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 these are factors.
ANSWER: d
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 consumption.
ANSWER: d
48. A microeconomic perspective focuses on external forces such as economic conditions that can affect the value of an MNC.
a. True
b. False
ANSWER: False
49. 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.
a. True
b. False
ANSWER: 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. lower; lower
ANSWER: d
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 existing Japanese firm
d. establishment of a Japanese subsidiary
ANSWER: b
52. A decentralized management style results in relatively high agency costs for an MNC.
a. True
b. False
ANSWER: True
53. MNCs commonly consider establishing a new foreign subsidiary to replace their exporting business because it allows them to avoid exchange rate risk.
a. True
b. False
ANSWER: 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 to be $.83 and $1.29, respectively, at the end of this year. What are the expected dollar cash flows of Live Co?
a. $200,000
b. $559,500
c. $582,500
d. $393,500
ANSWER: b
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 decline in value?
a. a weaker Mexican economy
b. lower Mexican interest rates
c. depreciation of the Mexican peso
d. appreciation of the Mexican peso
ANSWER: c
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 establishes the new subsidiary and ____ when the subsidiary starts operations.
a. depreciates; appreciates
b. appreciates; appreciates
c. appreciates; depreciates
d. depreciates; depreciates
ANSWER: a
57. A macroeconomic perspective focuses on the financial management decisions that affect the value of an MNC.
a. True
b. False
ANSWER: False
58. 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.
a. True
b. False
ANSWER: True
59. 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