IFM MCQS

The most commonly accepted goal of the MNC is:

[removed] a. to maximize revenues  [removed] b. to maximize shareholder wealth  [removed] c. to maximize profitability of the firm  [removed] d. both a and b 

2. Agency costs are normally larger for MNCs than for purely domestic firms. Which of the following is not a reason for this larger agency cost?

[removed] a. Monitoring managers of distant subsidiaries in foreign countries is more difficult.  [removed] b. Managers from different cultures may not follow uniform goals.  [removed] c. U.S. managers tend to downplay the short-term effects of decisions.  [removed] d. Sheer size of the larger MNCs can create larger agency problems. 

3. Several constraints confront the MNC in its attempt to maximize shareholder wealth. Which of the following is probably not a constraint?

[removed] a. competitive  [removed] b. ethical  [removed] c. regulatory  [removed] d. environmental 

4. Part of the growth of multinational business over time is due to the realization that specialization by countries can increase production efficiency, making trade essential when a country focuses on the products it produces best. This is an example of which theory of international business?

[removed] a. product cycle theory  [removed] b. competitive advantage theory  [removed] c. imperfect markets theory  [removed] d. comparative advantage theory 

5. According to the ___________, firms become first established in the home market as a result of some perceived advantage they would have over existing competitors, such as a need by the market for at least one more supplier of the product. Eventually, firms will penetrate foreign markets to satisfy foreign demand.

[removed] a. product cycle theory  [removed] b. imperfect markets theory  [removed] c. comparative advantage theory  [removed] d. none of the above 

6. Which method of international business obligates a firm to provide a specialized sales or service strategy, support assistance, and possibly an initial investment in the entity in exchange for periodic fees?

[removed] a. joint venture  [removed] b. new foreign subsidiary  [removed] c. licensing  [removed] d. franchising 

7. Multinational firms face exposure to many different types of international risk. Which of the following is not a type of exposure mentioned in the text?

[removed] a. diversifiable risk  [removed] b. political risk  [removed] c. foreign economies  [removed] d. exchange rate movements 

8. A firms expects to receive $20,000 from domestic operations and 20,000 British pounds (£) from a business in England. If the pound’s value is $1.25, the expected total dollar cash flows are:

[removed] a. $40,000  [removed] b. $36,000  [removed] c. $45,000  [removed] d. $20,000 

9. Which of the following statements is not true regarding the euro?

[removed] a. In 1987, several European countries conformed to the euro as their currency for business transactions between these countries.  [removed] b. The euro was phased in as a currency for other transactions during 2001.  [removed] c. The euro completely replaced the currencies of the participating countries by 2002.  [removed] d. The creation of the euro allowed firms (including European subsidiaries of U.S.-based MNCs) to engage in international transactions with the use of one currency and eliminated transactions costs resulting from exchanging currencies. 

10. A decentralized management style is more likely to result in higher agency costs because the subsidiary managers may make decisions that do not focus on maximizing the value of the entire MNC.

[removed] a. True  [removed] b. False 

11. Using international trade as a method of conducting international business is a relatively bold approach that can be used by firms to penetrate markets.

[removed] a. True  [removed] b. False 

12. The Single European Act of 1987 removed several cross-border barriers among European countries. It also exposed firms to additional competition.

[removed] a. True  [removed] b. False 

13. Under NAFTA, the low-cost labor in Mexico has led to a decrease in market share for some U.S. firms. This is most pronounced in technology-intensive industries.

[removed] a. True  [removed] b. False 

14. Political risk represents political actions taken by the host government or the public that affect an MNC’s cash flows.

[removed] a. True  [removed] b. False 

15. The so-called Asian crisis lingered in 1998 and adversely affected numerous U.S.-based MNCs that conducted business in these countries.

[removed] a. True  [removed] b. False 

16. Licensing is a venture that is jointly owned and operated by two or more firms.

[removed] a. True  [removed] b. False   

 Factor income represents income received by investors on foreign investments in financial assets (securities). Factor income is part of which component of the balance of payments?

[removed] a. capital account  [removed] b. current account  [removed] c. balance of trade  [removed] d. none of the above 

2. Which of the following are factors that affect international trade flows?

[removed] a. government restrictions  [removed] b. exchange rates  [removed] c. inflation  [removed] d. all of the above  [removed] e. none of the above 

3. Even if a country’s home currency weakens, its balance of trade will not necessarily improve immediately. This may occur because:

[removed] a. many international trade transactions are prearranged and cannot be immediately adjusted  [removed] b. the currencies of some other countries may have strengthened  [removed] c. prices on goods will remain the same, making goods just as competitive  [removed] d. all of the above  [removed] e. none of the above 

4. Which of the following factors will lead to an inflow of direct foreign investment (DFI) into a country?

[removed] a. high tax rates in the country where the investment flows  [removed] b. privatization in the country where the investment flows  [removed] c. an expectation that the currency in the country where the investment flows will depreciate  [removed] d. all of the above  [removed] e. none of the above 

5. Which of the following factors will lead to an inflow of portfolio investment into a country, everything else held constant?

[removed] a. an expectation of a weaker currency in the country where the investment flows  [removed] b. higher tax rates in the country where the investment flows  [removed] c. higher interest rates in the country where the investment flows  [removed] d. none of the above  [removed] e. both a and c 

6. Among the major objectives of the ________ are to promote cooperation among countries on international monetary issues and to promote stability in exchange rates.

[removed] a. International Monetary Fund (IMF)  [removed] b. World Bank  [removed] c. World Trade Organization  [removed] d. International Financial Corporation  [removed] e. none of the above 

7. The World Bank does cofinancing of loans with which of the following entities?

[removed] a. official aid agencies  [removed] b. export credit agencies  [removed] c. commercial banks  [removed] d. both a and c  [removed] e. all of the above 

8. ______________ is a component of the capital account and represents the investment in fixed assets in foreign countries that can be used to conduct business operations.

[removed] a. Portfolio investment  [removed] b. Direct foreign investment (DFI)  [removed] c. Other capital investment  [removed] d. Transfer payments  [removed] e. None of the above 

9. The General Agreement on Tariffs and Trade (GATT):

[removed] a. is an accord reached between 100 countries in 1980  [removed] b. reduced some tariffs by 80 percent on average  [removed] c. removed some tariffs over a five- to ten-year period  [removed] d. made more progress on reducing tariffs in service industries than in manufacturing industries  [removed] e. none of the above 

10. The capital account is primarily composed of merchandise exports and imports and service exports and imports.

[removed] a. True  [removed] b. False 

11. Tariffs are taxes imposed on imported goods.

[removed] a. True  [removed] b. False 

12. In the long run, a weak dollar is expected to cause a higher balance of trade from the U.S. perspective.

[removed] a. True  [removed] b. False 

13. The General Agreement on Tariffs and Trade (GATT) was established in 1993 to settle trade disputes and provide a forum for multilateral trade negotiations. It began operations in 1995 with a membership of 81 countries.

[removed] a. True  [removed] b. False 

14. The International Development Association (IDA) was created in 1960 with country development objectives similar to those of the World Bank. Its loan policy is more appropriate for less prosperous nations.

[removed] a. True  [removed] b. False 

15. Dumping reflects the exporting of products by one country to other countries at prices above cost.

[removed] a. True  [removed] b. False 

16. A graphical illustration of the fact that the U.S. balance of trade may actually deteriorate in the short run as a result of dollar depreciation is called the J curve effect.

[removed] a. True  [removed] b. False  

         

    

Which of the following is not a motive for investing in foreign markets?

[removed] a. expectations of a weaker foreign currency  [removed] b. international diversification  [removed] c. economic conditions  [removed] d. all of the above are motives for investing in foreign markets 

2. Which of the following are important attributes of banks that provide foreign exchange?

[removed] a. speed of execution  [removed] b. advice about current market conditions  [removed] c. forecasting advice  [removed] d. all of the above  [removed] e. both b and c 

3. The bid rate for the British pound is $1.65 and the ask rate is $1.68. What is the bid/ask spread?

[removed] a. 1.82%  [removed] b. -1.82%  [removed] c. 1.79%  [removed] d. -1.79%  [removed] e. none of the above 

4. If the value of the Canadian dollar (C$) is $0.65 and the euro (€) is worth $0.90, what is the value of the euro in Canadian dollars?

[removed] a. C$1.38  [removed] b. C$0.72  [removed] c. C$0.59  [removed] d. €0.72  [removed] e. none of the above 

5. The Eurodollar market grew substantially in the 1960s and 1970s for which of the following reasons?

[removed] a. higher reserve requirements for Eurobanks  [removed] b. U.S. regulations in 1968 which limited foreign lending by U.S. banks  [removed] c. higher spreads that Eurobanks could charge on loans and deposits  [removed] d. all of the above  [removed] e. both a and c 

 

he most common type of foreign exchange transaction is for immediate exchange at the so-called forward rate.

[removed] a. True  [removed] b. False  

A purchaser of a currency put option buys the right to sell a specific currency at a specific price within a specific period of time.

[removed] a. True  [removed] b. False