Quiz 1: Multinational Financial Management: an Overview

When an MNC is cross-listed, its shares are quoted on more than one stock exchange.

An agency problem exists when managers are tempted to serve their own interests rather than those of the MNC or, consequently, shareholders.

Shareholder wealth is defined as the present value of the expected future returns to the owners (that is, shareholders) of the firm.

Market capitalization refers to the total value of all a company's shares of stock. It is calculated by multiplying the price of a stock by its number of stock exchange listings.

MNCs have a variety of cash flow streams that can be derived from different business styles. In general, we distinguish three different business profiles, with the profile of MNCs focused only on international trade being considered the most complex of the three.

An indirect benefit to the MNC of following a worldwide code of ethics is: A) it allows them to receive special tax breaks in less developed countries. B) it puts them at a competitive advantage in foreign markets. C) the worldwide credibility associated with maintaining such standards can increase global demand for the MNC's products. D) A and B

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

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

A joint venture is a venture that is owned and operated by two or more firms.

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

Acquisitions allow firms to have __ control over their foreign businesses and to ___obtain a large portion of foreign market share. A) full, quickly B) less, quickly C) full, slowly D) less, slowly

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

The goal of a multinational corporation (MNC) is the maximization of shareholder wealth.

According to the text, a disadvantage of licensing is that: A) it prevents a firm from importing. B) it is difficult for the firm providing the technology to ensure quality control in the foreign production process. C) it prevents a firm from exporting. D) none of the above

Franchising is the process by which national governments sell state owned operations to corporations and other investors.

Although international business can reduce an MNC's exposure to its home country's economic conditions, it usually increases an MNC's exposure to: A) exchange rate movements. B) foreign economic conditions. C) political risk. D) all of the above

____ are most commonly classified as a direct foreign investment. A) Foreign acquisitions B) Purchases of international stocks C) Licensing agreements D) Exporting transactions

A centralized management style for an MNC results in relatively high agency costs.

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

In comparing exporting to direct foreign investment (FDI), 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

A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs.

Dunning classifies four different motives which motivate companies to do international business. Which of the following is one of them? A) Natural resource-seeking B) Market-seeking C) Efficiency-seeking D) All of the above

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.

Due to the larger opportunity set of funding sources around the world from which an MNC can choose, an MNC may be able to obtain capital at a lower cost than a purely domestic firm.

Investor monitoring tends to focus on broad issues. Which of the following is not one of these issues? A) Ethical behaviour B) Motivation packages C) Hiring policy D) Investing in questionable projects

A recent study by McKinsey & Co. found that investors assign a higher value to firms that exhibit ____ corporate governance standards and are likely to ____ ethical constraints. A) high; not obey B) high; obey C) low; not obey D) low; obey

The Special Purpose Vehicle (SPV) is legally and financially dependent of the sponsors and other providers of capital.

When we talk about the value of a firm being the discounted future-free cash flows, we mean which financial model? A) Three Statement Model B) Option Pricing Model C) Forecasting Model D) Discounted Cash Flow Model

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.

Licensing obliges 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

One of the most prevalent factors conflicting with the realization of the goal of an MNC is the existence of agency problems.

Firms use several methods to conduct international business. The most common methods include: A) international trade. B) licensing. C) franchising. D) all of the above.

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

Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are stable over time.

Licensing involves selling copyrights, patents, trademarks or trade names or legal rights in exchange for fees known as royalties. Thus a company is selling the right to produce their goods.

In some countries, bribes are commonplace. If a MNC decides to adhere to a strict code of ethics and not pay bribes, its subsidiary may be at a competitive disadvantage in the foreign country.

Which of the following is not mentioned in the text as a constraint interfering with the MNC goal? A) Economic constraints B) Environmental constraints C) Regulatory constraints D) Ethical constraints

When MNCs enter foreign markets to sell products, the demand for these products is dependent on the economic conditions in those markets.

Which of the following are the distinct ways of valuing MNCs? A) Stock market valuation B) Valuation in the accounts C) Financial academic models D) All the above

A major threat to both the company and its employees is the threat of a ___ if the MNC is inefficiently managed. A) sellout of products B) market shock C) hostile takeover D) None of the above

Which of the following is not a form of corporate control that could reduce agency problems for an MNC? A) Stock options 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.

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