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Fin426, Chapter1 Testbank Questions

Satisfactory Essays

CHAPTER 1
Introduction

EASY (factual)
1.1 Historically, 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

1.2 The 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

1.3 ____________ 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. …show more content…

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.22, criticisms of the MNC

1.21 Multinational 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

1.22 According to the capital asset pricing model a. 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

1.23 The internationalization process tends to a. proceed in a preprogrammed series of steps b. begin by licensing foreign producers c. inevitably involve foreign production d. none of the above
ANSWER: d: p.25, capital asset pricing

1.24 According to the

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