ANSWER: 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
ANSWER: c
30. Which of the following does not possibly represent 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
ANSWER: b
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
ANSWER: c
32. The goal of a multinational corporation (MNC) is the maximization of shareholder wealth.
a. True
b. False
ANSWER: True
33. A centralized management style, where major decisions about a foreign subsidiary are made by the parent company, results in an increase in agency costs.
a. True
b. False
ANSWER: False
34. 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.
a. True
b. False
ANSWER: False
35. Although MNCs may need to convert currencies occasionally, they do not face any exchange rate risk, as exchange rates are stable over time.
a. True
b. False
ANSWER: False
36. One of the most prevalent factors conflicting with the realization of the goal of an MNC is the existence of agency problems.
a. True
b. False
ANSWER: True
37. A centralized management style for an MNC results in relatively high agency costs.
a. True
b. False
ANSWER: False
38. The imperfect markets theory states that factors of production are somewhat immobile, allowing firms to capitalize on a foreign country's resources.
a. True
b. False
ANSWER: True
39. 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.
a. True
b. False
ANSWER: False
40. MNCs commonly consider acquiring an existing foreign operation because the cost is less expensive than establishing a new subsidiary of the same size.
a. True
b. False
ANSWER: False
41. 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.
a. True
b. False
ANSWER: False
42. If markets were perfect, then labor and other costs of production would be easily transferable.
a. True
b. False
ANSWER: 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 these are correct.
ANSWER: d
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 investment
ANSWER: d
45. 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.
a. True
b. False
ANSWER: False
46. An MNC's value depends on all of the following, except: