Kirt C. Butler, Multinational Finance, 3rd edition Test Bank

Kirt C. Butler, Multinational Finance, 3rd edition Test Bank True/false questions Multiple choice questions Problems to accompany Multinational Finance by Kirt C. Butler Third Edition Kirt C. Butler, Multinational Finance, 3rd edition 2 PART I Overview and Background Chapter 1 An Introduction to Multinational Finance True/False 1. MNCs have investment or financial operations in more than one country. ANS: True. 2. Because of globalization in the world’s markets, a multinational financial manager is more likely than a domestic financial manager to specialize in finance to the exclusion of other fields of business. ANS: False. The multinational financial manager must be well versed in each of the business disciplines in which the MNC is involved. 3. The domestic financial manager must be knowledgeable in several areas within finance, whereas the multinational financial manager usually specializes in a single area, such as corporate finance, investments, or financial markets. ANS: False. The multinational financial manager is likely to require knowledge of several fields within finance. 4. The investment opportunity set is the set of investments available to the corporation; that is, the set from which the company must select. ANS: True. 5. Types of market efficiency used to describe the performance of financial markets are allocational, operational, and transactional efficiency. ANS: False. Three types of market efficiency are allocational, operational, and informational. 6. An informationally efficient market is one with abundant information. ANS: False. It is a market in which prices fully reflect available information. 7. Allocational efficiency refers to how efficiently a market channels capital toward its most productive uses. ANS: True. 8. Allocational efficiency refers to whether a market allocates capital to those investments deemed most worthy by a host government. ANS: False. Allocational efficiency refers to how efficiently a market channels capital toward its most productive uses in an economic, rather than a political, sense. 9. Operational efficiency refers to how large an influence transactions costs and other market frictions have on the operation of a market. ANS: True. 10. The MNC faces greater constraints than the domestic corporation in the timing of its investments. ANS: False. Multinationals typically have more flexibility in timing, location, and operation. 11. Risk exists whenever actual outcomes can differ from expected outcomes. ANS: True. Distributing prohibited | Downloaded by Annie Tan () lOMoARcPSD| 3 12. Assets and liabilities are exposed to currency risk when their values can change with unexpected changes in currency values. ANS: True. 13. “Currency risk” and “currency risk exposure” refer to the same thing - the possibility that currency values will differ from their expectations. ANS: False. A firm is exposed to currency risk when its assets or liabilities can change in value with unexpected changes in currency values. 14. Political risk is the risk that the business environment in a host country will change unexpectedly due to political events. ANS: True. 15. The terms “stakeholders” and “shareholders” are synonymous. ANS: False. Stakeholders include all those with a stake in the firm. A broad definition of stakeholders includes the firm’s creditors, customers, suppliers, and employees. 16. Exporting through a foreign sales agent requires little resource commitment and helps to insulate the exporter from the costs and risks of foreign market entry. ANS: True. 17. Foreign direct investment is when a multinational corporation builds productive capacity in a foreign country. ANS: True. 18. The easiest mode of entry into foreign markets is foreign direct investment. ANS: False. FDI is one of the most difficult entry modes. 19. Contract-based modes of entry into foreign markets include foreign sales agents and foreign sales branches. ANS: False. International licensing and franchising, reciprocal market agreements, and management contracts are contract-based entry modes. 20. Foreign direct investment requires a relatively large resource commitment from the parent firm. ANS: True. 21. The sales and marketing benefits of foreign direct investment are usually less than those of export entry into foreign markets. ANS: False. With established operations in the foreign country, multinational corporations are able to promote their products and services more effectively. 22. Licensing provides quick and relatively low-risk entry into foreign markets as long as the parent can protect its intellectual property rights.