Free Master of International Business: Multinational Financial Management Questions and Answers

Question 1

Political risk is the threat of value loss as a result of

Accepted Answer

Government or Public actions

Answer

Political risk refers to the potential for unexpected changes in the political environment or government policies that can negatively impact the value of an investment or business operation. These actions can include expropriation, changes in regulations, or civil unrest, all stemming from government or public actions rather than market forces or internal corporate issues.

Question 2

Which of the following is not a way that corporate rule can help with agency issues?

Accepted Answer

Acquisition of a foreign subsidiary

Answer

Agency issues arise when the interests of managers (agents) diverge from those of shareholders (principals). Corporate governance mechanisms like executive compensation, monitoring by large shareholders, and the threat of hostile takeovers align managerial incentives with shareholder interests or provide oversight. Acquiring a foreign subsidiary is a strategic business decision, not a direct mechanism for resolving agency problems, although it might be a result of managerial decisions.

Question 3

Investors consider political risk to be

Accepted Answer

Discouraged

Answer

Political risk introduces uncertainty and potential for loss, making a country or project less attractive to investors. High political risk can lead to lower expected returns or higher required risk premiums, thereby discouraging foreign direct investment and portfolio investment. Investors prefer stable and predictable environments to protect their capital and ensure profitability.

Question 4

If a simple family organization experiences even a small amount of exchange rate volatility,

Accepted Answer

Foreign competition

Answer

Even a small amount of exchange rate volatility can significantly impact a simple family organization, particularly by affecting its competitiveness against foreign firms. If the domestic currency strengthens, imports become cheaper, making foreign competitors' products more attractive. Conversely, if the domestic currency weakens, the cost of imported inputs for the family organization might rise, increasing its operational costs and making it less competitive against foreign rivals.

Question 5

Snyder Golf Co. plans to construct a golf club in Brazil.

Accepted Answer

Direct Forging Investment

Answer

Direct Foreign Investment (DFI) involves establishing a physical presence in a foreign country, such as building a new manufacturing plant or acquiring an existing company. Snyder Golf Co. constructing a golf club in Brazil is a clear example of DFI, as it entails a significant capital outlay and direct control over operations in a foreign market, rather than just importing, exporting, or licensing.

MIB - Master of International Business Practice Test

MIB - Master of International Business Practice Test

Free Master of International Business: Multinational Financial Management Questions and Answers