Question 1

The Sarbanes-Oxley Act ensures a more transparent process for managers to report on the productivity and financial condition of their firm.

Accepted Answer

The Sarbanes-Oxley Act requires companies to maintain accurate and transparent financial reporting, which promotes accountability and transparency among company managers. This includes measures such as requiring CEOs and CFOs to certify the accuracy of financial statements and imposing stricter penalties for financial fraud.

Question 2

International trade is the most common form of direct foreign investment (DFI).

Accepted Answer

International trade and direct foreign investment (DFI) are two separate concepts, with international trade referring to the exchange of goods and services across borders, while DFI involves a company making a physical investment in a foreign country, such as opening a subsidiary or purchasing a foreign company. While they can be related, they are not the same thing, so international trade cannot be considered the most common form of DFI.

Question 3

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

Accepted Answer

The text mentions the theories of comparative advantage, imperfect markets, and product cycle, but does not mention a theory specifically called "globalization of business theory." However, this could be argued to be an overarching concept rather than a specific theory.

Question 4

When conducting international business, firms generally face the most risk when they:
A)engage in franchising.
B)make acquisitions of existing operations.
C)establish new subsidiaries.
D)engage of international trade.
E)B and C

Accepted Answer

The answer of When conducting international business, firms generally face...

Question 5

A purely domestic firm may be affected by exchange rate fluctuations if it faces at least some foreign competition.

Accepted Answer

Even if a firm is purely domestic, it may face competition from foreign firms that can be affected by exchange rate fluctuations. For example, if the value of the domestic currency appreciates, imported goods may become cheaper and more attractive to consumers, leading to increased competition for the domestic firm. Alternatively, if the domestic currency depreciates, it may become cheaper for foreign firms to export goods to the domestic market, again leading to increased competition.

Question 6

The goal of an MNC is to:​
A)minimize taxes on funds remitted from foreign subsidiaries.
B)establish 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)maximize shareholder wealth.
D)maximize the social benefits resulting from actions such as the employment of foreign managers.

Accepted Answer

The primary goal of an MNC is to maximize shareholder wealth, which is achieved through various strategies such as expanding operations, increasing revenues, reducing expenses, and managing risks effectively. While minimizing taxes and establishing subsidiaries in profitable markets are important considerations, they are secondary to the main objective of creating value for shareholders. Similarly, while the employment of foreign managers and other social benefits may be desirable, they are not the primary focus for an MNC.

Question 7

U.S.-based MNCs are typically not monitored by mutual funds and pension funds, as these institutions rarely hold stock in MNCs​

Accepted Answer

Mutual funds and pension funds often hold stock in MNCs, and as such, they monitor them to ensure their investments are performing well.

Question 8

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

International trade involves the exchange of goods and services between countries, but it does not involve direct investment in foreign operations. Rather, it is a form of indirect foreign investment. Franchising, joint ventures, acquisitions of existing operations, and establishment of new foreign subsidiaries are all forms of direct foreign investment.

Question 9

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.

Accepted Answer

The theory of comparative advantage, originally formulated by David Ricardo, does not specifically address how firms establish themselves or penetrate foreign markets. Instead, it explains how countries can gain by specializing in the production of goods for which they have a lower opportunity cost and trading with others.

Question 10

Licensing allows firms to use their technology in foreign markets without a major investment in foreign countries​

Accepted Answer

Licensing allows firms to gain revenue by granting rights to use their technology to foreign firms without the need for extensive investments in foreign countries.

Question 11

Agency costs faced by 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

Accepted Answer

All of the above reasons contribute to higher agency costs faced by MNCs. Monitoring managers in foreign countries can be challenging due to distance, language barriers, and cultural differences, which can lead to deviations from uniform goals. Additionally, foreign subsidiary managers may have different cultural backgrounds and attitudes towards risk-taking, which could conflict with the overall objectives of the MNC. Finally, MNCs are relatively large, which can make communication and coordination among different units more challenging, thereby increasing the likelihood of agency problems.

Question 12

Under the product cycle theory, foreign demand can be initially satisfied by exporting.

Accepted Answer

According to the product cycle theory, a country initially satisfies foreign demand by exporting its products. As the product becomes popular worldwide, the production shifts to other countries with lower production costs, and the original country eventually becomes a net importer of the product.

Question 13

The least risky method by which firms conduct international business is:​
A)franchising
B)acquisitions of existing operations.
C)international trade.
D)the establishment of new subsidiaries.
E)licensing

Accepted Answer

International trade is the least risky method because it involves only the exchange of goods and services between countries, without requiring the establishment of physical operations in a foreign market or the transfer of ownership/control of assets. The risks associated with international trade are generally limited to currency fluctuations, political instability, and potential trade barriers. Franchising, licensing, acquisitions, and the establishment of new subsidiaries all involve greater risks, such as the loss of intellectual property, operational and cultural challenges, regulatory compliance, and financial investments.

Question 14

If managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they automatically maximize the value of the entire corporation.

Accepted Answer

While maximizing the value of a subsidiary can contribute to the overall success of the corporation, it does not necessarily result in automatic maximization of the corporation's value. Decisions made by subsidiary managers should also consider the overall strategy and goals of the corporation as a whole.

Question 15

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.

Accepted Answer

The imperfect markets theory assumes that factors of production are not entirely mobile, meaning that firms cannot easily access and capitalize on a foreign country's resources. This leads to market inefficiencies and imperfect competition.

Question 16

When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a smaller amount of the home currency.

Accepted Answer

When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a larger amount of the home currency, as the weak home currency means more of it can be bought with the stronger foreign currency.

Question 17

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

Accepted Answer

The answer of Which of the following is not one...

Question 18

One form of exposure to political risk is terrorism​

Accepted Answer

Terrorism can lead to political instability and government instability, which can increase political risk for businesses operating in a particular region. Attacks on infrastructure or personnel can also disrupt business operations and create financial losses for companies.

Question 19

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.

Accepted Answer

Decentralized management allows for decision making to be made closer to the source of the information, leading to more informed decisions. Subsidiary managers have a better understanding of their specific operations and can make decisions accordingly.

Quiz 1: Multinational Financial Management: An Overview

The Sarbanes-Oxley Act ensures a more transparent process for managers to report on the productivity and financial condition of their firm.

International trade is the most common form of direct foreign investment (DFI).

Which of the following is not mentioned in the text as a theory of international business?​

When conducting international business, firms generally face the most risk when they:

A purely domestic firm may be affected by exchange rate fluctuations if it faces at least some foreign competition.

The goal of an MNC is to:​

U.S.-based MNCs are typically not monitored by mutual funds and pension funds, as these institutions rarely hold stock in MNCs​

Which of the following does not constitute a form of direct foreign investment?​

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.

Licensing allows firms to use their technology in foreign markets without a major investment in foreign countries​

Agency costs faced by MNCs may be larger than those faced by purely domestic firms because:​

Under the product cycle theory, foreign demand can be initially satisfied by exporting.

The least risky method by which firms conduct international business is:​

If managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they automatically maximize the value of the entire corporation.

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.

When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a smaller amount of the home currency.

Which of the following is not one of the more common methods used by MNCs to improve their internal control process?​

One form of exposure to political risk is terrorism​

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.

Which of the following is not mentioned in the text as a theory of international business?

The goal of an MNC is to:

U.S.-based MNCs are typically not monitored by mutual funds and pension funds, as these institutions rarely hold stock in MNCs

Which of the following does not constitute a form of direct foreign investment?

Licensing allows firms to use their technology in foreign markets without a major investment in foreign countries

Agency costs faced by MNCs may be larger than those faced by purely domestic firms because:

The least risky method by which firms conduct international business is:

Which of the following is not one of the more common methods used by MNCs to improve their internal control process?

One form of exposure to political risk is terrorism