rationale: Agency costs (conflicts between managers and shareholders) tend to
be higher for MNCs due to the difficulty of monitoring distant foreign subsidiaries,
different cultures, and the sheer size and complexity of operations .
,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.
Answer: d
Rationale: Aligning manager interests with shareholders (e.g., stock options), the
threat of removal via takeover, and active monitoring by large institutional
investors are all corporate governance mechanisms that help reduce agency
problems .
5. The valuation of an MNC should rise when an event causes the expected cash
flows from foreign subsidiaries to ____ and when foreign currencies
denominating these cash flows are expected to ____.
a) decrease; appreciate
b) increase; appreciate
c) decrease; depreciate
d) increase; depreciate
, Answer: b
Rationale: An MNC's value increases when its expected future cash flows increase
or when the foreign currencies it holds appreciate against its home currency,
increasing the home-currency value of those cash flows .
Chapter 2: International Flow of Funds
6. A U.S. import of Japanese cars represents a:
a) credit to the U.S. current account.
b) debit to the U.S. current account.
c) credit to the U.S. financial account.
d) debit to the U.S. financial account.
Answer: b
Rationale: An import represents a flow of goods into the country, meaning money
flows out to pay for it. Therefore, it is recorded as a debit (negative entry) in the
current account of the balance of payments.
7. The current account balance equals:
a) Exports - Imports + Net Income from Abroad + Net Transfers.
Latest Edition.
Chapter 1: Multinational Financial Management: An Overview
1. The commonly accepted goal of an MNC is to:
a) maximize short-term earnings.
b) maximize shareholder wealth.
c) minimize risk.
d) A and C.
e) maximize international sales.
Answer: b
Rationale: The primary goal of a multinational corporation (MNC) is generally
accepted to be the maximization of shareholder wealth, which is reflected in the
firm's stock price. This long-term focus supersedes short-term earnings or purely
minimizing risk .
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
Answer: b
Rationale: Both MNCs and purely domestic firms ultimately aim to maximize
shareholder wealth. The difference is not in the ultimate goal but in the
complexity and risks involved in achieving it, such as exchange rate volatility and
political risk .
3. For an 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.
Answer: b
Rationale: Agency costs (conflicts between managers and shareholders) tend to
be higher for MNCs due to the difficulty of monitoring distant foreign subsidiaries,
different cultures, and the sheer size and complexity of operations .
,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.
Answer: d
Rationale: Aligning manager interests with shareholders (e.g., stock options), the
threat of removal via takeover, and active monitoring by large institutional
investors are all corporate governance mechanisms that help reduce agency
problems .
5. The valuation of an MNC should rise when an event causes the expected cash
flows from foreign subsidiaries to ____ and when foreign currencies
denominating these cash flows are expected to ____.
a) decrease; appreciate
b) increase; appreciate
c) decrease; depreciate
d) increase; depreciate
, Answer: b
Rationale: An MNC's value increases when its expected future cash flows increase
or when the foreign currencies it holds appreciate against its home currency,
increasing the home-currency value of those cash flows .
Chapter 2: International Flow of Funds
6. A U.S. import of Japanese cars represents a:
a) credit to the U.S. current account.
b) debit to the U.S. current account.
c) credit to the U.S. financial account.
d) debit to the U.S. financial account.
Answer: b
Rationale: An import represents a flow of goods into the country, meaning money
flows out to pay for it. Therefore, it is recorded as a debit (negative entry) in the
current account of the balance of payments.
7. The current account balance equals:
a) Exports - Imports + Net Income from Abroad + Net Transfers.
