Beginning: Chapter 1
...
1. The commonly accepted goal of an 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
2. 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 ear
B. Shareholder wealth, shareholder earnings
3. For an MNC, agency costs are typically:
a. nonexistent
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
4. 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 MN
D. All of the above are forms of corporate control that could reduce agency problems for an MNC
5. 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 ____.
a. decrease; appreciate
b. increase; appreciate
c. de
B. Increase, appreciate
6. 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
A. Theory of comparative advantage
7. Which of the following theories identifies the nontransferability 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
B. Imperfect markets theory
8. 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
C. Product cycle theory
9. An industry based on which of the following 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 programs
d. development of more so
A. Assembly line production
10. 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
D. None of the above
11. True or False:
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.
False
12. True or False:
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
13. 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
14. 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.
B. A widely dispersed set of individual investors
15. The Sarbanes-Oxley Act improved corporate governance of MNCs because it:
a. made executives more accountable for verifying financial statements.
b. eliminated stock options as a form of compensation.
c. tied executive compensation to firm performance.
A. Made executives more accountable for verifying financial statements
16. MNCs can improve their internal control process by all of the following, except:
a. establishing a centralized database of information.
b. ensuring that all data are reported consistently among subsidiaries.
c. ensuring that the MNC always borrows fro
C. Ensuring that the MNC always borrows from countries where interest rates are lowest
17. True or False:
Franchising is the process by which national governments sell state-owned operations to corporations and other investors.
False
18. True or False:
The parent of an MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of the MNC.
True
19. True or False:
a publicly traded MNC's managers make poor decisions that reduce its value, that may encourage other firms to acquire the MNC.
True
20. True or False:
Institutional investors such as mutual funds or pension funds that 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.
False
21. Four MNCs generate the same level of sales. The MNC that ______________________would likely have the most direct foreign investment.
a. exports all of its products
b. produces and sells its products locally
c. imports products from unrelated firms in
D. Acquires a foreign firm that produces most of its products to be sold in that foreign country
22. 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
23. According to the text, licensing allows a firm to:
a. import without being subject to government restrictions.
b. provide its technology for a fee.
c. export without government restrictions.
d. none of the above
B. Provide its technology for free
24. Assume that an MNC purchases a foreign building, and then leases the building to another party and allows that party to operate the business in the building for 30 years if the party follows standards set by the MNC. This process is referred to as:
a.
A. Foreign acquisition
25. True or False:
Imperfect markets reflect conditions under which factors of production are immobile.
True
26.True or False:
The Sarbanes-Oxley Act (SOX), which was enacted in 2002, required MNCs and other firms to implement an internal reporting process that could be easily monitored by executives and the board of directors.
True
27. T or F:
If markets were perfect, then labor and other costs of production would be perfectly stable (no movement across borders).
False
28. T or F:
The valuation of an MNC is reduced if the required rate of return on its investments in foreign countries is reduced.
False
29. 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
30. 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.
B. Its technology, a specialized sale or service strategy
31. 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
32. T or F:
The goal of a multinational corporation (MNC) is the maximization of shareholder wealth.
True
33. T or F:
A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs.
False
34. T or F:
If a U.S. firm sets up a plant in Mexico to benefit from low-cost labor, it will likely have a comparative advantage over other firms in Mexico that sell the same product.
False
35. T or F:
Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are stable over time.
False
36. T or F:
One of the most prevalent factors conflicting with the realization of the goal of an MNC is the existence of agency problems.
True
37. T or F:
A centralized management style for an MNC results in relatively high agency costs.
False
38. T or F:
The imperfect markets theory states that factors of production are somewhat immobile, allowing firms to capitalize on a foreign country's resources.
True
39. T or F:
If a U.S.-based MNC focused entirely on importing, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time.
False
40. T or F:
MNCs commonly consider acquiring an existing foreign operation because the cost is less expensive than establishing a new subsidiary of the same size.
False
41. T or F:
If a U.S.-based MNC focused entirely on exporting, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time.
False
42. T or F: If markets were perfect, then labor and other costs of production would be easily transferable.
True
43. International trade:
a. is a relatively conservative approach to foreign market penetration.
b. entails minimal risk.
c. does not require a large amount of investment.
d. all of the above.
D. All of the above
44. Assume that an American firm wants to engage in international business without making a major investment in the foreign country. Which method is least appropriate in this situation?
a. international trade
b. licensing
c. franchising
d. direct foreign
D. Direct foreign investment
45. T or F:
The valuation of an MNC accounts for all the cash flows received by the foreign subsidiaries plus all the cash flows remitted by the subsidiaries.
False
46. An MNC's value depends on all of the following, except:
a. the MNC's required rate of return.
b. the amount of the MNC's cash flows in a particular currency.
c. the exchange rate at which cash flows are converted to dollars.
d. all of the above factor
D. All of the above factors
47. Which of the following is not an example of political risk?
a. Government may impose taxes on a subsidiary.
b. Government may impose barriers on a subsidiary.
c. Consumers may boycott the MNC.
d. Consumers' income levels may decrease, thus decreasing
D. Consumers' income levels may decrease, thus decreasing consumption
48. T or F: A microeconomic perspective focuses on external forces such as economic conditions that can affect the value of an MNC
False
49. T or F:
Assume that an MNC has a subsidiary in Italy, which exports its products to various countries in Europe. Since all of the countries where it exports use the euro as their currency, this MNC is not subject to exchange rate risk.
False
50. Compared to other methods of international business, international trade generally results in ____ exposure to international political risk and ____ exposure to international economic conditions.
a. higher; lower
b. higher; higher
c. lower; higher
d.
D. Lower, lower
51. Assume that Boca Co. wants to expand its business to Japan and wants complete control over the operations in Japan. Which method of international business is most appropriate for Boca Co?
a. joint venture
b. licensing
c. partial acquisition of an exis
B. Licensing
52. T or F:
A decentralized management style results in relatively high agency costs for an MNC.
True
53. T or F:
MNCs commonly consider establishing a new foreign subsidiary to replace their exporting business because it allows them to avoid exchange rate risk.
false
54. Assume that Live Co. has expected cash flows of $200,000 from domestic operations, 200,000 Swiss francs from Swiss operations, and 150,000 euros from Italian operations at the end of the year. The Swiss franc's value and the euro's value are expected
$559,500
55. 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 have caused this dec
C. Depreciation of the Mexican peso
56. 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 Jensen establis
A. Depreciates, appreciates
57. T or F:
A macroeconomic perspective focuses on the financial management decisions that affect the value of an MNC.
False
58. T or F:
In determining the valuation of foreign projects, an MNC will always use the same required rate of return as it would for its domestic projects.
False
59. Livingston Co. has a subsidiary in Korea. The subsidiary reinvests half of its net cash flows into operations and remits half to the parent. Livingston's expected cash flows from domestic business are $100,000, and the Korean subsidiary is expected to
C. $160,000
60. T or F:
A U.S.-based MNC has many foreign subsidiaries in Europe and does not expect to increase its investment there. Its value should increase if the value of the euro weakens over time.
False
61. T or F:
If managers of foreign subsidiaries make decisions that maximize the values of their respective subsidiaries, they automatically maximize the value of the entire corporation.
False
62. T or F:
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.
True
63. T or F:
U.S.-based MNCs are typically not monitored by mutual funds and pension funds, as these institutions rarely hold stock in MNCs
False
64. T or F:
The Sarbanes-Oxley Act ensures a more transparent process for managers to report on the productivity and financial condition of their firm.
True
65. T or F:
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.
False
66. T or f:
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.
False
67. T or F:
Under the product cycle theory, foreign demand can be initially satisfied by exporting.
True
68. T or F:
Licensing allows firms to use their technology in foreign markets without a major investment in foreign countries
True
69.T or F:
International trade is the most common form of direct foreign investment (DFI).
False
70. T or F:
When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a smaller amount of the home currency.
False
71. T or F:
A purely domestic firm may be affected by exchange rate fluctuations if it faces at least some foreign competition.
True
72. T or F:
One form of exposure to political risk is terrorism
True
74. 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 go
D. All of the above
75. 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. speedi
A. Establishing a centralized database of information
73. 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 domesti
C. Maximize shareholder wealth
76. 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
D. Globalization of business theory
77. 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
A. Engage in franchising
78. 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
C. International trade
79. 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
B. International trade
end of chapter 1
Beginning of chapter 2
1. Recently, the U.S. experienced an annual balance of trade representing a ____.
a. large surplus (exceeding $100 billion)
b. small surplus
c. level of zero
d. deficit
D. Deficit
2. A high home inflation rate relative to other countries would ____ the home country's current account balance, other things being equal. High growth in the home income level relative to other countries would ____ the home country's current account balan
C. Decrease, decrease
3. If a country's government imposes a tariff on imported goods, that country's current account balance will likely ____ (assuming no retaliation by other governments).
a. decrease
b. increase
c. remain unaffected
d. either A or C is possible
B. Increase
4. ____ purchases more U.S. exports than the other countries listed here.
a. Italy
b. Spain
c. Mexico
d. Canada
D. Canada
5. An increase in the current account deficit will place ____ pressure on the home currency value, other things being equal.
a. upward
b. downward
c. no
d. upward or downward (depending on the size of the deficit)
B. Downward
6. If the home currency begins to appreciate against other currencies, this should ____ the current account balance, other things being equal (assume that substitutes are readily available in other countries, and that the prices charged by firms remain th
C. Reduce
7. The International Finance Corporation was established to promote economic development:
a. in Asia through grants to businesses.
b. by providing nonsubsidized loans (at market interest rates) to governments and their agencies.
c. by providing low-intere
D. Through the private sector by providing loans to corporations and investing in their stock
8. The World Bank was established to reduce poverty and promote economic development:
a. in Asia through grants to businesses.
b. by providing nonsubsidized loans (at market interest rates) to governments and their agencies.
c. by providing low-interest-r
B. By providing nonsubsidized loans (at interest market rates) to governments and their agencies
9. The International Development Association was established to promote economic development:
a. in Asia through grants to businesses.
b. by providing nonsubsidized loans (at market interest rates) to governments and their agencies.
c. by providing low-in
C. By providing low-interest-rate loans (below-market rates) to poor nations
10. Which of the following would likely have the least direct influence on a country's current account?
a. inflation
b. national income
c. exchange rates
d. tariffs
e. a tax on income earned from foreign stocks
E. A tax on income earned from foreign stocks
11. The "J-curve" effect describes:
a. the continuous long-term inverse relationship between a country's current account balance and the country's growth in gross domestic product.
b. the short-run tendency for a country's balance of trade to deteriorate
B. The short-run tendency for acountry's ballance of trade to deteriorate even while its currency is depreciating
12. An increase in the use of quotas is expected to:
a. reduce the country's current account balance, if other governments do not retaliate.
b. increase the country's current account balance, if other governments do not retaliate.
c. have no impact on the
B. Increase the country's
13. The United States typically has a balance-of-trade surplus in its trade with ____.
a. China
b. Japan
c. A and B
d. none of the above
D. None of the above
14. The North American Free Trade Agreement (NAFTA) increased restrictions on:
a. trade between Canada and Mexico.
b. trade between Canada and the United States
c. direct foreign investment in Mexico by U.S. firms.
d. none of the above.
D. None of the above
15. According to the text, international trade (exports plus imports combined) as a percentage of GDP is:
a. higher in the United States than in European countries.
b. lower in the United States than in European countries.
c. higher in the United States t
B. Lower in the United States than in European countries
16. The direct foreign investment positions by U.S. firms have generally ____ over time. Restrictions by governments on direct foreign investment have generally ___ over time.
a. increased; increased
b. increased; decreased
c. decreased; decreased
d. decr
B. Increased, decreased
17. Which of the following countries purchases the largest amount of exports by U.S. firms?
a. Mexico
b. Japan
c. Canada
d. France
C. Canada
18. The primary component of the current account is the:
a. balance of trade.
b. balance of gifts.
c. balance of aid payments.
d. balance of grant payments.
A. Balance of trade
19. As a result of the European Union, restrictions on exports between ____ were reduced or eliminated.
a. member countries and the United States
b. member countries
c. member countries and European nonmembers
d. none of the above
B. member countries
20. Over the last several years, international trade has generally:
a. increased for most major countries.
b. decreased for most major countries.
c. stayed about constant for most major countries.
d. increased for about half the major countries and decrea
A. Increased for most major countries
21. Which of the following is not a result of the North American Free Trade Agreement (NAFTA)?
a. increased trade between the United States and Central American countries
b. increased imports by the United States from Mexico
c. increased exports by U.S. f
A. Increased trade between the United States and Central American countries
22. The General Agreement on Tariffs and Trade (GATT) accord of 1993 called for:
a. increased trade restrictions outside North America.
b. lower trade restrictions around the world.
c. uniform environmental standards around the world.
d. uniform worker he
B. Lower trade restrictions around the World
23. Which of the following is mentioned in the text as a possible means by which the government may attempt to improve its balance-of-trade position (increase its exports or reduce its imports)?
a. The government could attempt to reduce its home currency'
A. The government could attempt to reduce its home currency's value
24. The demand for U.S. exports tends to increase when:
a. economic growth in foreign countries decreases.
b. the currencies of foreign countries strengthen against the dollar.
c. U.S. inflation rises.
d. none of the above.
B. The currencies of foreign countries strengthen against the dollar
25. The term "dumping" refers to the:
a. exporting of goods that do not meet quality standards.
b. sale of junk bonds to foreign countries.
c. removal of foreign subsidiaries by the host government.
d. exporting of goods at prices below cost.
D. Exporting of goods at prices below cost
26. The primary income component in a country's current account may reflect income received due to:
a. grants.
b. direct foreign investment.
c. aid.
d. gifts.
B. Direct foreign aid
27. A weak home currency may not be a perfect solution to correct a balance-of-trade deficit because:
a. it reduces the prices of imports paid by local companies.
b. it increases the prices of exports by local companies.
c. it prevents international trade
D. Foreign companies may reduce the prices of thier products to stay competitive
28. Intracompany trade makes up more than ____ percent of all international trade.
a. 50
b. 70
c. 25
d. 13
e. 5
A. 50
29. Like the International Monetary Fund (IMF), the ____ is composed of a number of nations as members. However, unlike the IMF, it uses the private rather than the government sector to achieve its objectives.
a. World Bank
b. International Finance Corpor
B. International finance corporation
30. The World Bank's Multilateral Investment Guarantee Agency (MIGA):
a. offers various forms of export insurance.
b. offers various forms of import insurance.
c. offers various forms of exchange rate risk insurance.
d. provides loans to developing countr
E. Offers various forms of political risk insurance
31. Also known as the "central banks' central bank," the ____ attempts to facilitate cooperation among countries with regard to international transactions.
a. World Bank
b. International Finance Corporation (IFC)
c. World Trade Organization
d. Internation
E. Bank for International Settlements
32. Direct foreign investment into the United States represents a ____.
a. capital inflow
b. trade inflow
c. capital outflow
d. trade outflow
A. Capital inflow
33. T or F:
A balance-of-trade surplus indicates an excess of imports over exports.
False
34. T or F:
A weakening of the U.S. dollar with respect to the British pound would likely reduce U.S. exports to Britain and increase U.S. imports from Britain over time.
False
35. T or F:
The World Bank extends loans only to developed nations, while the International Development Association (IDA) extends loans only to developing nations.
False
36. T or F:
The World Bank frequently enters into cofinancing agreements, under which it joins with official aid agencies, export credit agencies, or commercial banks in providing financing.
True
37. T or F:
The balance of payments is a summary of all transactions between domestic and foreign residents for a specific country over a specified period of time.
True
38. T or F;
The value of financial assets transferred across country borders by people who move to a different country is included in the balance of payments in the capital account.
True
39. T or F:
Portfolio investment represents transactions involving long-term financial assets (such as stocks and bonds) between countries that do not affect the transfer of control.
True
40. T or F:
the current account represents the investment in fixed assets in foreign countries that can be used to conduct business operations.
False
42. T or F:
Direct foreign investment by U.S.-based MNCs occurs primarily in the Bahamas and Brazil.
False
43. T or F:
The J-curve effect is the initial worsening of the U.S. trade balance due to a weakening dollar because of established trade relationships that are not easily changed; as the dollar weakens, the dollar value of imports initially rises before t
True
44. T or F:
Outsourcing is the process of subcontracting to a third party in another country to provide supplies or services that were previously obtained internally.
False
45. T or F:
Intracompany trade is the exporting of products by one country to other countries below cost.
False
46. T or F:
A tariff is a maximum limit on imports.
False
47. A country's net outflow of funds ____ its interest rates, and ____ its economic conditions.
a. affects; affects
b. affects; does not affect
c. does not affect; does not affect
d. does not affect; affects
A. Affectst, affects
48. T or F:
The sale of patent rights by a U.S. firm to a Russian firm reflects a credit to the U.S. balance of payments account.
True
49T or F:
. A U.S. purchase of patent rights from a firm in Mexico reflects a credit to the U.S. balance of payments account.
False
50. T or F;
Regarding the U.S. balance of payments, capital account items are relatively minor compared to the financial account items.
true
51. In recent years, the United States has had a relatively (compared to other countries) ____ balance of trade ____ with China.
a. small; surplus
b. large; surplus
c. small; deficit
d. large; deficit
...
52. T or F:
The Central American Trade Agreement (CAFTA) is intended to raise tariffs and regulations between the United States, the Dominican Republic, and Central American countries.
False
53. T or F:
U.S. government officials would likely prefer that China devalue the yuan against the dollar.
False
54. T or F:
Assume that some U.S. firms will purchase supplies from either China or from U.S. firms. If the Chinese yuan appreciates against the dollar, that should reduce the U.S. balance-of-trade deficit with China.
True
55. Assume the United States has a balance-of-trade surplus with the country of Thor. When individuals in Thor without permission manufacture video games and DVDs that look almost exactly like the original products produced in the United States and other
B. Reduce, piracy
56. Japan's annual interest rate has been relatively ____ compared to other countries for several years, because the supply of funds in its credit market has been very ____.
a. low; small
b. high; small
c. low; large
d. high; large
C. Low, large
57. Without international capital flows, there would be ____ funding available in the United States across all risk levels, and the cost of funding would be ____ regardless of the firm's risk level.
a. more; lower
b. more; higher
c. less; lower
d. less; h
D. Less, higher
58. T or F:
The primary component of the capital account is the balance of trade.
False
59. T or F:
A balance-of-trade surplus indicates an excess of merchandise imports over merchandise exports.
B. False
60. T or F:
An American tourist visiting Germany and spending money there (for lodging, food, etc.) will reduce the U.S. current account deficit and reduce Germany's current account balance.
False
61. T or F:
A balance-of-trade deficit indicates an excess of imports over exports.
True