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Chapter 1
Current Multinational Challenges
and the Global Economy
True/False
1) BRICs
is a term used in international finance to represent assets that are considered
to be inexpensive and sturdy, but fundamentally unsound and and incapable of
coping with the upheavals now apparent in international financial markets.
2)
Multinational enterprises (MNEs) are firms, both for profit companies and
not-for-profit organizations, that have operations in more than one country,
and conduct their business through foreign subsidiaries,
branches,
or joint ventures with host country firms.
3)
Ownership, control, and governance changes radically across the world. The
publicly traded company is not the dominant global business organization—the
privately held or family-owned business is the prevalent structure—and their
goals and measures of performance differ dramatically.
Multiple Choice
1) A
well-established, large U.S.-based MNE will probably NOT be able to overcome
which of the following obstacles to maximizing firm value?
A) an
open market place
B) high
quality strategic management
C)
access to capital
D) none
of the above
2) A
well-established, large China-based MNE will probably be most adversely
affected by which of the following elements of firm value?
A) an
open marketplace
B)
high-quality strategic management
C)
access to capital
D)
access to qualified labor pool
3) A
well-established, large, Brazil-based MNE will probably be most adversely
affected by which of the following elements of firm value?
A) an
open marketplace
B)
high-quality strategic management
C)
access to capital
D)
access to qualified labor pool
True/False
1)
Comparative advantage is one of the underlying principles driving the growth of
global business.
2) Your
authors suggest that one way to characterize the global financial marketplace
is through its assets, institutions, and linkages.
3)
Eurocurrencies are domestic currencies of one country on deposit in a second
country.
4) A
eurodollar deposit is a demand deposit.
5) Eurocurrency
markets serve two valuable purposes: 1) Eurocurrency deposits are an efficient
and convenient money market device for holding excess corporate liquidity; and
2) the Eurocurrency market is a major source of short-term bank loans to
finance corporate working capital needs, including the financing of imports and
exports.
6) The
key factor attracting both depositors and borrowers to the Eurocurrency loan
market is the narrow interest rate spread within that market.
7) The
Eurocurrency market continues to thrive because it is a large international
money market relatively free from governmental regulation and interference.
Recent events may lead to greater regulation.
Essay
1) List
and explain three strategic motives why firms become multinationals and give an
example of each.
Multiple Choice
1) The
theory that suggests specialization by country can increase worldwide
production is:
A) the
theory of comparative advantage.
B) the
theory of foreign direct investment.
C) the international
Fisher effect.
D) the
theory of working capital management.
2) Which
of the following is NOT a reason governments interfere with comparative
advantage?
A)
Governments attempt to achieve full employment.
B)
Governments promote economic development.
C)
national self-sufficiency in defense-related industries
D) All
are reasons governments interfere with comparative advantage.
3) Which
of the following factors of production DO NOT flow freely between countries?
A) raw
materials
B)
financial capital
C)
(non-military) technology
D) All
of the above factors of production flow freely among countries.
4) Which
of the following would NOT be a way to implement comparative advantage?
A) IBM
exports computers to Egypt.
B)
Computer hardware is designed in the United States but manufactured and
assembled in Korea.
C) Water
of the greatest purity is obtained from wells in Oregon, bottled, and exported
worldwide.
D) All
of the above are examples of ways to implement comparative advantage.
5) Of
the following, which would NOT be considered a way that government interferes
with comparative advantage?
A)
tariffs
B)
managerial skills
C)
quotas
D) other
non-tariff restrictions
True/False
1) The
theory of comparative advantage owes it origins to Ben Bernanke as described in
his book The Wealth of Bankers.
2)
International trade might have approached the comparative advantage model in
the 19th century, and it does so even more today.
3)
Comparative advantage shifts over time as less developed countries become more
developed and realize their latent opportunities.
4)
Comparative advantage in the 21st century is based more on services and their
cross border facilitation by telecommunications and the Internet.
5)
Comparative advantage was once the cornerstone of international trade theory,
but today it is archaic, simplistic, and irrelevant for explaining investment
choices made by MNEs.
6) When
discussing comparative advantage, it is apparent that today at least two of the
factors of production, capital and technology, now flow directly and easily
between countries, rather than only indirectly through traded goods and
services.
7) It
would be safe to make the statement that modern telecommunications now take
business activities to labor rather than moving labor to the places of
business.
Multiple Choice
1) Which
of the following domestic financial instruments have NOT been modified for use
in international financial management?
A)
currency options and futures
B)
interest rate and currency swaps
C)
letters of credit
D) All
of the above are domestic financial instruments that have also been modified
for use in international financial markets.
True/False
1) MNEs
must modify finance theories like cost of capital and capital budgeting because
of foreign complexities.
2)
Relative to MNEs, purely domestic firms tend to have GREATER political risk.
3)
Domestic firms tend to make GREATER use of financial derivatives than MNEs
because they can bear the greater risk presented by these financial
instruments.
4)
Because countries have different financial regulations and customs, it is
common for MNEs to apply their domestic rules and regulations when doing
financial business in a foreign country.
5) A
number of financial instruments that are used in domestic financial management
have been modified for use in international financial management. Examples are
foreign currency options and futures, interest rate and currency swaps, and
letters of credit.
Multiple Choice
1) In
determining why a firm becomes multinational there are many reasons. One reason
is that the firm is a market seeker. Which of the following is NOT a reason why
market-seeking firms produce in foreign countries?
A)
satisfaction of local demand in the foreign country
B)
satisfaction of local demand in the domestic markets
C)
political safety and small likelihood of government expropriation of assets
D) All
of the above are market-seeking activities.
2)
________ investments are designed to promote and enhance the growth and
profitability of the firm. ________ investments are designed to deny those same
opportunities to the firm's competitors.
A)
Conservative; Aggressive
B)
Defensive; Proactive
C)
Proactive; Defensive
D) Aggressive;
Proactive
True/False
1) For firms competing in a world characterized
by oligopolistic competition, strategic motives can be subdivided into
proactive and defensive investments.
2)
Defensive measures are designed to enhance growth and profitability of the firm
itself.
Multiple Choice
1) The
phase of the globalization process characterized by imports from foreign
suppliers and exports to foreign buyers is called the:
A)
domestic phase.
B)
multinational phase.
C)
international trade phase.
D)
import-export banking phase.
2) The
authors describe the multinational phase of globalization for a firm as one
characterized by the:
A)
ownership of assets and enterprises in foreign countries.
B)
potential for international competitors or suppliers even though all accounts
are with domestic firms and are denominated in dollars.
C)
imports from foreign suppliers and exports to foreign buyers.
D)
requirement that all employees be multilingual.
3) A
firm in the International Trade Phase of Globalization:
A) makes
all foreign payments in foreign currency units and all foreign receipts in
domestic currency units.
B)
receives all foreign receipts in foreign currency units and makes all foreign
payments in domestic currency units.
C) bears
direct foreign exchange risk.
D) none
of the above
4) Of
the following, which was NOT mentioned by the authors as an increase in the
demands of financial management services due to increased globalization by the
firm?
A)
evaluation of the credit quality of foreign buyers and sellers
B)
foreign consumer method of payment preferences
C)
credit risk management
D)
evaluation of foreign exchange risk
5) Of
the following, which was NOT mentioned by the authors as an increase in the
demands of financial management services due to increased globalization by the
firm?
A)
evaluation of the credit quality of foreign buyers and sellers
B)
foreign consumer method of payment preferences
C)
credit risk management
D)
evaluation of foreign exchange risk
6) The
authors describe the multinational phase of globalization for a firm as one
characterized by the:
A)
ownership of assets and enterprises in foreign countries.
B)
potential for international competitors or suppliers even though all accounts
are with domestic firms and are denominated in dollars.
C)
imports from foreign suppliers and exports to foreign buyers.
D)
requirement that all employees be multilingual.
7) The
twin agency problems limiting financial globalization are caused by these two
groups acting in their own self-interests rather than the interests of the
firm.
A)
rulers of sovereign states and unsavory customs officials
B)
corporate insiders and attorneys
C)
corporate insiders and rulers of sovereign states
D)
attorneys and unsavory customs officials
True/False
1)
Typically, a firm in its domestic stage of globalization has all financial
transactions in its domestic currency.
2)
Typically, a "greenfield" investment abroad is considered a greater
foreign investment having a greater foreign presence than a joint venture with
a foreign firm.
3) The
authors argue that financial inefficiency caused by influential insiders may
prove to be an increasingly troublesome barrier to international finance.
4) The
authors describe a process for development of a MNE that begins with a purely
domestic phase, followed by the multinational phase, and topping out with the
international trade phase.
5) Today
it is widely assumed that there are NO LIMITS to financial globalization.
6) The
growth in the influence and self-enrichment of organizational insiders is seen
as an impediment to the growth of financial globalization in general.
7) The
actions of corporate insiders and the actions of rulers of sovereign states are
both agency costs that act as an impediment to the growth of globalization.
Chapter 2 Corporate Ownership,
Goals, and Governance
Multiple Choice
1)
Foreign stock markets are frequently characterized by controlling shareholders
for the individual publicly traded firms. Which of the following is NOT
identified by the authors as typical controlling shareholders?
A) the
government (for example, privatized utilities)
B)
institutions (such as banks in Germany)
C)
family (such as in France)
D) All
of the above were identified by the authors as controlling shareholders.
2) Which
of the following is NOT typically associated with the public ownership of
business organizations?
A) the
state
B) the
government
C)
families
D) civil
society
3) Which
of the following is NOT typically associated with the private ownership of
business organizations?
A) the
government
B)
families
C)
individuals
D)
publicly traded, widely-held organizations
4) State
Owned Enterprises (SOEs):
A) are a
form of public ownership.
B) are
created for commercial activities rather than civil or social activities.
C) are
the dominant form of business organization in some countries.
D) are
all of the above.
5) The
problems that may arise due to the separation of ownership and management in
large business organizations is know as:
A)
separation anxiety.
B) the
agency problem.
C)
corporate disconnect theory.
D) none
of the above
6)
Privatization is a term used to describe:
A) firms
that are purchased by the government.
B)
government operations that are purchased by corporations and other investors.
C) firms
that do not use publicly available debt.
D)
non-public meetings held by members of interlocking directorates.
True/False
1) In
the U.S. and U.K. stock markets are characterized by ownership of firms
concentrated in the hands of a few controlling shareholders. In contrast, the
rest of the world tends to have more widespread ownership of shares.
2) State
Owned Enterprises (SOEs) by their very name cannot be traded on stock exchanges
because they are government owned.
3) In
recent years the trend has been for markets to increasing focus on the
shareholder wealth form of wealth maximization.
4)
Non-Anglo-American markets are dominated by the "one-vote-one-share"
rule.
5)
According to recent research, family-owned firms in some highly-developed
economies typically outperform publicly-owned firms.
Essay/Short Answer
1) What
are the most important distinctions that make state owned enterprises (SOEs)
different from other forms of government organizations?
Multiple Choice
1)
"Maximize corporate wealth":
A) is
the primary objective of the non-Anglo-American model of management.
B) as a
management objective treats shareholders on a par with other corporate
stakeholders such as creditors, labor, and local community.
C) has a
broader definition than just financial wealth.
D) all
of the above
2) The
Shareholder Wealth Maximization Model (SWM):
A) combines
the interests and inputs of shareholders, creditors, management, employees, and
society.
B) is
being usurped by the Stakeholder Capitalism Model as those types of MNEs
dominate their global industry segments.
C)
clearly places shareholders as the primary stakeholder.
D) is
the dominant form of corporate management in the European-Japanese governance
system.
3) The
Stakeholder Capitalism Model (SCM):
A)
clearly places shareholders as the primary stakeholder.
B)
combines the interests and inputs of shareholders, creditors, management,
employees, and society.
C) has
financial profit as its goal and is often termed impatient capital.
D) is
the Anglo-American model of corporate governance.
4) In
the Anglo-American model of corporate governance, the primary goal of
management is to:
A)
maximize the wealth of all stakeholders.
B)
maximize shareholder wealth.
C)
minimize costs.
D)
minimize risk.
5) In
finance, an efficient market is one in which:
A)
prices are assumed to be correct.
B)
prices adjust quickly and accurately to new information.
C)
prices are the best allocators of capital in the macro economy.
D) all
of the above
6)
Systematic risk can be defined as:
A) the
total risk to the firm.
B) the
risk of the individual security.
C) the risk
of the market in general.
D) the
risk that can be systematically diversified away.
7)
Unsystematic risk can be defined as:
A) the
total risk to the firm.
B) the
risk of the individual security.
C) the
added risk that a firm's shares bring to a diversified portfolio.
D) the
risk of the market in general.
8) The
study of how shareholders can motivate management to accept the prescriptions
of the shareholder wealth maximization model is called:
A)
market efficiency.
B) the
SWM model.
C)
agency theory.
D) the
SCM model.
9) Under
the Shareholder Wealth Maximization Model (SWM) of corporate governance, poor
firm performance is likely to be faced with all but which of the following?
A) sale
of shares by disgruntled current shareholders
B) shareholder
activism to attempt a change in current management
C) as a
maximum threat, initiation of a corporate takeover
D)
prison time for executive management
10)
Which of the following is a reason why managers act to maximize shareholder
wealth in Anglo-American markets?
A) the
use of stock options to align the goals of shareholders and managers
B) the
market for corporate control that allows for outside takeover of the firm
C)
performance based compensation for executive management
D) all
of the above
11)
Which of the following is NOT true regarding the stakeholder capitalism model?
A) Banks
and other financial institutions are less important creditors than securities
markets.
B) Labor
unions are more powerful than in the Anglo-American markets.
C)
Governments interfere more in the marketplace to protect important stakeholder
groups.
D) All
of the above are TRUE.
12) The
stakeholder capitalism model:
A)
typically avoids the flaw of impatient capital.
B) tries
to meet the desires of multiple stakeholders.
C) may
leave management without a clear signal about tradeoffs among the several
stakeholders.
D) all
of the above
13)
Which of the following is generally NOT considered to be a viable operational
goal for a firm?
A)
maintaining a strong local currency
B)
maximization of after-tax income
C)
minimization of the firm's effective global tax burden
D)
correct positioning of the firm's income, cash flows and available funds as to
country and currency
14)
Which of the following operational goals for the international firm may be
incompatible with the others?
A)
maintaining a strong local currency
B)
maximization of after-tax income
C)
minimization of the firm's effective global tax burden
D) Each
of these goals may be incompatible with one or more of the others.
15) The
primary operational goal for the firm is to:
A)
maximize after-tax profits in each country where the firm is operating.
B)
minimize the total financial risk to the firm.
C)
maximize the consolidated after-tax profits of the firm.
D)
maximize the total risk to the firm.
16)
Which of the following broad topics is NOT identified as an area to be
established as good corporate governance practice by the Organization for
Economic Cooperation and Development (OECD)?
A)
protect the rights of shareholders
B)
disclosure and transparency
C) the
proper role of stakeholders in the governance of the firm
D) All
of the above should be a concern of good corporate governance.
17) The
relationship among stakeholders used to determine and control the strategic
direction and performance of an organization is termed:
A)
corporate governance.
B)
Anglo-American activism.
C)
capital structure.
D)
working capital management.
18) When
discussing the structure of corporate governance, the authors distinguish
between internal and external factors. ________ is an example of an internal
factor, and ________ is an example of an external factor.
A)
Equity markets; executive management
B) Debt
markets; board of directors
C)
Executive management; auditors
D)
Auditors; regulators
19)
Which of the following is NOT commonly associated with a government affiliated
form of corporate governance regime?
A) no
minority influence
B) lack
of transparency
C) state
ownership of enterprise
D) All
are associated with this type of corporate governance regime.
20)
Generally speaking, which of the following is NOT considered an important
factor in the composition and control of corporate boards of directors?
A) the
number of insider vs outside directors
B) the
total number of directors on the board
C) the
composition of the compensation committee
D) All
of the above are important factors of board composition.
21)
Signed into law on July 30, 2002, the ________ Act requires CEOs of publicly
traded companies to vouch for the veracity of the firm's published financial
statements.
A)
Smoot-Hawley
B)
Humphrey-Hawkins
C)
McCain-Merrill
D)
Sarbanes-Oxley
22) The
Sarbanes-Oxley Act, passed by the U.S. Congress in July 2002, was designed to:
A)
reinstitute heavy tariffs on international trade.
B)
reform corporate governance.
C) limit
the Federal Reserve Board's ability to engage in the buying and selling of
gold.
D) limit
trade with countries deemed lenient on terrorism.
23)
Anglo-American markets is a term used to describe business markets in:
A)
North, Central, and South America.
B) the
United States, Canada, and Western Europe.
C) the
United States, United Kingdom, Canada, Australia and New Zealand.
D) the
United States, France, Britain, and Germany.
24) The
deliberation of the of the process demonstrated in the European-Japanese system
of corporate governance has sometimes been termed:
A)
socialism.
B)
impatient capital.
C)
patient capital.
D)
communism.
25) With
shareholder wealth maximization as the manager's goal, capital may be termed:
A)
impatient.
B)
patient.
C)
borrowed.
D)
bought.
26)
Which of the following is NOT an important concept when distinguishing between
international and domestic financial management?
A)
corporate governance
B)
culture, history, and institutions
C)
political risk
D) All
of the above are important distinguishing concepts.
27) The
Board of Directors:
A)
consists exclusively of the officers of the corporation.
B) is
the legal body which is accountable for the governance of the corporation.
C) are
not subject to the external forces of the marketplace.
D) is
appointed by the Securities and Exchange Commission (SEC).
28) If
share price rises from $12 to $15 per share, and pays a dividend of $1 per
share, what was the rate of return to shareholders?
A)
26.67%
B)
-13.33%
C)
33.33%
D)
16.67%
29)
PolyProduction Inc. has two classes of common stock. Class A has 5 million
shares with 10 votes per share. Class B has 5 million shares with 1 vote per
share. If the dividends per share are equal for both class A and B stock, then
Class A shareholders have ________ of the votes and ________ of the dividends.
A)
90.91%; 90.91%
B)
90.91%; 50.00%
C)
50.00%; 50.00%
D)
83.33%; 33.33%
30) The
number of publicly traded firms:
A)
peaked in the U.S. in 1996.
B)
peaked worldwide in 1996.
C)
increased significantly in 2009 as a result of the international financial
crisis.
D) all
of the above
31)
Which of the following is NOT a possible and appropriate response by
shareholders dissatisfied with existing firm management of a publicly traded
firm?
A)
Shareholders could sell their shares of stock.
B)
Shareholders could remain quietly disgruntled.
C)
Shareholders, perhaps with the help of others, could attempt to initiate a
takeover.
D) All
of these responses may be possible and appropriate.
True/False
1) The
stakeholder capitalism model (SCM) holds that total risk (operational and
financial) is more important than just systematic risk.
2) In
recent years the trend has been for markets to increasing focus on the
shareholder wealth form of wealth maximization.
3)
Patient Capitalism is characterized by short-term focus by both management and
investors.
4)
Agency theory states that unsystematic risk can be eliminated through
diversification.
5) The
stakeholder capitalism model does not assume that equity markets are either
efficient or inefficient.
6) The
stakeholder capitalism model assumes that only systematic risk
"counts" or is a prime concern for management.
7)
Dividend yield is the change in the share price of stock as traded in the
public equity markets.
8)
Regarding comparative corporate governance regimes: Bank-based regimes
characterized by government influence in bank lending and a lack of
transparency is often found in countries such as Korea and Germany.
9)
Investor protection is typically better in countries with codified civil law
(the Code Napoleon) than in countries with a legal system based in English
common law.
10) The
relatively low cost of compliance with the Sarbanes-Oxley Act (SOX) has been a
surprising benefit of the act.
11)
According to recent research, family-owned firms in some highly-developed
economies typically outperform publicly-owned firms.
12) The
goal of all international corporations is to maximize shareholder wealth.
13)
Systematic risk can be eliminated through portfolio diversification.
14)
According to the authors, dual classes of voting stock are the norm in
non-Anglo-American markets.
15) A
recent study shows that privately held firms use less financial leverage and
enjoy lower costs of debt than publicly traded firms.
16) U.S.
listings of publicly traded firms as a percentage of worldwide listings of such
firms INCREASED from 11% in 1996 to approximately 33% in 2010.
17)
Having Anglo-Americans as members of the board of directors of a
non-Anglo-American firm signals poor corporate governance in the firm.
18) In
the stakeholder capitalism model (SCM) the assumption of market efficiency is
absolutely critical.
Short Answer/ Essay
1)
Describe the management objectives of a firm governed by the shareholder wealth
maximization model and one governed by the stakeholder wealth maximization
model. Give an example of how these two models may lead to different
decision-making by executive management.
2)
Define patient and impatient capitalism and discuss how each may lead to
different decision-making in the shareholder wealth maximization model.
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