Exam 18: International Financial Management

Why do companies hold working capital? Why do firms need to minimize their working capital balances?

A(n) ________ confirms that the goods being shipped were produced in the exporting country.

The benefit of a firm going naked is making no capital outlays.

Countertrade agreements often permit the use of switching arrangements, whereby countertrade obligations are transferred from one firm to another.

What is a swap market? How can swap markets help international firms obtain low-cost sources of capital and manage foreign exchange risk?

The rate of return on working capital is high, therefore financial officers prefer to invest funds in working capital.

Payment in advance is the most favorable method of payment from the exporter's perspective.

The State Trading Corporation of India agreed to exchange wheat and other grains to Turkmenistan in return for cotton. What form of countertrade is this?

In most international transactions, one of the parties has to bear transaction exposure.

International commercial transactions are so common now that credit checks are unnecessary.

The ________ is a letter of credit that the bank may alter at any time and for any reason.

Suppose that Saks Fifth Avenue agrees on April 10th to buy 5 million Swiss francs' worth of Rolex watches from Rolex's Swiss manufacturer, payable upon delivery on October 10th. Given the potential that the Swiss franc rises in value against the dollar, which partner experiences this transaction exposure?

A(n) ________ provides assurance that the products have been checked by authorities and that they conform to relevant standards.

Martin Exporting requests ABC Bank to add its own guarantee of payment to a letter of credit, which creates a(n) ________.

Why would an exporter most likely consider an open account undesirable?

How can firms reduce their translation exposure?

What conditions favor the use of each form of payment?

Companies can use centralized cash management to minimize their company-wide cash holdings.

In specialized international lending activity, firms may engage in ________, where they buy foreign accounts receivable at a discount from face value.

Why do exporters and importers sometimes choose to use a third country's currency for their financial transactions?