Deck 1: An Introduction to Multinational Finance

Question 1

Assets and liabilities are exposed to currency risk when their values can change with unexpected changes in currency values.

Answer 1

True

Question 2

Economies of scope are efficiencies that arise across product lines, such as when joint production results in lower per-unit costs.

Answer 2

True

Question 3

Allocational efficiency refers to whether a market allocates capital to those investments deemed most worthy by a host government.

Answer 3

False

Question 4

The MNC faces greater constraints than the domestic corporation in the timing and location of its investments.

Question 5

Corporate stakeholders include each of a) through d) EXCEPT

A) creditors
B) customers
C) managers
D) shareholders
E) Each of the above is a stakeholder in the firm

Question 6

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.

Question 7

Allocational efficiency refers to how efficiently a market channels capital toward its most productive uses.

Question 8

Operational efficiency refers to how large an influence transactions costs and other market frictions have on the operation of a market.

Question 9

The three types of market efficiency used in the text to describe the performance of financial markets are allocational efficiency, operational efficiency, and transactional efficiency.

Question 10

MNCs have investment or financial operations in more than one country.

Question 11

An informationally efficient market is one with abundant information.

Question 12

Risk exists whenever actual outcomes can differ from expected outcomes.

Question 13

Loss in value from conflicts of interest between managers and other stakeholders are called ________.

A) adverse selection costs
B) agency costs
C) costs of financial distress
D) sunk costs
E) transactions costs

Question 14

Because of globalization in the world's markets, a multinational financial manager is more likely than a domestic manager to be highly specialized in finance to the exclusion of other disciplines.

Question 15

Economies of scale arise as fixed development or production costs are spread over a larger output.

Question 16

Economies of scale are efficiencies that arise across product lines, such as when joint production results in lower per-unit costs.

Question 17

"Currency risk" and "currency risk exposure" refer to the same thing -the possibility that currency values will differ from their expectations.

Question 18

The investment opportunity set is the set of investments available to the corporation; that is, the set from which the company must select.

Question 19

The terms "stakeholder" and "shareholder" are synonymous.

Question 20

Political risk is the risk that the business environment in a host country will change unexpectedly due to political events.

Question 21

Markets in which prices reflect value are said to be ________ .

A) allocationally efficient
B) free of agency conflicts
C) informationally efficient
D) operationally efficient
E) prone to arbitrage

Question 22

Multinational business strategies for preserving or enhancing operating cash flows through multinational operations include each of the following EXCEPT

A) follow the customer
B) follow the leader
C) go local
D) lead the customer
E) the perfect market assumptions

Question 23

Opportunities for the MNC to reduce operating expenses include each of the following EXCEPT

A) economies of scale
B) economies of scope
C) flexibility in global site selection
D) global branding
E) low-cost labor

Question 24

Opportunities for MNCs to create value through their financial policies include each of the following EXCEPT

A) access to low-cost capital
B) currency risk management
C) expansion of the investment opportunity set
D) financial market arbitrage
E) overcoming capital flow barriers

Question 25

The perfect market assumptions include each of the following EXCEPT

A) efficient markets
B) equal access to costless information
C) equal access to market prices
D) frictionless markets
E) rational investors

Question 26

National and cultural differences manifest themselves in each of the following ways EXCEPT

A) accounting conventions
B) distribution
C) human nature
D) personnel management
E) tax systems

Question 27

Opportunities for the MNC to enhance revenues include each of the following EXCEPT

A) advantages of scale
B) advantages of scope
C) economies of vertical integration
D) global branding
E) marketing flexibility