Question 1

An in-house bank

Accepted Answer

A)  is a separate bank chartered to operate within a business firm. 
B)  is in fact a set of functions performed by the firm's existing treasury department. 
C)  assesses the credit standing of the bank's customers. 
D)  provides banking services for employees. 
A)  is a separate bank chartered to operate within a business firm. 
B)  is in fact a set of functions performed by the firm's existing treasury department. 
C)  assesses the credit standing of the bank's customers. 
D)  provides banking services for employees.

Question 2

Increases to cash flows can be anticipated if which of the following occurs?

Accepted Answer

A)  A receivables contract is denominated in an appreciating foreign currency. 
B)  Sales are less than anticipated. 
C)  Days in accounts receivable increase by 15 days. 
D)  None of the above. 
A)  A receivables contract is denominated in an appreciating foreign currency. 
B)  Sales are less than anticipated. 
C)  Days in accounts receivable increase by 15 days. 
D)  None of the above.

Question 3

Because they are direct payments, dividends are among the most efficient way for foreign subsidiaries to remit funds back to the parent.

Accepted Answer

A) True 
 B)False

Question 4

Even though dividends are cash payments, firms typically must consider both cash flow and net income when making dividend distribution decisions.

Accepted Answer

A) True 
 B)False

Question 5

What is a free-trade zone? Identify three techniques and provide examples of how firms and countries can benefit from having free trade zones.

Accepted Answer

Free-trade zones are locations within a

Question 6

Which of the following is NOT a function covered by international cash management?

Accepted Answer

A)  maximizing interest earned on idle international cash balances 
B)  manipulating transfer prices 
C)  repositioning of funds within the multinational firm 
D)  investing surplus cash held within the system 
A)  maximizing interest earned on idle international cash balances 
B)  manipulating transfer prices 
C)  repositioning of funds within the multinational firm 
D)  investing surplus cash held within the system

Question 7

Which of the following is NOT a correspondent banking service?

Accepted Answer

A)  accepting bank drafts 
B)  honoring letters of credit 
C)  furnishing credit informational 
D)  All of the above are correspondent bank activities. 
A)  accepting bank drafts 
B)  honoring letters of credit 
C)  furnishing credit informational 
D)  All of the above are correspondent bank activities.

Question 8

The proper order of events for the operating cycle is

Accepted Answer

A)  input serving period, accounts receivable period, inventory period, quotation period. 
B)  quotation period, accounts receivable period, inventory period, input servicing period. 
C)  quotation period, input servicing period, inventory period, accounts receivable period. 
D)  accounts receivable period, input servicing period, quotation period, inventory period. 
A)  input serving period, accounts receivable period, inventory period, quotation period. 
B)  quotation period, accounts receivable period, inventory period, input servicing period. 
C)  quotation period, input servicing period, inventory period, accounts receivable period. 
D)  accounts receivable period, input servicing period, quotation period, inventory period.

Question 9

The Europeans have a popular liquid discountable bill originating with the Code Napoleon and backed by accounts receivable called

Accepted Answer

A)  banker's acceptances. 
B)  self-liquidating bills. 
C)  commercial paper. 
D)  negotiable certificates of deposit. 
A)  banker's acceptances. 
B)  self-liquidating bills. 
C)  commercial paper. 
D)  negotiable certificates of deposit.

Question 10

Other things equal, managers prefer a lower "days working capital" to a higher one.

Accepted Answer

A) True 
 B)False

Question 11

Working capital management involves the management of

Accepted Answer

A)  current and long-term assets. 
B)  current assets and current liabilities. 
C)  current liabilities and long-term assets. 
D)  current liabilities and long-term debt and equity. 
A)  current and long-term assets. 
B)  current assets and current liabilities. 
C)  current liabilities and long-term assets. 
D)  current liabilities and long-term debt and equity.

Question 12

Which of the following actions will result in an increase in NWC?

Accepted Answer

A)  an increase in A/P that exceeds an increase in A/R 
B)  a reduction in inventory 
C)  a reduction in A/P plus a smaller reduction in A/R 
D)  an increase in A/P and a smaller reduction in inventory 
A)  an increase in A/P that exceeds an increase in A/R 
B)  a reduction in inventory 
C)  a reduction in A/P plus a smaller reduction in A/R 
D)  an increase in A/P and a smaller reduction in inventory

Question 13

A precautionary cash balance

Accepted Answer

A)  is used to replace spoiled or damaged inventory. 
B)  is held to facilitate cash disbursements when receipts slow down. 
C)  is used for normal day-to-day operations. 
D)  is held for the benefit of a sister affiliate. 
A)  is used to replace spoiled or damaged inventory. 
B)  is held to facilitate cash disbursements when receipts slow down. 
C)  is used for normal day-to-day operations. 
D)  is held for the benefit of a sister affiliate.

Question 14

A cash pool is

Accepted Answer

A)  excess cash held centrally for a set of affiliates, in order to be invested on more favorable terms. 
B)  cash held in a pooling-of-interest bank account. 
C)  the currency used for functional reporting. 
D)  cash routed through two or more affiliates to avoid taxes. 
A)  excess cash held centrally for a set of affiliates, in order to be invested on more favorable terms. 
B)  cash held in a pooling-of-interest bank account. 
C)  the currency used for functional reporting. 
D)  cash routed through two or more affiliates to avoid taxes.

Question 15

The advantages to unbundling of cash flows from a subsidiary to a parent include all of the following EXCEPT:

Accepted Answer

A)  items that may have been classified as residual profits are viewed as tax-deductible expenses. 
B)  the facilitation of allocating shared-services (i.e., overhead). 
C)  the facilitation of local capital into joint-venture projects. 
D)  All of the above are legitimate reasons for unbundling cash flows between a parent and subsidiary. 
A)  items that may have been classified as residual profits are viewed as tax-deductible expenses. 
B)  the facilitation of allocating shared-services (i.e., overhead). 
C)  the facilitation of local capital into joint-venture projects. 
D)  All of the above are legitimate reasons for unbundling cash flows between a parent and subsidiary.

Question 16

TABLE 22.1
Use the information to answer following question(s).
Polaris Corporation Balance Sheet December 31, 20xx
  
-Refer to Table 22.1. If Polaris increases inventory by $10,000 and A/P also by $10,000, the net change in NWC is ________.

Accepted Answer

A)  $20,000 
B)  $10,000 
C)  $0 
D)  none of the above 
A)  $20,000 
B)  $10,000 
C)  $0 
D)  none of the above

Question 17

Which of the following would most likely NOT be considered an after-tax cost in the host country when unbundling cash flows from a subsidiary to a foreign parent?

Accepted Answer

A)  payments of interest to a parent for intrafirm debt 
B)  payments to parent for goods or services 
C)  payments of dividends to the parent 
D)  payments for copyrights or trademarks 
A)  payments of interest to a parent for intrafirm debt 
B)  payments to parent for goods or services 
C)  payments of dividends to the parent 
D)  payments for copyrights or trademarks

Question 18

Instruction 22.1:
Use the information to answer following question(s).
SureDrip Irrigation Systems Inc. is supplied with plastic chips for their plastic injection molding manufacturing process. Their supplier, Sun Chemical, Inc. offers financing terms of a 2% discount if the accounts payable are paid in 10 days or less with the full balance due in 45 days. Short-term financing available to SureDrip is available at an annual rate of 9.6%. SureDrip has just purchased $400,000 of plastic chips from Sun Chemical.
-Refer to Instruction 22.1. Should SureDrip take the discount offered by Sun Chemical?

Accepted Answer

A)  Yes, SureDrip will get to use their raw materials 35 days earlier than if they waited to pay at the end of the 45 days. 
B)  No, SureDrip will not have to pay any interest if they just pay in 45 days. 
C)  Yes, SureDrip's short term borrowing rate of 9.6% is less than Sun's offered cost of carry of 22.9%. 
D)  No, it costs SureDrip 22.9% to accept the discount and they are better off paying the full amount in 45 days. 
A)  Yes, SureDrip will get to use their raw materials 35 days earlier than if they waited to pay at the end of the 45 days. 
B)  No, SureDrip will not have to pay any interest if they just pay in 45 days. 
C)  Yes, SureDrip's short term borrowing rate of 9.6% is less than Sun's offered cost of carry of 22.9%. 
D)  No, it costs SureDrip 22.9% to accept the discount and they are better off paying the full amount in 45 days.

Question 19

Which of the following is NOT a precautionary motive for holding cash?

Accepted Answer

A)  Anticipated funds to be remitted from several Middle East countries are in question due to unrest in the region. 
B)  The firm has several short-term obligations in unhedged foreign currency-denominated contracts. 
C)  The firm must pay ordinary wages in two days. 
D)  All are precautionary motives. 
A)  Anticipated funds to be remitted from several Middle East countries are in question due to unrest in the region. 
B)  The firm has several short-term obligations in unhedged foreign currency-denominated contracts. 
C)  The firm must pay ordinary wages in two days. 
D)  All are precautionary motives.

Question 20

A centralized depository benefits the firm primarily by

Accepted Answer

A)  reducing the cost of repatriating funds. 
B)  positioning profits where taxes are lowest. 
C)  reducing the total amount of capital employed within the total firm. 
D)  earning a higher rate of return than in domestic banking deposits. 
A)  reducing the cost of repatriating funds. 
B)  positioning profits where taxes are lowest. 
C)  reducing the total amount of capital employed within the total firm. 
D)  earning a higher rate of return than in domestic banking deposits.

Exam 22: Working Capital Management

An in-house bank

Increases to cash flows can be anticipated if which of the following occurs?

Because they are direct payments, dividends are among the most efficient way for foreign subsidiaries to remit funds back to the parent.

Even though dividends are cash payments, firms typically must consider both cash flow and net income when making dividend distribution decisions.

What is a free-trade zone? Identify three techniques and provide examples of how firms and countries can benefit from having free trade zones.

Which of the following is NOT a function covered by international cash management?

Which of the following is NOT a correspondent banking service?

The proper order of events for the operating cycle is

The Europeans have a popular liquid discountable bill originating with the Code Napoleon and backed by accounts receivable called

Other things equal, managers prefer a lower "days working capital" to a higher one.

Working capital management involves the management of

Which of the following actions will result in an increase in NWC?

A precautionary cash balance

A cash pool is

The advantages to unbundling of cash flows from a subsidiary to a parent include all of the following EXCEPT:

TABLE 22.1 Use the information to answer following question(s). Polaris Corporation Balance Sheet December 31, 20xx -Refer to Table 22.1. If Polaris increases inventory by $10,000 and A/P also by $10,000, the net change in NWC is ________.

Which of the following would most likely NOT be considered an after-tax cost in the host country when unbundling cash flows from a subsidiary to a foreign parent?

Which of the following is NOT a precautionary motive for holding cash?

A centralized depository benefits the firm primarily by

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

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