Exam 10: Financial Management and Accounting in the Global Firm

The direct quote, also known as the normal quote, is the number of units of domestic currency needed to acquire one unit of foreign currency.

The current rate method is typically employed when translating records of ________.

Multilateral netting would enable an MNE with numerous subsidiaries to ________.

Financing Corporate Expansion (Scenario) Intensity Games is an MNE based in San Francisco that manufactures a popular line of video game consoles and accessories. Intensity owns manufacturing facilities in China and Russia, where the components of the game consoles are manufactured and assembled before being shipped around the world. Intensity also owns numerous subsidiaries that manufacture game cartridges for Intensity game platforms. Intensity managers have determined that the firm needs to expand its Chinese facility to accommodate the increasing demand. The firm needs to raise several million dollars to finance the expansion. The financial managers of Intensity are discussing the various financing options available to the firm. -Which of the following is most likely an advantage of Intensity accessing funds through the global capital market instead of domestic sources?

Capital budgeting in MNEs is protected from country risks or government intervention.

When Mexican cement giant Cemex sells dollar-denominated bonds in the United States, it is issuing foreign bonds.

Which of the following is the first task in international financial management?

The purpose of capital budgeting is to help managers decide which international projects provide the best financial return.

EZ Lawn Currency Risk (Scenario) The EZ Lawn Corporation manufactures lawn equipment such as lawn mowers, blowers, and trimmers. The lawn equipment is assembled in the U.S. at a facility in Florida, but the firm outsources inputs from a number of countries, each with varying degrees of economic stability. Given the importance of the firm's sourcing activities, EZ Lawn managers are discussing methods that might reduce the currency risk faced by EZ Lawn. -Contracting with secondary suppliers outside the U.S. for critical input components would most likely enable EZ Lawn to ________.

The average debt ratio in Germany, Italy, Japan, and numerous developing economies typically exceeds 50 percent. High reliance on debt financing can arise if a country lacks a well-developed stock market or other systems for obtaining capital from equity sources.

EZ Lawn Currency Risk (Scenario) The EZ Lawn Corporation manufactures lawn equipment such as lawn mowers, blowers, and trimmers. The lawn equipment is assembled in the U.S. at a facility in Florida, but the firm outsources inputs from a number of countries, each with varying degrees of economic stability. Given the importance of the firm's sourcing activities, EZ Lawn managers are discussing methods that might reduce the currency risk faced by EZ Lawn. -Which of the following would most likely be an effective currency risk strategy for EZ Lawn management?

A parent's perspective approach in capital budgeting can be employed by managers interested in initially screening the appropriateness of an international capital investment project.

Explain the difference between working capital and net working capital, and discuss why managers employ net present value (NPV) analysis to evaluate domestic and international capital investment projects.

Current rate method is the translation of foreign currency balance sheet and income statements at an exchange rate that varies with the underlying method of valuation.

How has technology affected foreign exchange trading?

Intracorporate fund transfers enable MNEs to access cash from subsidiaries through royalty payments, transfer pricing, and multilateral netting.

Financing Corporate Expansion (Scenario) Intensity Games is an MNE based in San Francisco that manufactures a popular line of video game consoles and accessories. Intensity owns manufacturing facilities in China and Russia, where the components of the game consoles are manufactured and assembled before being shipped around the world. Intensity also owns numerous subsidiaries that manufacture game cartridges for Intensity game platforms. Intensity managers have determined that the firm needs to expand its Chinese facility to accommodate the increasing demand. The firm needs to raise several million dollars to finance the expansion. The financial managers of Intensity are discussing the various financing options available to the firm. -Which of the following, if TRUE, supports Intensity raising funds through intracorporate financing to expand its Chinese facility?

What are four advantages to large firms lending funds to their foreign subsidiaries?

Unlike exporters and licensors, who both face currency risk, managers of foreign investment portfolios can also be impacted by the fluctuation in exchange rates.

Financing Corporate Expansion (Scenario) Intensity Games is an MNE based in San Francisco that manufactures a popular line of video game consoles and accessories. Intensity owns manufacturing facilities in China and Russia, where the components of the game consoles are manufactured and assembled before being shipped around the world. Intensity also owns numerous subsidiaries that manufacture game cartridges for Intensity game platforms. Intensity managers have determined that the firm needs to expand its Chinese facility to accommodate the increasing demand. The firm needs to raise several million dollars to finance the expansion. The financial managers of Intensity are discussing the various financing options available to the firm. -Which of the following questions would be more important for Intensity financial managers to evaluate when deciding the best method for the firm to raise funds?