Exam 1: Multinational Financial Management: an Overview

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

A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs.

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

The imperfect markets theory states that factors of production are somewhat immobile, allowing firms to capitalize on a foreign country's resources.

International trade:

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

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:

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

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

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

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.

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.

The commonly accepted goal of an MNC is to:

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.

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.

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.

Licensing obligates a firm to provide _____, while franchising obligates a firm to provide _____.

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

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