a. a few mutual funds.
b. a widely dispersed set of individual investors.
c. a few pension funds.
d. All of these would prevent agency problems.
ANSWER: b
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.
d. placed a limit on the amount of funds that managers can spend.
ANSWER: a
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 from countries where interest rates are lowest.
d. using a system that checks internal data for unusual discrepancies.
ANSWER: c
17. Franchising is the process by which national governments sell state-owned operations to corporations and other investors.
a. True
b. False
ANSWER: False
18. The parent of an MNC can implement compensation plans that directly reward the subsidiary managers for enhancing the value of the MNC.
a. True
b. False
ANSWER: True
19. If a publicly traded MNC's managers make poor decisions that reduce its value, that may encourage other firms to acquire the MNC.
a. True
b. False
ANSWER: True
20. 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.
a. True
b. False
ANSWER: 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 other countries and sells them locally
d. acquires a foreign firm that produces most of its products to be sold in that foreign country
ANSWER: d
22. Which of the following is an example of direct foreign investment for a U.S.-based MNC?
a. exporting to a country
b. licensing arrangements that will allow a foreign country to use the MNC’s technology
c. purchasing existing companies in a country
d. investing directly (without brokers) in foreign stocks
ANSWER: c
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 these are correct.
ANSWER: b
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.
b. franchising.
c. a licensing agreement.
d. exporting.
ANSWER: a
25. Imperfect markets reflect conditions under which factors of production are immobile.
a. True
b. False
ANSWER: True
26. 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.
a. True
b. False
ANSWER: True
27. If markets were perfect, then labor and other costs of production would be perfectly stable (no movement across borders).
a. True
b. False
ANSWER: False
28. The valuation of an MNC is reduced if the required rate of return on its investments in foreign countries is reduced.
a. True
b. False