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MULTINATIONAL FINANCE EVALUATING THE OPPORTUNITIES, COSTS, AND RISKS OF MULTINATIONAL OPERATIONS, 6TH EDITION BY KIRT C. BUTLER - Test Bank
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, Chapter 01 - Kirt C. Butler, Test Bank for Multinational Finance, John Wiley & Sons, 6h edition (2016)PART I The International Financial Environment
Chapter 1 An Introduction to Multinational Finance
Notes to instructors:
Answers to non-numeric multiple choice questions are arranged alphabetically, so that answers are
randomly assigned to the five outcomes.
True/False
1. MNCs have investment or financial operations in more than one country.
True.
2. The terms stakeholder and shareholder are synonymous.
False. Stakeholders include all those with a stake in the firm. A narrow definition of stakeholder
includes debt and equity. A broad definition includes the firm’s debt and equity, as well as creditors,
customers, suppliers, and employees.
3. The MNC typically faces greater constraints than the domestic corporation in the timing and location
of its investments.
False. Multinationals typically have more flexibility in timing and location of their investments, as
well as in their operation.
4. Risk exists whenever actual outcomes can differ from expected outcomes.
True.
5. Assets and liabilities are exposed to currency risk when their values can change with unexpected
changes in currency values.
True.
6. Currency risk and currency risk exposure refer to the same thing—the possibility that currency values
will differ from their expectations.
False. A firm has a currency risk exposure when its assets or liabilities can change in value with
unexpected changes in currency values.
7. The investment opportunity set is the set of investments available to the corporation; that is, the set from
which the company must select.
True.
8. The three types of market efficiency used in the text to describe the performance of financial markets
are allocational efficiency, operational efficiency, and transactional efficiency.
False. Three types of market efficiency are allocational, operational, and informational efficiency.
9. Economies of scale arise as fixed development or production costs are spread over a larger output.
True.
10. Economies of scope are efficiencies that arise across product lines, such as when joint production
results in lower per-unit costs.
True.
11. Economies of scale are efficiencies that arise across product lines, such as when joint production
results in lower per-unit costs.
False. These are economies of scope. Economies of scale arise when size itself results in lower
average or per-unit production costs.
1
, Kirt C. Butler, Test Bank for Multinational Finance, John Wiley & Sons, 6th edition (2016)
12. An informationally efficient market is one with abundant information.
False. It is a market in which prices fully reflect available information.
13. Allocational efficiency refers to how efficiently a market channels capital toward its most productive
uses.
True.
14. Allocational efficiency refers to whether a market allocates capital to those investments deemed
most worthy by a host government.
False. Allocational efficiency refers to how efficiently a market channels capital toward its most
productive uses in an economic, rather than a political, sense.
15. Operational efficiency refers to how large an influence transactions costs and other market frictions
have on the operation of a market.
True.
16. Because of globalization in the world’s markets, a multinational financial manager is more likely
than a domestic manager to be highly specialized in finance to the exclusion of other disciplines.
False. The multinational financial manager must be well versed in each of the business disciplines in
which the MNC is involved.
17. The domestic financial manager must be knowledgeable in several areas within finance, whereas the
multinational financial manager usually specializes in a single area, such as corporate finance,
investments, or financial markets.
False. The multinational financial manager is likely to require knowledge of several fields within
finance.
Multiple Choice Select the BEST ANSWER
1. Corporate stakeholders include each of (a) through (d) EXCEPT ____.
a. creditors
b. customers
c. managers
d. shareholders
* e. Each of the above is a stakeholder in the firm
2. Loss in value from conflicts of interest between managers and other stakeholders are called ______.
a. adverse selection costs
* b. agency costs
c. costs of financial distress
d. sunk costs
e. transactions costs
3. National and cultural differences manifest themselves in each of the following ways EXCEPT ______.
a. accounting conventions
b. distribution
* c. human nature
d. personnel management
e. tax systems
4. Opportunities for the MNC to enhance revenues include each of the following EXCEPT ______.
a. advantages of scale
b. advantages of scope
* c. economies of vertical integration
d. global branding
e. marketing flexibility
5. Opportunities for the MNC to reduce operating expenses include each of the following EXCEPT
2
, Chapter 01 - Kirt C. Butler, Test Bank for Multinational Finance, John Wiley & Sons, 6h edition (2016)
______.
a. economies of scale
b. economies of scope
c. flexibility in global site selection
* d. global branding
e. low-cost labor
3
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