Question 1

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

Accepted Answer

The Sarbanes-Oxley Act (SOX) requires executives to personally certify the accuracy of financial statements, making them more accountable for financial reporting. This improves corporate governance by increasing transparency and reducing the likelihood of fraudulent financial reporting.

Answer: C 
 SOX requires firms to disclose their compensation practices, including how executive compensation is tied to firm performance. This can improve corporate governance by aligning executive incentives with the long-term interests of the firm's shareholders.

Answer: D 
 There is no provision in the Sarbanes-Oxley Act that places a limit on the amount of funds that managers can spend. This answer choice is incorrect.

Therefore, the best choices are A and C.

Question 2

If a publicly-traded MNC's managers make poor decisions that reduce its value, it may encourage other firms to acquire it.

Accepted Answer

If the managers of a publicly-traded MNC make poor decisions that lead to a reduction in the company's value, this may make it an attractive target for acquisition by other firms. The lower valuation may make it more affordable for potential acquirers, and the poor management track record may make them believe they can improve the company's performance. Therefore, it is possible for poor management decisions to increase the likelihood of a company being acquired.

Question 3

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.

Accepted Answer

All of the options mentioned (stock options as managerial compensation, hostile takeover threat, and investor monitoring) are forms of corporate control that could potentially reduce agency problems for an MNC. Stock options provide incentives for managers to align their interests with those of shareholders. A hostile takeover threat can act as a disciplinary mechanism for inefficient management. Investor monitoring can help ensure that management is acting in the best interest of shareholders. Therefore, D is the best choice.

Question 4

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

Accepted Answer

The answer of An MNC may be more exposed to...

Question 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

Accepted Answer

When the expected cash flows from foreign increase, it means that the MNC is generating more profits and hence investors will value the company higher. Additionally, when foreign currencies denominating these cash flows are expected to appreciate, it means that the MNC will be able to convert these profits into more valuable currency when it repatriates them back to the domestic country. This also adds value to the MNC and hence its valuation should rise.

Question 6

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.

Accepted Answer

MNCs have higher agency costs compared to small purely domestic firms due to the complexity of their operations and the need to coordinate activities across different countries and cultures. The larger size of MNCs can also lead to greater potential for conflicts of interest between managers and shareholders, resulting in higher agency costs.

Question 7

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

Accepted Answer

The theory of comparative advantage explains that specialization is a reason for international business. This theory suggests that countries should specialize in producing goods and services that they can produce efficiently and import goods and services that they cannot produce efficiently. This leads to international trade and helps countries to achieve economic growth and development.

Question 8

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.

Accepted Answer

The commonly accepted goal of MNCs is to maximize shareholder wealth through long-term profitability, growth and sustainability. While minimizing risk is an important consideration, it is not the primary goal, and maximizing short-term earnings or international sales may not align with maximizing shareholder wealth in the long term.

Question 9

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

Accepted Answer

The imperfect markets theory identifies non-transferability of resources as a reason for international business. This theory suggests that resources are not perfectly mobile across countries due to market imperfections, such as differences in legal systems, cultural barriers, and transportation costs, which create opportunities for companies to engage in international trade and investment to benefit from differences in resource endowments and prices. The theory of comparative advantage and product cycle theory focus on different reasons for international business, such as differences in relative efficiency and innovation capabilities, respectively.

Question 10

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

Accepted Answer

The product cycle theory suggests that firms seek to penetrate new markets over time as their product moves through various stages of the product cycle, including introduction, growth, maturity, and decline. This theory also suggests that as a product becomes mature in a market, firms may seek to introduce new or improved versions of the product in other markets to continue growth.

Question 11

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.

Accepted Answer

Using a centralized management style helps to reduce agency costs by promoting better coordination and control within the MNC. With a centralized management style, the parent company can more closely monitor the actions of its subsidiaries, and ensure that they are following the company's overall strategy and goals. This reduces the likelihood of conflicts of interest and other agency issues that can arise when subsidiaries operate more independently. Scattering subsidiaries across many foreign countries or increasing the volume of international business may actually increase agency costs by complicating management and increasing the risk of agency problems.

Question 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.

Accepted Answer

Licensing is defined as providing technology, such as copyrights or patents, in exchange for compensation.

Question 13

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.

Accepted Answer

Assembly line production is highly labor-intensive and businesses can often take advantage of lower labor costs in less developed countries. Specialized professional services, nuclear missile planning, and planning for more sophisticated computer technology require highly skilled labor and may not be as easily outsourced to lower-cost countries.

Question 14

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

Accepted Answer

An MNC (Multinational Corporation) and a purely domestic firm both aim to maximize shareholder wealth, as this is a fundamental goal for most corporations regardless of their operational scope.

Question 15

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

Accepted Answer

Franchising is not the process by which national governments sell state owned operations to corporations and other investors. Franchising is a business model where the owner of a business (franchisor) grants the rights to operate their business model and use their brand name to a third party (franchisee) in exchange for a fee or royalty.

Question 16

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.

Accepted Answer

Institutional investors, despite not seeking control, can exert significant influence over management decisions through their voting power and engagement with the company's leadership.

Question 17

The parent of MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of the MNC.

Accepted Answer

This is a common practice in many MNCs, as it aligns the interests of the subsidiary managers with those of the parent company and encourages them to work towards increasing the overall value of the MNC. This can be done through various means, such as stock options, performance-based bonuses, or profit-sharing arrangements, among others.

Question 18

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

Accepted Answer

The option C is not relevant to improving internal control process. It is not recommended to always borrow from countries where interest rates are lowest, as this may not be the most financially strategic decision for the company. The other options (A, B, and D) are all effective ways to improve internal control processes.

Question 19

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.

Accepted Answer

A product cycle refers to the stages that a product goes through from introduction to decline, and is not related to franchising.

Question 20

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

Accepted Answer

None of the options given are appropriate or accurate guidelines for managing risks in international business. Each firm must assess its own risk tolerance and strategies based on its unique circumstances and market opportunities. It is important to conduct thorough market research, establish solid partnerships, and have a solid understanding of the legal and regulatory frameworks in each country before embarking on international business.

Quiz 1: Multinational Financial Management: An Overview

The Sarbanes-Oxley Act improves corporate governance of MNCs because it:

If a publicly-traded MNC's managers make poor decisions that reduce its value, it may encourage other firms to acquire it.

Which of the following could reduce agency problems for an MNC?

An MNC may be more exposed to agency problems if most of its shares are held by:

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 .

For the MNC, agency costs are typically:

Which of the following theories identifies specialization as a reason for international business?

The commonly accepted goal of the MNC is to:

Which of the following theories identifies the non-transferability of resources as a reason for international business?

Which of the following theories suggests that firms seek to penetrate new markets over time?

The agency costs of an MNC are likely to be lower if it:

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.

Which of the following industries would most likely take advantage of lower costs in some less developed foreign countries?

With regard to corporate goals, an MNC is mostly concerned with maximizing , and a purely domestic firm is mostly concerned with maximizing .

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

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.

The parent of MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of the MNC.

MNCs can improve their internal control process by all of the following, except:

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.

Due to the risks involved in international business, firms should: