FIN 3210- Midterm Exam 1 questions and
answers graded A+ 2025 updated
The valuation of an MNC should decline when an event causes the expected cash
flows from foreign subsidiaries to ____ and when the foreign currencies
denominating these cash flows are expected to ____.
a. increase; appreciate
b. decrease; appreciate
c. increase; depreciate
d. decrease; depreciate - correct answer ✔✔ d. decrease; depreciate
The agency costs of an MNC are likely to be higher if it
a. scatters its subsidiaries across many foreign countries.
b. decreases its volume of international business.
c. uses a centralized management style.
d. B and C. - correct answer ✔✔ a. scatters its subsidiaries across many foreign
countries.
,The Sarbanes-Oxley Act caused corporate governance of MNCs to _________; it
makes executives ____ accountable for verifying financial statements.
a. deteriorate; more
b. improve; more
c. improve; less
d. deteriorate; less - correct answer ✔✔ b. improve; more
According to the text, the valuation of an MNC with foreign subsidiaries is directly
affected by:
a. exchange rate fluctuations
b. foreign political conditions
c. foreign economic conditions
d. It is affected by all of the above - correct answer ✔✔ d. It is affected by all of
the above
Assume that an American firm wants to engage in international business in which
it establishes a large subsidiary in the foreign country. This strategy definitely
represents ______________.
,a. direct foreign investment
b. a joint venture
c. licensing
d. franchising - correct answer ✔✔ a. direct foreign investment
Which of the following is the most direct example of political risk in Spain for a
U.S.-based MNC with a subsidiary in Spain?
a. Spain's economy may decrease.
b. Spain's government may change tax rates on income earned by local citizens.
c. Spain's government may impose special taxes on the subsidiary.
d. Consumers in the U.S. may purchase products from companies in Spain. -
correct answer ✔✔ c. Spain's government may impose special taxes on the
subsidiary.
Compared to international trade, direct foreign investment generally results in
____ exposure to international political risk and ____ exposure to international
economic conditions.
a. lower; higher
, b. higher; lower
c. lower; lower
d. higher; higher - correct answer ✔✔ d. higher; higher
Zest 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 Zest Co. has increased since last month. What could have caused
this increase in value?
a. a stronger Mexican economy
b. higher Mexican interest rates
c. depreciation of the Mexican peso
d. appreciation of the Mexican peso - correct answer ✔✔ d. appreciation of the
Mexican peso
Which of the following is not one of the more common methods used by MNCs to
improve their internal control process?
a. requiring executives to forecast future exchange rates
b. ensuring that all data are reported consistently among subsidiaries
answers graded A+ 2025 updated
The valuation of an MNC should decline when an event causes the expected cash
flows from foreign subsidiaries to ____ and when the foreign currencies
denominating these cash flows are expected to ____.
a. increase; appreciate
b. decrease; appreciate
c. increase; depreciate
d. decrease; depreciate - correct answer ✔✔ d. decrease; depreciate
The agency costs of an MNC are likely to be higher if it
a. scatters its subsidiaries across many foreign countries.
b. decreases its volume of international business.
c. uses a centralized management style.
d. B and C. - correct answer ✔✔ a. scatters its subsidiaries across many foreign
countries.
,The Sarbanes-Oxley Act caused corporate governance of MNCs to _________; it
makes executives ____ accountable for verifying financial statements.
a. deteriorate; more
b. improve; more
c. improve; less
d. deteriorate; less - correct answer ✔✔ b. improve; more
According to the text, the valuation of an MNC with foreign subsidiaries is directly
affected by:
a. exchange rate fluctuations
b. foreign political conditions
c. foreign economic conditions
d. It is affected by all of the above - correct answer ✔✔ d. It is affected by all of
the above
Assume that an American firm wants to engage in international business in which
it establishes a large subsidiary in the foreign country. This strategy definitely
represents ______________.
,a. direct foreign investment
b. a joint venture
c. licensing
d. franchising - correct answer ✔✔ a. direct foreign investment
Which of the following is the most direct example of political risk in Spain for a
U.S.-based MNC with a subsidiary in Spain?
a. Spain's economy may decrease.
b. Spain's government may change tax rates on income earned by local citizens.
c. Spain's government may impose special taxes on the subsidiary.
d. Consumers in the U.S. may purchase products from companies in Spain. -
correct answer ✔✔ c. Spain's government may impose special taxes on the
subsidiary.
Compared to international trade, direct foreign investment generally results in
____ exposure to international political risk and ____ exposure to international
economic conditions.
a. lower; higher
, b. higher; lower
c. lower; lower
d. higher; higher - correct answer ✔✔ d. higher; higher
Zest 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 Zest Co. has increased since last month. What could have caused
this increase in value?
a. a stronger Mexican economy
b. higher Mexican interest rates
c. depreciation of the Mexican peso
d. appreciation of the Mexican peso - correct answer ✔✔ d. appreciation of the
Mexican peso
Which of the following is not one of the more common methods used by MNCs to
improve their internal control process?
a. requiring executives to forecast future exchange rates
b. ensuring that all data are reported consistently among subsidiaries
