Saller Co. has a subsidiary in Mexico. The expected cash flows in pesos to be received in the future from this subsidiary have not changed since last month, but the valuation of Saller Co. has declined since last month. What could've caused this decline i
c.Depreciation of the Mexican peso
Jensen Co. wants to establish a new subsidiary in Mexico that will sell computers to Mexican customers and remit earnings back to the U.S. parent. The value of this project will be favorably affected if the value of the peso ____ while it establishes the
a.depreciates; appreciates
Agency costs faced by multinational corporations (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
d. All of the above
International trade generally results in ____ exposure to international political risk and ____ exposure to international economic conditions, when compared to other methods of international business.
a.higher; lower
b.higher; higher
c.lower; higher
d.low
d. lower; lower
Which of the following is not an example of political risk?
a.Government may impose taxes on subsidiary
b.Government may impose barriers on subsidiary
c.Consumers may boycott the MNC
d.Consumers' income levels will decrease, thus decreasing consumption.
d.Consumers' income levels will decrease, thus decreasing consumption.
The MNC's value depends on all of the following, except:
a.MNC's required rate of return
b.Amount of MNC's cash flows in particular currency
c.The exchange rate at which cash flows are converted to dollars
d.The value of MNC depends on all of the above fa
d.The value of MNC depends on all of the above factors
Assume that an American firm wants to engage in international business without major investment in the foreign country. Which method is least appropriate in this situation?
a.International Trade
b.Licensing
c.Franchising
d.Direct foreign investment
d.Direct foreign investment
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
e.All of the above are common methods used by MNCs to improve their internal control process.
The most risky method(s) by which firms conduct international business is (are):
a.Franchising.
b.The acquisitions of existing operations.
c.The establishment of new subsidiaries.
d.All of the above
e.B and C only
e.B and C only
In comparing exporting to direct foreign investment (DFI), 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
d.lower; higher
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.
c.purchasing existing companies in a country.
According to the text, a disadvantage of licensing is that:
a.it prevents a firm from importing.
b.it is difficult to ensure quality control of the production process.
c.it prevents a firm from exporting.
d.none of the above
b.it is difficult to ensure quality control of the production process.
___ are most commonly classified as a direct foreign investment.
a.Foreign acquisitions
b.Purchases of international stocks
c.Licensing agreements
d.Exporting transactions
a.Foreign acquisitions
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.
c.interest rate risk.
Licensing obligates 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 specia
b.its technology; a specialized sales or service strategy
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.
c.acquisition of a foreign subsidiary.
International trade:
a.is a relatively conservative approach to foreign market penetration.
b.entails minimal risk.
c.does not require large amount of investment.
d.all of the above.
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.
b. Maximize shareholder wealth
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.
B. Larger than agency costs of a small purely domestic firm
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.in
b.increase; appreciate
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 comp
a.assembly line production.
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
d.none of the above
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.
c.uses a centralized management style
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.makes executives more accountable for verifying financial statements
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 countr
c.ensuring that the MNC always borrows from countries where interest rates are lowest