Ch001GlobalizationandtheMultinationalFirm.docx

1、Ch001GlobalizationandtheMultinationalFirmEun & Resnick 4eCHAPTER 1 Globalization and the Multinational Firm Questions in the test bank follow the order of the chapter outline:Whats Special about International Finance?Foreign Exchange and Political RisksMarket ImperfectionsExpanded Opportunity SetGoa

2、ls for International FinancialManagementGlobalization of the World Economy:Major TrendsEmergence of Globalized Financial MarketsEmergence of the Euro as a Global CurrencyTrade Liberalization and Economic IntegrationPrivatizationMultinational CorporationsSummaryMINI CASE: Nike and Sweatshop LaborAPPE

3、NDIX 1A: Gains from Trade: The Theory ofComparative AdvantageWhats Special about “International” Finance?1)What major dimension sets apart international finance from domestic finance?a)foreign exchange and political risksb)Market imperfectionsc)Expanded opportunity setd)all of the aboveAnswer: d2)An

4、 example of a political risk is a)Expropriation of assetsb)Adverse change in tax rulesc)The opposition party being electedd)a) and b) are both correctAnswer: d - p. 53)Production of goods and services has become globalized to a large extent as a result ofa)Skilled labor being highly mobileb)Natural

5、resources being depleted in one country after anotherc)Multinational corporations efforts to source inputs and locate production anywhere where costs are lower and profits higherd)Common tastes worldwide for the same goods and servicesAnswer: c - p. 44)Recently, financial markets have become highly

6、integrated. This development a)Allows investors to diversify their portfolios internationallyb)Allows minority investors to buy and sell stocksc)Has increased the cost of capital for firmsd)Answers a) and c) are both correct.Answer: a. see page 45)Japan has experienced large trade surpluses. Japanes

7、e investors have responded to this bya)Liquidating their positions in stocks to buy dollar denominated bondsb)Investing heavily in U.S. and other foreign financial marketsc)Lobbying the U.S. government to depreciate its currencyd)Lobbying the Japanese government to allow the yen to appreciateAnswer:

8、 b - p. 46)Suppose your firm invests $100,000 in a project in Italy. At the time the exchange rate is $1.25 = 1.00. One year later the exchange rate is the same, but the Italian government has expropriated your firms assets paying only 80,000 in compensation. This is an example of a)Exchange rate ri

9、skb)Political riskc)Market imperfectionsd)None of the above, since $100,000 = 80,000$1.25/1.00Answer: b) political riskthe government is only giving you back your initial investment, if this was a good investment it should have been worth more than $100,000 a year later. For example if your cost of

10、capital was 8% it should have been worth $108,000.7)Suppose that Great Britain is a major export market for your firm, a U.S. based MNC. If the British pound depreciates against the U.S. dollar, a)Your firm will be able to charge more in dollar terms while keeping pound prices stable.b)Your firm may

11、 be priced out of the U.K. market, to the extent that your dollar costs stay constant and your pound prices will rise.c)To protect U.K. market share, your firm may have to cut the dollar price of your goods to keep the pound price the same.d)b) and c) are both correct.Answer: b) and c) are both corr

12、ect. See page 5.8)Most governments at least try to make it difficult for people to cross their borders illegally. This barrier to the free movement of labor is an example ofa)Information asymmetryb)Excessive transactions costsc)Racial discriminationd)A market imperfectionAnswer: d) see page 6.9)When

13、 individual investors become aware of overseas investment opportunities and are willing to diversify their portfolios internationally, a)they trade one market imperfection, information asymmetry, for another, exchange rate risk.b)they benefit from an expanded opportunity set.c)They should not bother

14、 to read or to understand the prospectus, since its probably written in a foreign language d)They should invest only in dollars or euros.Answer: b see page 8.10)Nestl, a well-known Swiss corporation,a)Has been a paragon of virtue in its opposition to all forms of political risk.b)At one time placed

15、restrictions on foreign ownership of its stock. When it relaxed these restrictions, the total market value of the firm fell.c)At one time placed restrictions on foreign ownership of its stock. When it relaxed these restrictions, there was a major transfer of wealth from foreign shareholders to Swiss

16、 shareholders.d)None of the aboveAnswer: c) See page 7.Goals for International Financial Management11)The goal of shareholder wealth maximization a)is not appropriate for non-U.S. business firmsb)means that all business decisions and investments that a firm makes are done for the purpose of making t

17、he owners of the firm better off financiallyc)is a sub-objective the firm should attempt to achieve after the objective of customer satisfaction is metd)is in conflict with the privatization process taking place in third-world countriesAnswer: b - p. 812)As capital markets are becoming more integrat

18、ed, the goal of shareholder wealth maximizationa)Has been altered to include other goals as well.b)Has lost out to other goals, even in the U.S.c)Has been given increasing importance by managers in Europe. d)Has been shown to be a deterrent to raising funds abroad.Answer c) see page 813)Recent corpo

19、rate scandals at firms such as Enron, WorldCom and the Italian firm Parmalata)Show that managers might be tempted to pursue their own private interests at the expense of shareholders.b)Show that Italian shareholders are better at monitoring managerial behavior than U.S. shareholders.c)Show that whit

20、e-collar criminals hardly ever get punished.d)Show that socialism is a better way to go than capitalism.Answer a) see page 9.14)While the corporate governance problem is not confined to the United States,a)It can be a much more serious problem in many other parts of the world, where legal protection

21、 of shareholders is weak or nonexistent.b)It has reached its high point in the United States.c)The U.S. legal system, with lawsuits used only as a last resort, ensured that any conflicts of interest will soon be a thing of the past.d)None of the aboveAnswer: a) see page 9.15)The owners of a business

22、 are the a)Taxpayersb)Workersc)Suppliersd)ShareholdersAnswer: d) 16)The massive privatization that is currently taking place in formerly socialist countries, will likelya)eventually enhance the standard of living to these countries citizensb)depend on private investmentc)increase the opportunity set

23、 facing these countries citizensd)all of the aboveAnswer: d) See page 10.17)A firm with concentrated ownershipa)May give rise to conflicts of interest between dominant shareholders and small outside shareholders.b)May enjoy more accounting transparency than firms with diffuse ownership structures.c)

24、Is a partnership, never a corporation.d)Tends to exist overseas but not in the U.S.Answer: d) See page 9.18)The ultimate guardians of shareholder interest in a corporation, are the a)Rank and file workersb)Senior managementc)Boards of directorsd)All of the aboveAnswer: c) See page 9.19)In countries

25、like France and Germany,a)Managers have often made business decisions with regard maximizing market share to the exclusion of other goals.b)Managers have often viewed shareholders as one of the “stakeholders” of the firm, others being employees, customers, suppliers, banks and so forth.c)Managers ha

26、ve often regarded the prosperity and growth of their combines, or families of related firms, as their critical goal.d)Managers have traditionally embraced the maximization of shareholder wealth as the only worthy goal.Answer: b) see page 9.20)When corporate governance breaks downa)Shareholders are u

27、nlikely to receive fair returns on their investmentsb)Managers may be tempted to enrich themselves at shareholder expensec)The board of directors is not doing its jobd)All of the aboveAnswer: d)Globalization of the World Economy21)Privatization refers to process of:a)Having government operate busine

28、sses for the betterment of the public sectorb)Government allowing the operation of privately owned businessc)Prohibiting government operated enterprisesd)A country divesting itself of the ownership and operation of a business venture by turning it over to the free market systemAnswer: d - p. 1422)De

29、regulation of world financial marketsa)Provided a natural environment for financial innovations, like currency futures and options.b)Has promoted competition among market participants.c)Has encouraged developing countries such as Chile, Mexico, and Korea to liberalize by allowing foreigners to direc

30、tly invest in their financial markets.d)All of the aboveAnswer: d see page 10.23)The emergence of global financial markets is due in no small part toa)Advances in computer and telecommunications technologyb)Rigorous enforcement of the Soviet system of state ownership of resources of production.c)Gov

31、ernment regulation and protection of infant industries.d)None of the above.Answer: a) See page 11.24)The euro a)is the common currency of Europeb)is divisible into 100 cents, just like the U.S. dollarc)may eventually have a transaction domain larger than the U.S. dollard)All of the above.Answer: d)

32、see page 11.25)Since its inception the euro has brought about revolutionary changes in European finance. For examplea)By redenominating corporate bonds and stocks from 12 different currencies into one common currency, the euro has precipitated the emergence of continent wide capital markets in Europe that are comparable to U.S. markets