Fin426, Chapter1 Testbank Questions

CHAPTER 1 Introduction EASY (factual) 1. 1Historically, the primary motive for U. S. multinationals to produce abroad has been to a. lower costs b. respond more quickly to the marketplace c. avoid trade barriers d. gain tax benefits ANSWER:b: p. 8, evolution of multinational 1. 2The primary objective of the multinational corporation is to a. maximize shareholder wealth b. maximize world production c. minimize debt d. minimize the cost of doing business globally ANSWER:a: p. 21, Multinational Financial Management: Theory and Practice 1. ____________ is defined as the purchase of assets or commodities on one market for immediate resale on another in order to profit form a price discrepancy. a. internationalization b. arbitrage c. financing d. total risk ANSWER:b: p. 8, evolution of multinational 1. 4The value of good financial management is ___________ in the global markets because of the much greater probability of market imperfections and multiple tax rates. a. minimized b. neutralized c. enhanced d. arbitraged away ANSWER:c: p. 26, role of the financial executive 1. 5When a firm operates globally it offers advantages such as a. reater political power at home b. less taxes on its profits c. greater negotiating power with foreign minority groups d. greater negotiating power with labor unions ANSWER:d: p. 3, rise of the multinational 1. 6The prime transmitter of global competitive forces is the a. public utility firm b. financial management experience of the U. S. markets c. the multinational corporation d. the Federal Reserve System of the U. S. ANSWER:c: p. 3, rise of the multinational 1. 7___________ were the earliest multinationals. a. raw-material seekers b. market seekers c. cost minimizers . oil companies e. the Federal Reserve System of the U. S. ANSWER:a: p. 10, raw material seekers 1. 8The ___________ are the archetype of the modern multinational firm that goes overseas to produce and sell in foreign markets. a. cost minimizers b. market seekers c. raw-material seekers d. whaling companies ANSWER:b: p. 10, market seekers 1. 9___________ are a recent category of multinationals that seek out and invest in lower cost production sites overseas. a. Cost minimizers b. Market seekers c. Raw-material seekers d. High tech firms ANSWER:a: p. 11 cost minimizers . 10Which one of the following is a consequence of increased global competition? a. the creation of new steel plants in the old industrial countries b. the end of free-trade agreements between governments of the world c. increased comfort level of trade unions with the consequences d. increased anxiety among workers in the old industrial countries ANSWER:d: p. 18, Consequences of Global Competition 1. 11The defenders of multinationals believe that __________ are the appropriate reward for efficiently providing the global economy with products and services. . profits b. subsidies c. tax holidays d. low-interest, government-subsidized loans ANSWER:a: p. 22 Criticisms of the Multinational Corporation 1. 12International ________ can reduce the volatility of an investment portfolio because national financial markets tend to move independently of each other. a. arbitrage b. centralization of the MNC’s cash c. diversification d. investment ANSWER:c: p. 26, The Importance of Total Risk MODERATE (applied) 1. 13Into which category of multinational is IBM most likely to fall? a. raw materials seeker b. market seeker . cost minimizer d. all of the above ANSWER:b: p. 10, market seeker 1. 14Which one of the following accelerated the growth of the global economy in the past decade? a. the U. S. -Canada-Mexico free-trade pact b. the creation of the European Union c. China’s entrance into the WTO d. All of the above ANSWER:d: p. 19, Consequences of Global Competition 1. 15The multinational financial system enables companies to a. avoid currency controls b. reduce taxes c. access lower cost financing sources d. all of the above ANSWER:d: p3, rise of the multinational . 16Given the added risks associated with doing business abroad, companies should a. limit their foreign sales to less than 40% of total sales b. limit their foreign assets to less than 30% of total assets c. avoid foreign markets altogether unless they can earn a return in excess of the return they earn in their domestic market d. invest in developed countries only and avoid Third World nations e. none of the above ANSWER:e: p. 13, the internationalization of business 1. 17Which of the following is an example of reverse foreign investment? a.

Honda builds a factory in Ohio b. Apple builds a plant in Ireland that exports to the United States c. British Telecom issues new stock in the United States d. American investors buy shares in Sony ANSWER:a: p. 10, market seeker 1. 18Which of the following is a failing of the theory of comparative advantage? a. it ignores the role of uncertainty and economies of scale b. it assumes that factors of production are immobile c. it assumes that there are no differentiated products d. all of the above ANSWER:d: p. 3, rise of the multinational DIFFICULT (applied) 1. 9Which of the following theories identifies specialization as the main reason for international business activity? a. product life cycle theory of international trade b. theory of diversification c. doctrine of comparative advantage d. theory of globalization ANSWER:c: p. 3, rise of the multinational 1. 20Critics of the multinational corporation would not fault its tendency to a. shift production from one location to another in search of lower costs b. avoid taxes c. cause balance of payments difficulties d. engage in environmental protection measures ANSWER:d: p. 2, criticisms of the MNC 1. 21Multinational firms a. are riskier than purely domestic firms because of the exposures of operating abroad b. are less risky than purely domestic firms because of international diversification c. may be less risky than domestic firms if the added risks of operating overseas are more than offset by the ability to operate in nations whose economic cycles are not perfectly in phase d. invest in developed countries only and avoid developing economies ANSWER:c: p. 25, the importance of total risk 1. 22According to the capital asset pricing model . only the systematic component of risk affects the required return b. foreign investments whose returns are uncorrelated with the market’s return should have a higher required return than comparable domestic investments c. total risk of the investment is most relevant for small to medium-sized firms d. diversification is secondary to risk levels of the investment ANSWER:a: p. 25, capital asset pricing 1. 23The internationalization process tends to a. proceed in a preprogrammed series of steps b. begin by licensing foreign producers c. nevitably involve foreign production d. none of the above ANSWER:d: p. 25, capital asset pricing 1. 24According to the efficient market hypothesis, which one of the following is NOT correct? a. markets place a premium on the future b. today’s stock price is the best predictor of tomorrow’s stock price c. stock prices reflect all available information d. today’s stock price incorporates the past history of prices ANSWER:a: p. 24, market efficiency 1. 25Which one of the following provides strong evidence that internationalization continues to grow in the world economy? a. mport restrictions by the Bush Administration on foreign steel b. efforts suggested by politicians to restrict the sourcing of foreign products by locally headquartered multinationals c. the growing volume of foreign direct investment by U. S. as well as other multinational companies d. pressure on governments to embargo unfriendly nations ANSWER:c: p. 9, Evolution of the Multinational Corporation 1. 26For the multinational corporation, which one of the following complements to the integration of world wide operations is MOST critical? a. flexibility b. adaptability c. speed d. conomies of scale of distribution ANSWER:c: p. 11, A Behavioral Definition of the Multinational Corporation 1. 27According to Shapiro, if you were the CEO of a multinational corporation, which of the following would be MOST important to you in hiring a manager? One that a. Avoids risk at any price b. Manages effectively the political environment of the subsidiary country c. Anticipates every future disturbance related to the supply chain d. Make decisions that anticipates problems and provides solutions that enhances the firm’s prospects for growth ANSWER:d: p. 12, The Global Manager