1a. Explain the agency problem of MNCs.

ANSWER: The agency problem reflects a conflict of interests between decision-making

managers and the owners of the MNC. Agency costs occur in an effort to assure that managers
act in the best interest of the owners.
1b. Why might agency costs be larger for an MNC than for a purely domestic firm?
ANSWER: The agency costs are normally larger for MNCs than purely domestic firms for the
following reasons. First, MNCs incur larger agency costs in monitoring managers of distant
foreign subsidiaries. Second, foreign subsidiary managers raised in different cultures may not
follow uniform goals. Third, the sheer size of the larger MNCs would also create large agency
problems.
2a. Explain how the theory of comparative advantage relates to the need for international
business.
ANSWER: The theory of comparative advantage implies that countries should specialize in
production, thereby relying on other countries for some products. Consequently, there is a need
for international business.
2b. Explain how the product cycle theory relates to the growth of an MNC.
ANSWER: The product cycle theory suggests that at some point in time, the firm will attempt to
capitalize on its perceived advantages in markets other than where it was initially established.

3a. Explain how the existence of imperfect markets has led to the establishment of
subsidiaries in foreign markets.
ANSWER: Because of imperfect markets, resources cannot be easily and freely retrieved by the
MNC. Consequently, the MNC must sometimes go to the resources rather than retrieve resources
(such as land, labor, etc.).
3b. If perfect markets existed, would wages, prices, and interest rates among countries
be more similar or less similar than under conditions of imperfect markets? Why?
ANSWER: If perfect markets existed, resources would be more mobile and could therefore be
transferred to those countries more willing to pay a high price for them. As this occurred,
shortages of resources in any particular country would be alleviated and the costs of such
resources would be similar across countries.

4a, Product cycle theory

Theory suggesting that a firm initially establish itself locally and expand into foreign markets in
response to foreign demand for its product; over time, the MNC will grow in foreign markets;
after some point, its foreign business may decline unless it can differentiate its product from
competitors.

Product Cycle
The period of time from the introduction of a product to its decline and stagnation. Different
analyses posit different numbers of stages in a product cycle (usually four to five), but all
emphasize that a product has a beginning, with technological innovation; a period of rapid
growth; maturity and consolidation; and, finally, decline and possibly death. For example, in the
video cassette recording (VCR) industry, the mid-1970s were a period of decentralized
technological innovation, with VHS and Betamax formats vying for dominance. Later, video
cassettes very quickly became a common household item. In the maturity phase, different
companies selling VCRs attempted to corner a greater market share for their own (identical)
versions of the product. Finally, the industry declined and was eventually supplanted by DVD
players. Factors that may prolong a product cycle include the opening of new markets for the
product, finding new uses for the same product, or even attaining government subsidies. The
concept of product cycles applies most readily to the sale of goods and it is difficult to gauge
how it works in a service economy.

10.a.What Is the objects of IMF?

ANSWER: Promote international monitory support
expansion of international trade
promotion and maintenance of high levels of employment and real income
promote exchange stability
to remove foreign exchange restriction's that hinders economic growth

10.b.What Is the objects of WB?

ANSWER:The term "World Bank" generally refers to the IBRD and IDA, whereas the World
Bank Group is used to refer to the institutions collectively.[2]
The World Bank's (i.e. the IBRD and IDA's) activities are focused on developing countries, in
fields such as human development (e.g. education, health), agriculture and rural development
(e.g. irrigation, rural services), environmental protection (e.g. pollution reduction, establishing
and enforcing regulations), infrastructure (e.g. roads, urban regeneration, electricity), and
governance (e.g. anti-corruption, legal institutions development). The IBRD and IDA provide
loans at preferential rates to member countries, as well as grants to the poorest countries. Loans
or grants for specific projects are often linked to wider policy changes in the sector or the
economy. For example, a loan to improve coastal environmental management may be linked to
development of new environmental institutions at national and local levels and the
implementation of new regulations to limit pollution.

10.c.What Is the objects of IFC?

ANSWER:
1a.List some of the important characteristics of bank foreign exchange services
that MNCs should consider
ANSWER: The important characteristics are (1) competitiveness of the quote, (2) the firm’s
relationship with the bank, (3) speed of execution, (4) advice about current market conditions,
and (5) forecasting advice.