Test Bank for International Financial Management, 11t
r r r r r r
h Edition by Jeff Madura
r r r r
,Chapter 1—Multinational Financial Management
r r r
1. ThercommonlyracceptedrgoalrofrtherMNCrisrto:
a. maximizershort-termrearnings.
b. maximizershareholderrwealth.
c. minimizerrisk.
d. ArandrC.
e. maximizerinternationalrsales.
ANS:r B PTS:r r 1
2. Withrregardrtorcorporatergoals,ranrMNCrisrmostlyrconcernedrwithrmaximizingr
,randrarpurelyrdomesticrfirmrisrmostlyrconcernedrwithrmaximizingr .
a. shareholderrwealth;rshort-termrearnings
b. shareholderrwealth;rshareholderrwealth
c. short-termrearnings;rsalesrvolume
d. short-termrearnings;rshareholderrwealth
ANS:r B PTS:r r 1
3. ForrtherMNC,ragencyrcostsrarertypically:
a. non-existent.
b. largerrthanragencyrcostsrofrarsmallrpurelyrdomesticrfirm.
c. smallerrthanragencyrcostsrofrarsmallrpurelyrdomesticrfirm.
d. thersamerasragencyrcostsrofrarsmallrpurelyrdomesticrfirm.
ANS:r B PTS:r r 1
4. WhichrofrtherfollowingrcouldrreduceragencyrproblemsrforranrMNC?
a. stockroptionsrasrmanagerialrcompensation.
b. hostilertakeoverrthreat.
c. investorrmonitoring.
d. allrofrtheraboverarerformsrofrcorporatercontrolrthatrcouldrreduceragencyrproblemsrforran
MNC.
ANS:r D PTS:r r 1
5. ThervaluationrofranrMNCrshouldrriserwhenranreventrcausesrtherexpectedrcashrflowsrfromrforeignrtor
andrwhenrforeignrcurrenciesrdenominatingrthesercashrflowsrar
erexpectedrtor .
a. decrease;rappreciate
b. increase;rappreciate
c. decrease;rdepreciate
d. increase;rdepreciate
ANS:r B PTS:r r 1
, 6. Whichrofrtherfollowingrtheoriesridentifiesrspecializationrasrarreasonrforrinternationalrbusiness?
a. theoryrofrcomparativeradvantage.
b. imperfectrmarketsrtheory.
c. productrcyclertheory.
d. nonerofrtherabove
ANS:r A PTS:r r 1
7. Whichrofrtherfollowingrtheoriesridentifiesrthernon-transferabilityrofrresourcesrasrarreasonrforrinternationalrbusiness?
a. theoryrofrcomparativeradvantage.
b. imperfectrmarketsrtheory.
c. productrcyclertheory.
d. nonerofrtherabove
ANS:r B PTS:r r 1
8. Whichrofrtherfollowingrtheoriesrsuggestsrthatrfirmsrseekrtorpenetraternewrmarketsroverrtime?
a. theoryrofrcomparativeradvantage.
b. imperfectrmarketsrtheory.
c. productrcyclertheory.
d. nonerofrtherabove
ANS:r C PTS:r r 1
9. Whichrofrtherfollowingrindustriesrwouldrmostrlikelyrtakeradvantagerofrlowerrcostsrinrsomerlessrdevelopedrforeignrcountries?
a. assemblyrlinerproduction.
b. specializedrprofessionalrservices.
c. nuclearrmissilerplanning.
d. planningrforrmorersophisticatedrcomputerrtechnology.
ANS:r A PTS:r r 1
10. Duertortherrisksrinvolvedrinrinternationalrbusiness,rfirmsrshould:
a. onlyrconsiderrinternationalrbusinessrinrmajorrcountries.
b. maintainrinternationalrbusinessrtornormorerthanr20%rofrtotalrbusiness.
c. maintainrinternationalrbusinessrtornormorerthanr35%rofrtotalrbusiness.
d. nonerofrtherabove
ANS:r D PTS:r r 1
11. Arproductrcyclerisrtherprocessrbyrwhichrarfirmrprovidesrarspecializedrsalesrorrservicerstrategy,rsupportrassistance,randrposs
iblyranrinitialrinvestmentrinrtherfranchiserinrexchangerforrperiodicrfees.
a. True
b. False
ANS:r F PTS:r r 1
, 12. Licensingrisrtherprocessrbyrwhichrarfirmrprovidesritsrtechnologyr(copyrights,rpatents,rtrademarks,rorrtradernames)rinrexc
hangerforrfeesrorrsomerotherrspecifiedrbenefits.
a. True
b. False
ANS:r T PTS:r r 1
13. TheragencyrcostsrofranrMNCrarerlikelyrtorberlowerrifrit:
a. scattersritsrsubsidiariesracrossrmanyrforeignrcountries.
b. increasesritsrvolumerofrinternationalrbusiness.
c. usesrarcentralizedrmanagementrstyle.
d. ArandrB.
ANS:r C PTS:r r 1
14. AnrMNCrmayrbermorerexposedrtoragencyrproblemsrifrmostrofritsrsharesrarerheldrby:
a. arfewrmutualrfunds
b. arwidelyrdispersedrsetrofrindividualrinvestors
c. arfewrpensionrfunds
d. allrofrtheraboverwouldrpreventragencyrproblems
ANS:r B PTS:r r 1
15. TherSarbanes-OxleyrActrimprovesrcorporatergovernancerofrMNCsrbecauserit:
a. makesrexecutivesrmoreraccountablerforrverifyingrfinancialrstatements
b. eliminatesrstockroptionsrasrarformrofrcompensation
c. tiesrexecutivercompensationrtorfirmrperformance
d. placesrarlimitronrtheramountrofrfundsrthatrmanagersrcanrspend
ANS:r A PTS:r r 1
16. MNCsrcanrimprovertheirrinternalrcontrolrprocessrbyrallrofrtherfollowing,rexcept:
a. establishingrarcentralizedrdatarbaserofrinformation
b. ensuringrthatrallrdatararerreportedrconsistentlyramongrsubsidiaries
c. ensuringrthatrtherMNCralwaysrborrowsrfromrcountriesrwhererinterestrratesrarerlowest
d. usingrarsystemrthatrchecksrinternalrdatarforrunusualrdiscrepancies
ANS:r C PTS:r r 1
17. Franchisingrisrtherprocessrbyrwhichrnationalrgovernmentsrsellrstaterownedroperationsrtorcorporationsrandrotherrinvestors.
a. True
b. False
ANS:r F PTS:r r 1
18. TherparentrofrMNCrcanrimplementrcompensationrplansrthatrdirectlyrrewardrthersubsidiaryrmanagersrforrenhancingrthervaluerofrt
herMNC.
a. True
b. False
ANS:r T PTS:r r 1
19. Ifrarpublicly-tradedrMNC'srmanagersrmakerpoorrdecisionsrthatrreduceritsrvalue,ritrmayrencouragerotherrfirmsrtoracquirerit.
r r r r r r
h Edition by Jeff Madura
r r r r
,Chapter 1—Multinational Financial Management
r r r
1. ThercommonlyracceptedrgoalrofrtherMNCrisrto:
a. maximizershort-termrearnings.
b. maximizershareholderrwealth.
c. minimizerrisk.
d. ArandrC.
e. maximizerinternationalrsales.
ANS:r B PTS:r r 1
2. Withrregardrtorcorporatergoals,ranrMNCrisrmostlyrconcernedrwithrmaximizingr
,randrarpurelyrdomesticrfirmrisrmostlyrconcernedrwithrmaximizingr .
a. shareholderrwealth;rshort-termrearnings
b. shareholderrwealth;rshareholderrwealth
c. short-termrearnings;rsalesrvolume
d. short-termrearnings;rshareholderrwealth
ANS:r B PTS:r r 1
3. ForrtherMNC,ragencyrcostsrarertypically:
a. non-existent.
b. largerrthanragencyrcostsrofrarsmallrpurelyrdomesticrfirm.
c. smallerrthanragencyrcostsrofrarsmallrpurelyrdomesticrfirm.
d. thersamerasragencyrcostsrofrarsmallrpurelyrdomesticrfirm.
ANS:r B PTS:r r 1
4. WhichrofrtherfollowingrcouldrreduceragencyrproblemsrforranrMNC?
a. stockroptionsrasrmanagerialrcompensation.
b. hostilertakeoverrthreat.
c. investorrmonitoring.
d. allrofrtheraboverarerformsrofrcorporatercontrolrthatrcouldrreduceragencyrproblemsrforran
MNC.
ANS:r D PTS:r r 1
5. ThervaluationrofranrMNCrshouldrriserwhenranreventrcausesrtherexpectedrcashrflowsrfromrforeignrtor
andrwhenrforeignrcurrenciesrdenominatingrthesercashrflowsrar
erexpectedrtor .
a. decrease;rappreciate
b. increase;rappreciate
c. decrease;rdepreciate
d. increase;rdepreciate
ANS:r B PTS:r r 1
, 6. Whichrofrtherfollowingrtheoriesridentifiesrspecializationrasrarreasonrforrinternationalrbusiness?
a. theoryrofrcomparativeradvantage.
b. imperfectrmarketsrtheory.
c. productrcyclertheory.
d. nonerofrtherabove
ANS:r A PTS:r r 1
7. Whichrofrtherfollowingrtheoriesridentifiesrthernon-transferabilityrofrresourcesrasrarreasonrforrinternationalrbusiness?
a. theoryrofrcomparativeradvantage.
b. imperfectrmarketsrtheory.
c. productrcyclertheory.
d. nonerofrtherabove
ANS:r B PTS:r r 1
8. Whichrofrtherfollowingrtheoriesrsuggestsrthatrfirmsrseekrtorpenetraternewrmarketsroverrtime?
a. theoryrofrcomparativeradvantage.
b. imperfectrmarketsrtheory.
c. productrcyclertheory.
d. nonerofrtherabove
ANS:r C PTS:r r 1
9. Whichrofrtherfollowingrindustriesrwouldrmostrlikelyrtakeradvantagerofrlowerrcostsrinrsomerlessrdevelopedrforeignrcountries?
a. assemblyrlinerproduction.
b. specializedrprofessionalrservices.
c. nuclearrmissilerplanning.
d. planningrforrmorersophisticatedrcomputerrtechnology.
ANS:r A PTS:r r 1
10. Duertortherrisksrinvolvedrinrinternationalrbusiness,rfirmsrshould:
a. onlyrconsiderrinternationalrbusinessrinrmajorrcountries.
b. maintainrinternationalrbusinessrtornormorerthanr20%rofrtotalrbusiness.
c. maintainrinternationalrbusinessrtornormorerthanr35%rofrtotalrbusiness.
d. nonerofrtherabove
ANS:r D PTS:r r 1
11. Arproductrcyclerisrtherprocessrbyrwhichrarfirmrprovidesrarspecializedrsalesrorrservicerstrategy,rsupportrassistance,randrposs
iblyranrinitialrinvestmentrinrtherfranchiserinrexchangerforrperiodicrfees.
a. True
b. False
ANS:r F PTS:r r 1
, 12. Licensingrisrtherprocessrbyrwhichrarfirmrprovidesritsrtechnologyr(copyrights,rpatents,rtrademarks,rorrtradernames)rinrexc
hangerforrfeesrorrsomerotherrspecifiedrbenefits.
a. True
b. False
ANS:r T PTS:r r 1
13. TheragencyrcostsrofranrMNCrarerlikelyrtorberlowerrifrit:
a. scattersritsrsubsidiariesracrossrmanyrforeignrcountries.
b. increasesritsrvolumerofrinternationalrbusiness.
c. usesrarcentralizedrmanagementrstyle.
d. ArandrB.
ANS:r C PTS:r r 1
14. AnrMNCrmayrbermorerexposedrtoragencyrproblemsrifrmostrofritsrsharesrarerheldrby:
a. arfewrmutualrfunds
b. arwidelyrdispersedrsetrofrindividualrinvestors
c. arfewrpensionrfunds
d. allrofrtheraboverwouldrpreventragencyrproblems
ANS:r B PTS:r r 1
15. TherSarbanes-OxleyrActrimprovesrcorporatergovernancerofrMNCsrbecauserit:
a. makesrexecutivesrmoreraccountablerforrverifyingrfinancialrstatements
b. eliminatesrstockroptionsrasrarformrofrcompensation
c. tiesrexecutivercompensationrtorfirmrperformance
d. placesrarlimitronrtheramountrofrfundsrthatrmanagersrcanrspend
ANS:r A PTS:r r 1
16. MNCsrcanrimprovertheirrinternalrcontrolrprocessrbyrallrofrtherfollowing,rexcept:
a. establishingrarcentralizedrdatarbaserofrinformation
b. ensuringrthatrallrdatararerreportedrconsistentlyramongrsubsidiaries
c. ensuringrthatrtherMNCralwaysrborrowsrfromrcountriesrwhererinterestrratesrarerlowest
d. usingrarsystemrthatrchecksrinternalrdatarforrunusualrdiscrepancies
ANS:r C PTS:r r 1
17. Franchisingrisrtherprocessrbyrwhichrnationalrgovernmentsrsellrstaterownedroperationsrtorcorporationsrandrotherrinvestors.
a. True
b. False
ANS:r F PTS:r r 1
18. TherparentrofrMNCrcanrimplementrcompensationrplansrthatrdirectlyrrewardrthersubsidiaryrmanagersrforrenhancingrthervaluerofrt
herMNC.
a. True
b. False
ANS:r T PTS:r r 1
19. Ifrarpublicly-tradedrMNC'srmanagersrmakerpoorrdecisionsrthatrreduceritsrvalue,ritrmayrencouragerotherrfirmsrtoracquirerit.
