Empirical Research Has Found That Systematic Risk for MNEs Is

question 41

Multiple Choice

Empirical research has found that systematic risk for MNEs is greater than that for their domestic counterparts. This could be due to:

• A) the fact that the increase in the correlation of returns between the market and the firm is less than the increase in the standard deviation of returns of the firm.
• B) the fact that the decrease in the correlation of returns between the market and the firm is greater than the increase in the standard deviation of returns of the firm.
• C) the reduction in the correlation of returns between the firm and the market is less than the increase in the variability of returns caused by factors such as asymmetric information, foreign exchange risk, and the like.
• D) None of the above; systematic risk is less for MNEs than for their domestic counterparts.

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Definitions:

Cash Dividends

Payments made by a corporation to its shareholder members, distributing a portion of the company's earnings in cash.

Corporation Liability

Legal and financial obligations a corporation owes to others, which can involve debts, lawsuits, or other claims against the business.

Restricted Retained Earnings

Portion of retained earnings that is not available for distribution as dividends to shareholders, often because of legal or contractual constraints.

Preferred Stock Dividends

Dividends that are paid out to holders of a company's preferred stock before any dividends are paid to common stockholders.