LEARNING OBJECTIVES: INFM.MADU.15.01.01

Chapter 01: Multinational Financial Management: An Overview

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1. The commonly accepted goal of an MNC is to:

• maximize short-term earnings.
• maximize shareholder wealth.
• minimize risk.
• A and C.
• maximize international sales.

ANSWER: b

DIFFICULTY: Easy

LEARNING OBJECTIVES: INFM.MADU.15.01.01

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Knowledge

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

mostly concerned with maximizing ____.

• shareholder wealth; short-term earnings
• shareholder wealth; shareholder wealth
• short-term earnings; sales volume
• short-term earnings; shareholder wealth

ANSWER: b

DIFFICULTY: Easy

LEARNING OBJECTIVES: INFM.MADU.15.01.01

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Knowledge

3. For an MNC, agency costs are typically:

• nonexistent
• larger than agency costs of a small purely domestic firm.
• smaller than agency costs of a small purely domestic firm.
• the same as agency costs of a small purely domestic firm.

ANSWER: b

DIFFICULTY: Easy

LEARNING OBJECTIVES: INFM.MADU.15.01.01

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Knowledge

• Which of the following could reduce agency problems for an MNC?
• stock options as managerial compensation
• hostile takeover threat
• investor monitoring
• all of the above are forms of corporate control that could reduce agency problems for an MNC.

ANSWER: d

(International Financial Management, 13e Jeff Madura) (Test Bank all Chapters) 1 / 4

Chapter 01: Multinational Financial Management: An Overview

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DIFFICULTY: Moderate

LEARNING OBJECTIVES: INFM.MADU.15.01.01

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Comprehension

• The valuation of an MNC should rise when an event causes the expected cash flows from foreign subsidiaries to ____

and when the foreign currencies denominating these cash flows are expected to ____.

• decrease; appreciate
• increase; appreciate
• decrease; depreciate
• increase; depreciate

ANSWER: b

DIFFICULTY: Easy

LEARNING OBJECTIVES: INFM.MADU.15.01.04

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Comprehension

• Which of the following theories identifies specialization as a reason for international business?
• theory of comparative advantage
• imperfect markets theory
• product cycle theory
• none of the above

ANSWER: a

DIFFICULTY: Easy

LEARNING OBJECTIVES: INFM.MADU.15.01.02

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Knowledge

• Which of the following theories identifies the nontransferability of resources as a reason for international business?
• theory of comparative advantage
• imperfect markets theory
• product cycle theory
• none of the above

ANSWER: b

DIFFICULTY: Easy

LEARNING OBJECTIVES: INFM.MADU.15.01.02

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Knowledge

• Which of the following theories suggests that firms seek to penetrate new markets over time? 2 / 4

Chapter 01: Multinational Financial Management: An Overview

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• theory of comparative advantage
• imperfect markets theory
• product cycle theory
• none of the above

ANSWER: c

DIFFICULTY: Easy

LEARNING OBJECTIVES: INFM.MADU.15.01.02

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Knowledge

• An industry based on which of the following would most likely take advantage of lower costs in some less developed

foreign countries?

• assembly line production
• specialized professional services
• nuclear missile programs
• development of more sophisticated computer technology

ANSWER: a

DIFFICULTY: Moderate

LEARNING OBJECTIVES: INFM.MADU.15.01.02

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Application

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

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

ANSWER: d

DIFFICULTY: Moderate

LEARNING OBJECTIVES: INFM.MADU.15.01.02

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Comprehension

• 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 a franchise in exchange for periodic fees.

• True
• False

ANSWER: b

DIFFICULTY: Easy

LEARNING OBJECTIVES: INFM.MADU.15.01.02

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03 3 / 4

Chapter 01: Multinational Financial Management: An Overview

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STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Knowledge

• 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.

• True
• False

ANSWER: a

DIFFICULTY: Easy

LEARNING OBJECTIVES: INFM.MADU.15.01.03

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Knowledge

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

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

ANSWER: c

DIFFICULTY: Easy

LEARNING OBJECTIVES: INFM.MADU.15.01.01

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Comprehension

• An MNC may be more exposed to agency problems if most of its shares are held by:
• a few mutual funds.
• a widely dispersed set of individual investors.
• a few pension funds.
• all of the above would prevent agency problems.

ANSWER: b

DIFFICULTY: Easy

LEARNING OBJECTIVES: INFM.MADU.15.01.01

NATIONAL STANDARDS: United States - BUSPROG.INFM .MADU.15.03

STATE STANDARDS: United States - OH - DISC.INFM.MADU.15.02

KEYWORDS: Bloom's: Comprehension

15. The Sarbanes-Oxley Act improved corporate governance of MNCs because it:

• made executives more accountable for verifying financial statements.
• eliminated stock options as a form of compensation.
• tied executive compensation to firm performance.
• placed a limit on the amount of funds that managers can spend.

ANSWER: a

DIFFICULTY: Easy

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