1 The commonly accepted goal of the MNC is to a maximize short term earnings b maximize shareholder wealth c minimize risk d A and C e maximize international sales 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 3 For the 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 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 that could reduce agency problems for an MNC 5 The valuation of an MNC should rise when an event causes the expected cash flows from foreign to and when foreign currencies denominating these cash flows are expected to a decrease appreciate b increase appreciate c decrease depreciate d increase depreciate 6 Which of the following theories identifies specialization as a reason for international business a theory of comparative advantage b imperfect markets theory c product cycle theory d none of the above 7 Which of the following theories identifies the non transferability of resources as a reason for international business a theory of comparative advantage b imperfect markets theory c product cycle theory d none of the above 8 Which of the following theories suggests that firms seek to penetrate new markets over time a theory of comparative advantage b imperfect markets theory c product cycle theory d none of the above 9 Which of the following industries would most likely take advantage of lower costs in some less developed foreign countries a assembly line production b specialized professional services c nuclear missile planning d planning for more sophisticated computer technology 10 Due to the risks involved in international business, firms should a only consider international business in major countries b maintain international business to no more than 20 of total business c maintain international business to no more than 35 of total business d none of the above 11 A product cycle is the process by which a firm provides a specialized sales or service strategy, support assistance, and possibly an initial investment in the franchise in exchange for periodic fees a True b False 12 Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks, or trade names) in exchange for fees or some other specified benefits a True b False 13 The agency costs of an MNC are likely to be lower if it a scatters its subsidiaries across many foreign countries b increases its volume of international business c uses a centralized management style d A and B 14 An MNC may be more exposed to agency problems if most of its shares are held by a a few mutual funds b a widely dispersed set of individual investors c a few pension funds d all of the above would prevent agency problems 15 The Sarbanes Oxley Act improves corporate governance of MNCs because it a makes executives more accountable for verifying financial statements b eliminates stock options as a form of compensation c ties executive compensation to firm performance d places a limit on the amount of funds that managers can spend 16 MNCs can improve their internal control process by all of the following, except a establishing a centralized data base of information b ensuring that all data are reported consistently among subsidiaries c ensuring that the MNC always borrows from countries where interest rates are lowest d using a system that checks internal data for unusual discrepancies 17 Franchising is the process by which national governments sell state owned operations to corporations and other investors a True b False 18 The parent of MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of the MNC a True b False 19 If a publicly traded MNC's managers make poor decisions that reduce its value, it may encourage other firms to acquire it a True b False 20 Institutional investors such as mutual funds or pension funds which have large holdings of an MNC's stock do not normally want to take control of it and therefore have no influence over management of the MNC a True b False 21 In comparing exporting to direct foreign investment (DFI), an exporting operation will likely incur fixed production costs and transportation costs than DFI a higher higher b higher lower c lower lower d lower higher 22 Which of the following is an example of direct foreign investment a exporting to a country b establishing licensing arrangements in a country c purchasing existing companies in a country d investing directly (without brokers) in foreign stocks 23 According to the text, a disadvantage of licensing is that a it prevents a firm from importing b it is difficult to ensure quality control of the production process c it prevents a firm from exporting d none of the above 24 are most commonly classified as a direct foreign investment a Foreign acquisitions b Purchases of international stocks c Licensing agreements d Exporting transactions 25 Imperfect markets represent conditions under which factors of production are immobile a True b False 26 The Sarbanes Oxley Act (SOX) was enacted in 2002 required MNCs and other firms to implement an internal reporting process that could be easily monitored by executives and the board of directors a True b False 27 If markets were perfect, then labor and other costs of production would be perfectly stable (no movement across borders) a True b False 28 The valuation of an MNC is reduced if the required return on its investments in foreign countries is reduced a True b False 29 Which of the following is not mentioned in the text as an additional risk resulting from international business a exchange rate fluctuations b political risk c interest rate risk d exposure to foreign economies 30 Licensing obligates a firm to provide , while franchising obligates a firm to provide a a specialized sales or service strategy its technology b its technology a specialized sales or service strategy c its technology its technology d a specialized sales or service strategy a specialized sales or service strategy e its technology an initial investment 31 Which of the following is not a way in which agency problems can be reduced through corporate control a executive compensation b threat of hostile takeover c acquisition of a foreign subsidiary d monitoring by large shareholders 32 The goal of a multinational corporation (MNC) is the maximization of shareholder wealth a True b False 33 A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs a True b False 34 If a U S firm sets up a plant in Mexico to benefit from low cost labor, it will likely have a comparative advantage over other firms in Mexico that sell the same product a True b False 35 Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are stable over time a True b False 36 One of the most prevalent factors conflicting with the realization of the goal of an MNC is the existence of agency problems a True b False 37 A centralized management style for an MNC results in relatively high agency costs a True b False 38 The imperfect markets theory states that factors of production are somewhat immobile, allowing firms to capitalize on a foreign country's resources a True b False 39 If a U S based MNC focused completely on importing, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time a True b False 40 The acquisition of a foreign subsidiary is commonly considered by MNCs because the cost is less expensive than establishing a new subsidiary of the same size a True b False 41 If a U S based MNC focused completely on exporting, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time a True b False 42 If markets were perfect, then labor and other costs of production would be easily transferable a True b False 43 International trade a is a relatively conservative approach to foreign market penetration b entails minimal risk c does not require large amount of investment d all of the above 44 Assume that an American firm wants to engage in international business without major investment in the foreign country Which method is least appropriate in this situation a International Trade b Licensing c Franchising d Direct foreign investment 45 The valuation of MNC accounts for all the cash flows received by the foreign subsidiaries plus all the cash flows remitted by the subsidiaries a True b False 46 The MNC's value depends on all of the following, except a MNC's required rate of return b Amount of MNC's cash flows in particular currency c The exchange rate at which cash flows are converted to dollars d The value of MNC depends on all of the above factors 47 Which of the following is not an example of political risk a Government may impose taxes on subsidiary b Government may impose barriers on subsidiary c Consumers may boycott the MNC d Consumers' income levels will decrease, thus decreasing consumption 48 A microeconomic perspective focuses on external forces such as economic conditions that can affect the value of an MNC a True b False 49 Assume that an MNC has a subsidiary in Italy, which exports its products to various countries in Europe Since all of the countries where it exports use Euro as their currency, this MNC is not subject to the exchange rate risk a True b False 50 International trade generally results in exposure to international political risk and exposure to international economic conditions, when compared to other methods of international business a higher lower b higher higher c lower higher d lower lower 51 Assume that Boca Co wants to expand its business to Japan, and wants complete control over the operations in Japan Which method of international business is most appropriate for Boca Co a Joint venture b Licensing c Partial acquisition of existing Japanese firm d Establishment of Japanese subsidiary 52 A decentralized management style of MNC results in relatively high agency costs a True b False 53 The establishment of a new subsidiary is commonly considered by MNCs because the cost is less expensive than acquiring a foreign subsidiary of the same size a True b False 54 Assume that Live Co has expected cash flows of $200,000 from domestic operations, SF200,000 from Swiss operations, and 150,000 euros from Italian operations at the end of the year The Swiss franc's value and euro's value are expected to be $ 83 and $1 29 respectively, at the end this year What are the expected dollar cash flows of Live Co a $200,000 b $559,500 c $582,500 d $393,500 55 Saller 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 Saller Co has declined since last month What could've caused this decline in value a A weaker Mexican economy b Lower Mexican interest rates c Depreciation of the Mexican peso d Appreciation of the Mexican peso 56 Jensen Co wants to establish a new subsidiary in Mexico that will sell computers to Mexican customers and remit earnings back to the U S parent The value of this project will be favorably affected if the value of the peso ( ) while it establishes the new subsidiary and ( ) when the subsidiary starts operations a depreciates appreciates b appreciates appreciates c appreciates depreciates d depreciates depreciates 57 A macroeconomic perspective focuses on the financial management decisions that affect the value of MNC a True b False 58 An MNC will always use the same required rate of return in the valuation of foreign projects, as it would for its domestic projects a True b False 59 Livingston Co has a subsidiary in Korea The subsidiary reinvests half of its net cash flows into operations and remits half to the parent Livingston's expected cash flows from domestic business are $100,000 and the Korean subsidiary is expected to generate 100 million Korean won at the end of the year The expected value of won is $ 0012 What are the expected dollar cash flows of Livingston Co a $100,000 b $200,000 c $160,000 d $60,000 60 A U S based MNC has many foreign subsidiaries in Europe and does not expect to increase its investment there Its value should increase if the value of the euro weakens over time a True b False 61 If managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they automatically maximize the value of the entire corporation a True b False 62 A decentralized management style, where subsidiary managers make the relevant decisions regarding their subsidiary, may result in better decision making, as subsidiary managers are generally better informed about their subsidiary's operations a True b False 63 U S based MNCs are typically not monitored by mutual funds and pension funds, as these institutions rarely hold stock in MNCs a True b False 64 The Sarbanes Oxley Act ensures a more transparent process for managers to report on the productivity and financial condition of their firm a True b False 65 The Theory of Comparative Advantage begins by assuming that a given firm first becomes established in its home country and may subsequently penetrate foreign markets via geographic or product differentiation a True b False 66 Under the Imperfect Markets Theory, it is assumed that factors of production are entirely mobile, so that firms can capitalize on a foreign country's resources a True b False 67 Under the Product Cycle Theory, foreign demand can be initially satisfied by exporting a True b False 68 Licensing allows firms to use their technology in foreign markets without a major investment in foreign countries a True b False 69 International trade is the most common form of direct foreign investment (DFI) a True b False 70 When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a smaller amount of the home currency a True b False 71 A purely domestic firm may be affected by exchange rate fluctuations if it faces at least some foreign competition a True b False 72 One form of an exposure to political risk is terrorism a True b False 73 The goal of a multinational corporation (MNC) is a The minimization of taxes remitted from foreign subsidiaries b The establishment of subsidiaries in any country where operations would provide a return over and above the cost of capital, even if better projects are available domestically c The maximization of shareholder wealth d The maximization of social benefits resulting from actions such as the employment of foreign managers 74 Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic firms because a Monitoring of managers located in foreign countries is more difficult b Foreign subsidiary managers raised in different cultures may not follow uniform goals c MNCs are relatively large d All of the above e A and B only 75 Which of the following is not one of the more common methods used by MNCs to improve their internal control process a Establishing a centralized database of information b Ensuring that all data are reported consistently among subsidiaries c Speeding the process by which all departments and all subsidiaries have access to the data that they need d Making executives more accountable for financial statements by personally verifying their accuracy e All of the above are common methods used by MNCs to improve their internal control process 76 Which of the following is not mentioned in the text as a theory of international business a Theory of Comparative Advantage b Imperfect Markets Theory c Product Cycle Theory d Globalization of Business Theory e All of the above are mentioned in the text as theories of international business 77 The most risky method(s) by which firms conduct international business is (are) a Franchising b The acquisitions of existing operations c The establishment of new subsidiaries d All of the above e B and C only 78 The least risky method by which firms conduct international business is a Franchising b The acquisitions of existing operations c International Trade d The establishment of new subsidiaries e Licensing 79 Which of the following does not constitute a form of direct foreign investment a Franchising b International trade c Joint ventures d Acquisitions of existing operations e Establishment of new foreign subsidiaries

Question

1  The commonly accepted goal of the MNC is to  a  maximize short term earnings  b  maximize shareholder wealth  c  minimize risk  d  A and C  e  maximize international sales  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 3  For the 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  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 that could reduce agency problems for an MNC  5  The valuation of an MNC should rise when an event causes the expected cash flows from foreign to      and when foreign currencies denominating these cash flows are expected to       a  decrease  appreciate b  increase  appreciate c  decrease  depreciate d  increase  depreciate 6  Which of the following theories identifies specialization as a reason for international business  a  theory of comparative advantage  b  imperfect markets theory  c  product cycle theory  d  none of the above 7  Which of the following theories identifies the non transferability of resources as a reason for international business  a  theory of comparative advantage  b  imperfect markets theory  c  product cycle theory  d  none of the above 8  Which of the following theories suggests that firms seek to penetrate new markets over time  a  theory of comparative advantage  b  imperfect markets theory  c  product cycle theory  d  none of the above 9  Which of the following industries would most likely take advantage of lower costs in some less developed foreign countries  a  assembly line production  b  specialized professional services  c  nuclear missile planning  d  planning for more sophisticated computer technology  10  Due to the risks involved in international business, firms should  a  only consider international business in major countries  b  maintain international business to no more than 20  of total business  c  maintain international business to no more than 35  of total business  d  none of the above 11  A product cycle is the process by which a firm provides a specialized sales or service strategy, support assistance, and possibly an initial investment in the franchise in exchange for periodic fees  a  True b  False 12  Licensing is the process by which a firm provides its technology (copyrights, patents, trademarks, or trade names) in exchange for fees or some other specified benefits  a  True b  False 13  The agency costs of an MNC are likely to be lower if it  a  scatters its subsidiaries across many foreign countries  b  increases its volume of international business  c  uses a centralized management style  d  A and B  14  An MNC may be more exposed to agency problems if most of its shares are held by  a  a few mutual funds b  a widely dispersed set of individual investors c  a few pension funds d  all of the above would prevent agency problems 15  The Sarbanes Oxley Act improves corporate governance of MNCs because it  a  makes executives more accountable for verifying financial statements b  eliminates stock options as a form of compensation c  ties executive compensation to firm performance d  places a limit on the amount of funds that managers can spend 16  MNCs can improve their internal control process by all of the following, except  a  establishing a centralized data base of information b  ensuring that all data are reported consistently among subsidiaries c  ensuring that the MNC always borrows from countries where interest rates are lowest d  using a system that checks internal data for unusual discrepancies 17  Franchising is the process by which national governments sell state owned operations to corporations and other investors  a  True b  False 18  The parent of MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of the MNC  a  True b  False 19  If a publicly traded MNC's managers make poor decisions that reduce its value, it may encourage other firms to acquire it  a  True b  False 20  Institutional investors such as mutual funds or pension funds which have large holdings of an MNC's stock do not normally want to take control of it and therefore have no influence over management of the MNC  a  True b  False 21  In comparing exporting to direct foreign investment (DFI), an exporting operation will likely incur      fixed production costs and      transportation costs than DFI  a  higher  higher b  higher  lower c  lower  lower d  lower  higher 22  Which of the following is an example of direct foreign investment  a  exporting to a country  b  establishing licensing arrangements in a country  c  purchasing existing companies in a country  d  investing directly (without brokers) in foreign stocks  23  According to the text, a disadvantage of licensing is that  a  it prevents a firm from importing  b  it is difficult to ensure quality control of the production process  c  it prevents a firm from exporting  d  none of the above 24       are most commonly classified as a direct foreign investment  a  Foreign acquisitions b  Purchases of international stocks c  Licensing agreements d  Exporting transactions 25  Imperfect markets represent conditions under which factors of production are immobile  a  True b  False 26  The Sarbanes Oxley Act (SOX) was enacted in 2002 required MNCs and other firms to implement an internal reporting process that could be easily monitored by executives and the board of directors  a  True b  False 27  If markets were perfect, then labor and other costs of production would be perfectly stable (no movement across borders)  a  True b  False 28  The valuation of an MNC is reduced if the required return on its investments in foreign countries is reduced  a  True b  False 29  Which of the following is not mentioned in the text as an additional risk resulting from international business  a  exchange rate fluctuations  b  political risk  c  interest rate risk  d  exposure to foreign economies  30  Licensing obligates a firm to provide     , while franchising obligates a firm to provide       a  a specialized sales or service strategy  its technology b  its technology  a specialized sales or service strategy c  its technology  its technology d  a specialized sales or service strategy  a specialized sales or service strategy e  its technology  an initial investment 31  Which of the following is not a way in which agency problems can be reduced through corporate control  a  executive compensation  b  threat of hostile takeover  c  acquisition of a foreign subsidiary  d  monitoring by large shareholders  32  The goal of a multinational corporation (MNC) is the maximization of shareholder wealth  a  True b  False 33  A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs  a  True b  False 34  If a U S  firm sets up a plant in Mexico to benefit from low cost labor, it will likely have a comparative advantage over other firms in Mexico that sell the same product  a  True b  False 35  Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are stable over time  a  True b  False 36  One of the most prevalent factors conflicting with the realization of the goal of an MNC is the existence of agency problems  a  True b  False 37  A centralized management style for an MNC results in relatively high agency costs  a  True b  False 38  The imperfect markets theory states that factors of production are somewhat immobile, allowing firms to capitalize on a foreign country's resources  a  True b  False 39  If a U S  based MNC focused completely on importing, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time  a  True b  False 40  The acquisition of a foreign subsidiary is commonly considered by MNCs because the cost is less expensive than establishing a new subsidiary of the same size  a  True b  False 41  If a U S  based MNC focused completely on exporting, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time  a  True b  False 42  If markets were perfect, then labor and other costs of production would be easily transferable  a  True b  False 43  International trade  a  is a relatively conservative approach to foreign market penetration  b  entails minimal risk  c  does not require large amount of investment  d  all of the above  44  Assume that an American firm wants to engage in international business without major investment in the foreign country  Which method is least appropriate in this situation  a  International Trade b  Licensing c  Franchising d  Direct foreign investment 45  The valuation of MNC accounts for all the cash flows received by the foreign subsidiaries plus all the cash flows remitted by the subsidiaries  a  True b  False 46  The MNC's value depends on all of the following, except  a  MNC's required rate of return b  Amount of MNC's cash flows in particular currency c  The exchange rate at which cash flows are converted to dollars d  The value of MNC depends on all of the above factors 47  Which of the following is not an example of political risk  a  Government may impose taxes on subsidiary b  Government may impose barriers on subsidiary c  Consumers may boycott the MNC d  Consumers' income levels will decrease, thus decreasing consumption  48  A microeconomic perspective focuses on external forces such as economic conditions that can affect the value of an MNC  a  True b  False 49  Assume that an MNC has a subsidiary in Italy, which exports its products to various countries in Europe  Since all of the countries where it exports use Euro as their currency, this MNC is not subject to the exchange rate risk  a  True b  False 50  International trade generally results in      exposure to international political risk and      exposure to international economic conditions, when compared to other methods of international business  a  higher  lower b  higher  higher c  lower  higher d  lower  lower 51  Assume that Boca Co  wants to expand its business to Japan, and wants complete control over the operations in Japan  Which method of international business is most appropriate for Boca Co  a  Joint venture b  Licensing c  Partial acquisition of existing Japanese firm d  Establishment of Japanese subsidiary 52  A decentralized management style of MNC results in relatively high agency costs  a  True b  False 53  The establishment of a new subsidiary is commonly considered by MNCs because the cost is less expensive than acquiring a foreign subsidiary of the same size  a  True b  False 54  Assume that Live Co  has expected cash flows of $200,000 from domestic operations, SF200,000 from Swiss operations, and 150,000 euros from Italian operations at the end of the year  The Swiss franc's value and euro's value are expected to be $ 83 and $1 29 respectively, at the end this year  What are the expected dollar cash flows of Live Co  a  $200,000 b  $559,500 c  $582,500 d  $393,500 55  Saller 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 Saller Co  has declined since last month  What could've caused this decline in value  a  A weaker Mexican economy b  Lower Mexican interest rates c  Depreciation of the Mexican peso d  Appreciation of the Mexican peso  56  Jensen Co  wants to establish a new subsidiary in Mexico that will sell computers to Mexican customers and remit earnings back to the U S  parent  The value of this project will be favorably affected if the value of the peso (   ) while it establishes the new subsidiary and ( ) when the subsidiary starts operations  a  depreciates  appreciates b  appreciates  appreciates c  appreciates  depreciates d  depreciates  depreciates 57  A macroeconomic perspective focuses on the financial management decisions that affect the value of MNC  a  True b  False 58  An MNC will always use the same required rate of return in the valuation of foreign projects, as it would for its domestic projects  a  True b  False 59  Livingston Co  has a subsidiary in Korea  The subsidiary reinvests half of its net cash flows into operations and remits half to the parent  Livingston's expected cash flows from domestic business are $100,000 and the Korean subsidiary is expected to generate 100 million Korean won at the end of the year  The expected value of won is $ 0012  What are the expected dollar cash flows of Livingston Co   a  $100,000 b  $200,000 c  $160,000 d  $60,000 60  A U S  based MNC has many foreign subsidiaries in Europe and does not expect to increase its investment there  Its value should increase if the value of the euro weakens over time  a  True b  False 61  If managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they automatically maximize the value of the entire corporation  a  True b  False 62  A decentralized management style, where subsidiary managers make the relevant decisions regarding their subsidiary, may result in better decision making, as subsidiary managers are generally better informed about their subsidiary's operations  a  True b  False 63  U S  based MNCs are typically not monitored by mutual funds and pension funds, as these institutions rarely hold stock in MNCs  a  True b  False 64  The Sarbanes Oxley Act ensures a more transparent process for managers to report on the productivity and financial condition of their firm  a  True b  False 65  The Theory of Comparative Advantage begins by assuming that a given firm first becomes established in its home country and may subsequently penetrate foreign markets via geographic or product differentiation  a  True b  False 66  Under the Imperfect Markets Theory, it is assumed that factors of production are entirely mobile, so that firms can capitalize on a foreign country's resources  a  True b  False 67  Under the Product Cycle Theory, foreign demand can be initially satisfied by exporting  a  True b  False 68  Licensing allows firms to use their technology in foreign markets without a major investment in foreign countries  a  True b  False 69  International trade is the most common form of direct foreign investment (DFI)  a  True b  False 70  When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a smaller amount of the home currency  a  True b  False 71  A purely domestic firm may be affected by exchange rate fluctuations if it faces at least some foreign competition  a  True b  False 72  One form of an exposure to political risk is terrorism  a  True b  False 73  The goal of a multinational corporation (MNC) is a  The minimization of taxes remitted from foreign subsidiaries  b  The establishment of subsidiaries in any country where operations would provide a return over and above the cost of capital, even if better projects are available domestically  c  The maximization of shareholder wealth  d  The maximization of social benefits resulting from actions such as the employment of foreign managers  74  Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic firms because a  Monitoring of managers located in foreign countries is more difficult  b  Foreign subsidiary managers raised in different cultures may not follow uniform goals  c  MNCs are relatively large  d  All of the above e  A and B only 75  Which of the following is not one of the more common methods used by MNCs to improve their internal control process  a  Establishing a centralized database of information b  Ensuring that all data are reported consistently among subsidiaries c  Speeding the process by which all departments and all subsidiaries have access to the data that they need d  Making executives more accountable for financial statements by personally verifying their accuracy e  All of the above are common methods used by MNCs to improve their internal control process  76  Which of the following is not mentioned in the text as a theory of international business  a  Theory of Comparative Advantage b  Imperfect Markets Theory c  Product Cycle Theory d  Globalization of Business Theory e  All of the above are mentioned in the text as theories of international business 77  The most risky method(s) by which firms conduct international business is (are)  a  Franchising  b  The acquisitions of existing operations  c  The establishment of new subsidiaries  d  All of the above e  B and C only 78  The least risky method by which firms conduct international business is  a  Franchising  b  The acquisitions of existing operations  c  International Trade  d  The establishment of new subsidiaries  e  Licensing 79  Which of the following does not constitute a form of direct foreign investment  a  Franchising b  International trade c  Joint ventures d  Acquisitions of existing operations e  Establishment of new foreign subsidiaries

Accepted Answer

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a.	maximize short-term earnings.
b.	maximize shareholder wealth.
c.	minimize risk.
d.	A and C.
e.	maximize international sales.

a.	shareholder wealth; short-term earnings
b.	shareholder wealth; shareholder wealth
c.	short-term earnings; sales volume
d.	short-term earnings; shareholder wealth

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.

a.	stock options as managerial compensation.
b.	hostile takeover threat.
c.	investor monitoring.
d.	all of the above are forms of corporate control that could reduce agency problems for an MNC.

a.	decrease; appreciate
b.	increase; appreciate
c.	decrease; depreciate
d.	increase; depreciate

Question

1. The commonly accepted goal of the MNC is to: a. maximize short-term earnings. b. maximize shareholder wealth. c. minimize risk. d. A and C.

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a.	theory of comparative advantage.
b.	imperfect markets theory.
c.	product cycle theory.
d.	none of the above

a.	assembly line production.
b.	specialized professional services.
c.	nuclear missile planning.
d.	planning for more sophisticated computer technology.

a.	only consider international business in major countries.
b.	maintain international business to no more than 20% of total business.
c.	maintain international business to no more than 35% of total business.
d.	none of the above

a.	scatters its subsidiaries across many foreign countries.
b.	increases its volume of international business.
c.	uses a centralized management style.
d.	A and B.

a.	a few mutual funds
b.	a widely dispersed set of individual investors
c.	a few pension funds
d.	all of the above would prevent agency problems

a.	makes executives more accountable for verifying financial statements
b.	eliminates stock options as a form of compensation
c.	ties executive compensation to firm performance
d.	places a limit on the amount of funds that managers can spend

a.	establishing a centralized data base of information
b.	ensuring that all data are reported consistently among subsidiaries
c.	ensuring that the MNC always borrows from countries where interest rates are lowest
d.	using a system that checks internal data for unusual discrepancies

a.	higher; higher
b.	higher; lower
c.	lower; lower
d.	lower; higher

a.	exporting to a country.
b.	establishing licensing arrangements in a country.
c.	purchasing existing companies in a country.
d.	investing directly (without brokers) in foreign stocks.

a.	it prevents a firm from importing.
b.	it is difficult to ensure quality control of the production process.
c.	it prevents a firm from exporting.
d.	none of the above

a.	depreciates; appreciates
b.	appreciates; appreciates
c.	appreciates; depreciates
d.	depreciates; depreciates

a.	Foreign acquisitions
b.	Purchases of international stocks
c.	Licensing agreements
d.	Exporting transactions

a.	exchange rate fluctuations.
b.	political risk.
c.	interest rate risk.
d.	exposure to foreign economies.

a.	a specialized sales or service strategy; its technology
b.	its technology; a specialized sales or service strategy
c.	its technology; its technology
d.	a specialized sales or service strategy; a specialized sales or service strategy
e.	its technology; an initial investment

a.	executive compensation.
b.	threat of hostile takeover.
c.	acquisition of a foreign subsidiary.
d.	monitoring by large shareholders.

a.	is a relatively conservative approach to foreign market penetration.
b.	entails minimal risk.
c.	does not require large amount of investment.
d.	all of the above.

a.	International Trade
b.	Licensing
c.	Franchising
d.	Direct foreign investment

a.	MNC's required rate of return
b.	Amount of MNC's cash flows in particular currency
c.	The exchange rate at which cash flows are converted to dollars
d.	The value of MNC depends on all of the above factors

a.	Government may impose taxes on subsidiary
b.	Government may impose barriers on subsidiary
c.	Consumers may boycott the MNC
d.	Consumers' income levels will decrease, thus decreasing consumption.

a.	Joint venture
b.	Licensing
c.	Partial acquisition of existing Japanese firm
d.	Establishment of Japanese subsidiary

a.	A weaker Mexican economy
b.	Lower Mexican interest rates
c.	Depreciation of the Mexican peso
d.	Appreciation of the Mexican peso.

a.	The minimization of taxes remitted from foreign subsidiaries.
b.	The establishment of subsidiaries in any country where operations would provide a return over and above the cost of capital, even if better projects are available domestically.
c.	The maximization of shareholder wealth.
d.	The maximization of social benefits resulting from actions such as the employment of foreign managers.

a.	Monitoring of managers located in foreign countries is more difficult.
b.	Foreign subsidiary managers raised in different cultures may not follow uniform goals.
c.	MNCs are relatively large.
d.	All of the above
e.	A and B only

a.	Establishing a centralized database of information
b.	Ensuring that all data are reported consistently among subsidiaries
c.	Speeding the process by which all departments and all subsidiaries have access to the data that they need
d.	Making executives more accountable for financial statements by personally verifying their accuracy
e.	All of the above are common methods used by MNCs to improve their internal control process.

a.	Theory of Comparative Advantage
b.	Imperfect Markets Theory
c.	Product Cycle Theory
d.	Globalization of Business Theory
e.	All of the above are mentioned in the text as theories of international business

a.	Franchising.
b.	The acquisitions of existing operations.
c.	The establishment of new subsidiaries.
d.	All of the above
e.	B and C only

a.	Franchising.
b.	The acquisitions of existing operations.
c.	International Trade.
d.	The establishment of new subsidiaries.
e.	Licensing

a.	Franchising
b.	International trade
c.	Joint ventures
d.	Acquisitions of existing operations
e.	Establishment of new foreign subsidiaries