Question 1

________ are compensation for the use of intellectual property belonging to some other party.

Accepted Answer

A)  Royalty fees 
B)  License fees 
C)  Remittance fees 
D)  Repositioning fees 
A)  Royalty fees 
B)  License fees 
C)  Remittance fees 
D)  Repositioning fees A

Question 2

Central depositories are used for international cash management. What is a central depository? Identify and provide examples of at least three advantages to MNEs of having a central depository.

Accepted Answer

A central depository for cash management allows the parent firm to manage cash in a manner that maximizes the benefit to the entire firm rather than specific affiliates. Typically, a firm will order each affiliate to maintain only those cash balances necessary for its own transactions and to forward the balance to a centralized location.
The central depository is typically located in a world money center where it has ready and inexpensive access to information. Central depositories can reduce the size of total precautionary funds for the MNE. If the need for precautionary funds by the affiliates is not perfectly correlated, a central pool of funds will be smaller than if each of the affiliates independently held their desired precautionary balances.
Managers of a central pool of funds can seek out the lowest costs for borrowing required funds, and the highest rates for parking excess cash more efficiently than can affiliate managers who may be limited by local laws as to where they can put their funds. Finally, location is important for either cost purposes, such as low taxes or a physically central presence, or for access to information.

Question 3

________ may determine the currency used for transactions in international sales?

Accepted Answer

A)  Custom 
B)  Competition 
C)  Bargaining and negotiation 
D)  Any of the above 
A)  Custom 
B)  Competition 
C)  Bargaining and negotiation 
D)  Any of the above D

Question 4

Which of the following are NOT techniques used to manage the cross-border cash settlement processes?

Accepted Answer

A)  wire transfers 
B)  cash pooling 
C)  payment netting 
D)  All of the above are techniques used in the settlement process 
A)  wire transfers 
B)  cash pooling 
C)  payment netting 
D)  All of the above are techniques used in the settlement process

Question 5

Days working capital is equal to

Accepted Answer

A)  days payables + days receivables - days inventory. 
B)  days inventory + days receivables - days payables. 
C)  days payables + days inventory + days receivables. 
D)  none of the above. 
A)  days payables + days receivables - days inventory. 
B)  days inventory + days receivables - days payables. 
C)  days payables + days inventory + days receivables. 
D)  none of the above.

Question 6

Firms might be tempted to order ________ inventory from foreign sources if they thought their currency was about to be ________.

Accepted Answer

A)  less; devalued 
B)  extra; revalued 
C)  extra; devalued 
D)  none of the above 
A)  less; devalued 
B)  extra; revalued 
C)  extra; devalued 
D)  none of the above

Question 7

Japanese markets are noted for their short maturity payment terms (less than 20 days), and the general reluctance of the manufacturer to supply any type of credit to customers.

Accepted Answer

A) True 
 B)False

Question 8

A/An ________ is a locally incorporated bank owned in part but not necessarily controlled by a foreign parent.

Accepted Answer

A)  banking affiliate 
B)  Edge Act Corporation 
C)  international branch bank 
D)  bank subsidiary 
A)  banking affiliate 
B)  Edge Act Corporation 
C)  international branch bank 
D)  bank subsidiary

Question 9

One reason NOT to include accounts payable (A/P) when calculating NWC is because A/P do not increase spontaneously with operations.

Accepted Answer

A) True 
 B)False

Question 10

TABLE 22.1
Use the information to answer following question(s).
Polaris Corporation Balance Sheet December 31, 20xx
  
-Refer to Table 22.1. NWC currently makes up what percentage of total firm value for Polaris?

Accepted Answer

A)  6.6% 
B)  5.1% 
C)  11.8% 
D)  9.2% 
A)  6.6% 
B)  5.1% 
C)  11.8% 
D)  9.2%

Question 11

According to GAAP, goods shipped with a foreign currency-denominated invoice use the ________ to record the value of the sale in the local currency.

Accepted Answer

A)  beginning of the year exchange rate 
B)  average year-to-date exchange rate 
C)  spot rate on the day of the transaction 
D)  actual spot rate at time of future payment 
A)  beginning of the year exchange rate 
B)  average year-to-date exchange rate 
C)  spot rate on the day of the transaction 
D)  actual spot rate at time of future payment

Question 12

An Edge Act corporation is a subsidiary of a U.S. bank located outside of the U.S. and incorporated to engage in international banking and financing operations.

Accepted Answer

A) True 
 B)False

Question 13

For the MNE a repositioning of profits helps the firm realize greater after-tax profits from the same amount of sales.

Accepted Answer

A) True 
 B)False

Question 14

The cash conversion cycle

Accepted Answer

A)  is a subset of the operating cycle. 
B)  occurs in the latter stages of the operating cycle. 
C)  is a subset of the accounts receivable period. 
D)  all of the above. 
A)  is a subset of the operating cycle. 
B)  occurs in the latter stages of the operating cycle. 
C)  is a subset of the accounts receivable period. 
D)  all of the above.

Question 15

TABLE 22.1
Use the information to answer following question(s).
Polaris Corporation Balance Sheet December 31, 20xx
  
-Refer to Table 22.1. The NWC for Polaris is ________.

Accepted Answer

A)  $80,000 
B)  $680,000 
C)  $35,000 
D)  $45,000 
A)  $80,000 
B)  $680,000 
C)  $35,000 
D)  $45,000

Question 16

Dividends are the most tax-efficient way to repatriate funds because they are distributed on an after-tax basis.

Accepted Answer

A) True 
 B)False

Question 17

In an inflationary economy, demand for credit usually exceeds supply.

Accepted Answer

A) True 
 B)False

Question 18

Firms whose currency is prime for devaluation may choose to purchase extra inventory from foreign sources before the devaluation occurs. Which of the following is NOT a potential problem associated with such a practice?

Accepted Answer

A)  As a result of holding extra inventory, the firm now has extra sales. 
B)  As a result of devaluation, the local government may freeze the price at which the firm can sell its inventory. 
C)  The devaluation doesn't occur and the firm now experiences additional storage costs. 
D)  All of the above are potential problems. 
A)  As a result of holding extra inventory, the firm now has extra sales. 
B)  As a result of devaluation, the local government may freeze the price at which the firm can sell its inventory. 
C)  The devaluation doesn't occur and the firm now experiences additional storage costs. 
D)  All of the above are potential problems.

Question 19

Free-trade zones may take the form of

Accepted Answer

A)  warehouses for imported goods. 
B)  assembly plants for imported parts. 
C)  manufacturing plants for re-export. 
D)  all of the above. 
A)  warehouses for imported goods. 
B)  assembly plants for imported parts. 
C)  manufacturing plants for re-export. 
D)  all of the above.

Question 20

Other things equal, a firm would rather have ________ in a depreciating currency, and ________ in an appreciating currency.

Accepted Answer

A)  accounts receivable; accounts payable 
B)  accounts receivable; accounts receivable 
C)  accounts payable; accounts receivable 
D)  none of the above 
A)  accounts receivable; accounts payable 
B)  accounts receivable; accounts receivable 
C)  accounts payable; accounts receivable 
D)  none of the above

Exam 22: Working Capital Management

________ are compensation for the use of intellectual property belonging to some other party.

Central depositories are used for international cash management. What is a central depository? Identify and provide examples of at least three advantages to MNEs of having a central depository.

________ may determine the currency used for transactions in international sales?

Which of the following are NOT techniques used to manage the cross-border cash settlement processes?

Days working capital is equal to

Firms might be tempted to order ________ inventory from foreign sources if they thought their currency was about to be ________.

Japanese markets are noted for their short maturity payment terms (less than 20 days), and the general reluctance of the manufacturer to supply any type of credit to customers.

A/An ________ is a locally incorporated bank owned in part but not necessarily controlled by a foreign parent.

One reason NOT to include accounts payable (A/P) when calculating NWC is because A/P do not increase spontaneously with operations.

TABLE 22.1 Use the information to answer following question(s). Polaris Corporation Balance Sheet December 31, 20xx -Refer to Table 22.1. NWC currently makes up what percentage of total firm value for Polaris?

According to GAAP, goods shipped with a foreign currency-denominated invoice use the ________ to record the value of the sale in the local currency.

An Edge Act corporation is a subsidiary of a U.S. bank located outside of the U.S. and incorporated to engage in international banking and financing operations.

For the MNE a repositioning of profits helps the firm realize greater after-tax profits from the same amount of sales.

The cash conversion cycle

TABLE 22.1 Use the information to answer following question(s). Polaris Corporation Balance Sheet December 31, 20xx -Refer to Table 22.1. The NWC for Polaris is ________.

Dividends are the most tax-efficient way to repatriate funds because they are distributed on an after-tax basis.

In an inflationary economy, demand for credit usually exceeds supply.

Firms whose currency is prime for devaluation may choose to purchase extra inventory from foreign sources before the devaluation occurs. Which of the following is NOT a potential problem associated with such a practice?

Free-trade zones may take the form of

Other things equal, a firm would rather have ________ in a depreciating currency, and ________ in an appreciating currency.

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

International Portfolio Theory and Diversification

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Filters

Firms might be tempted to order inventory from foreign sources if they thought their currency was about to be .

Other things equal, a firm would rather have in a depreciating currency, and in an appreciating currency.