Exam 1: Multinational Financial Management: an Overview

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.

The valuation of MNC accounts for all the cash flows received by the foreign subsidiaries plus all the cash flows remitted by the subsidiaries.

Which of the following is not an example of political risk?

The valuation of an MNC is reduced if the required return on its investments in foreign countries is reduced.

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

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

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 in value?

The establishment of a new subsidiary is commonly considered by MNCs because the cost is less expensive than acquiring a foreign subsidiary of the same size.

The Sarbanes-Oxley Act (SOX) 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.

Assume that Live Co. has expected cash flows of $200,000 from domestic operations, SF200,000 from Swiss operations, and 150,000 euros from Italian operations at the end of the year. The Swiss franc's value and euro's value are expected to be $.83 and $1.29 respectively, at the end this year. What are the expected dollar cash flows of Live Co?

Which of the following is not mentioned in the text as a theory of international business?

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

When the parent's home currency is weak, remitted funds from foreign subsidiaries will convert to a smaller amount of the home currency.

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

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

____ are most commonly classified as a direct foreign investment.

If a U.S.-based MNC focused completely on exporting, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time.

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.

For the MNC, agency costs are typically:

A microeconomic perspective focuses on external forces such as economic conditions that can affect the value of an MNC.