FIN 4330 Exam 1 Questions with Correct Answers Latest Update 2025/2026
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. decrease; depreciate
b. decrease; appreciate
c. increase; appreciate
d. increase; depreciate - Answers a. 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. - Answers 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. improve; less
b. deteriorate; more
c. deteriorate; less
d. improve; more - Answers d. 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. - Answers 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 - Answers 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 government may change tax rates on income earned by local citizens.
b. Spain's government may impose special taxes on the subsidiary.
c. Spain's economy may decrease.
d. Consumers in the U.S. may purchase products from companies in Spain. - Answers b. 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. higher; higher
b. higher; lower
c. lower; lower
d. lower; higher - Answers a. 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. higher Mexican interest rates
b. depreciation of the Mexican peso
c. a stronger Mexican economy
d. appreciation of the Mexican peso - Answers 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. speeding the process by which all departments and all subsidiaries have access to the data
that they need
b. establishing a centralized database of information
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. decrease; depreciate
b. decrease; appreciate
c. increase; appreciate
d. increase; depreciate - Answers a. 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. - Answers 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. improve; less
b. deteriorate; more
c. deteriorate; less
d. improve; more - Answers d. 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. - Answers 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 - Answers 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 government may change tax rates on income earned by local citizens.
b. Spain's government may impose special taxes on the subsidiary.
c. Spain's economy may decrease.
d. Consumers in the U.S. may purchase products from companies in Spain. - Answers b. 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. higher; higher
b. higher; lower
c. lower; lower
d. lower; higher - Answers a. 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. higher Mexican interest rates
b. depreciation of the Mexican peso
c. a stronger Mexican economy
d. appreciation of the Mexican peso - Answers 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. speeding the process by which all departments and all subsidiaries have access to the data
that they need
b. establishing a centralized database of information
