Question 1

A netting center necessarily implies that the MNC has a central cash manager.

Accepted Answer

A) True 
 B)False

Question 2

Simplify the following set of intra-company cash flows for this Swiss firm. Use the following exchange rates:
$$\begin{array} { r l l } 
 £1.00 & = & \$ 2.00 \
€ 1.00 & = & \$ 1.50 \
\text { SFr } 1.00 & = & \$ 0.80
\end{array}$$ The fewest number of intra-affiliate cash flows is

Accepted Answer

A) zero. 
B) one. 
C) two. 
D) three. 
A) zero. 
B) one. 
C) two. 
D) three.

Question 3

A central cash manager has a global view of the most favorable borrowing rates and most advantageous investment rates.

Accepted Answer

A) True 
 B)False

Question 4

With a centralized cash depository

Accepted Answer

A) there is less chance for an MNC's funds to be denominated in the wrong currency. 
B) the central cash manager has a global view of the MNC's overall cash position. 
C) there is less chance of mislocated funds. 
D) all of the options 
A) there is less chance for an MNC's funds to be denominated in the wrong currency. 
B) the central cash manager has a global view of the MNC's overall cash position. 
C) there is less chance of mislocated funds. 
D) all of the options

Question 5

Good cash management boils down to

Accepted Answer

A) investing excess funds at the most favorable interest rate and borrowing at the lowest rate when there is a temporary cash shortage. 
B) investing excess funds at the lowest rate and borrowing at the highest rate when there is a temporary cash shortage. 
C) hedging currency exposure with judicious use of futures,forwards,and currency option contracts. 
D) none of the options 
A) investing excess funds at the most favorable interest rate and borrowing at the lowest rate when there is a temporary cash shortage. 
B) investing excess funds at the lowest rate and borrowing at the highest rate when there is a temporary cash shortage. 
C) hedging currency exposure with judicious use of futures,forwards,and currency option contracts. 
D) none of the options

Question 6

A centralized cash management system with a cash pool can reduce the investment the MNC has in precautionary cash balances,saving the firm money.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements about multilateral netting system are correct? (i)Each affiliate nets all its inter-affiliate receipts against all its disbursements.
(ii)Each affiliate transfers or receives a balance,depending on whether it is a net payer or receiver.
(iii)The net funds to be received by the affiliates will equal the net disbursements to be made by the affiliates.
(iv)Only two foreign exchange transactions are necessary since the affiliates' net receipts will always be equal to zero.
(v)Only two foreign exchange transactions are necessary since the affiliates' net disbursements will always be equal to zero.

Accepted Answer

A) (i)and (ii) 
B) (i),(ii),and (iii) 
C) (i),(ii),(iii),and (iv) 
D) (i),(ii),(iii),and (v) 
A) (i)and (ii) 
B) (i),(ii),and (iii) 
C) (i),(ii),(iii),and (iv) 
D) (i),(ii),(iii),and (v)

Question 8

The cash manager of a domestic firm should source funds internationally to obtain the lowest borrowing cost and to place excess funds wherever the greatest return can be earned regardless of currency.

Accepted Answer

A) True 
 B)False

Question 9

Your firm's inter-affiliate cash receipts and disbursements matrix is shown here ($000): $$\begin{array} { | l | c | c | c | c | c | } 
\hline &{ \text { Disbursements } } \
\hline \text { Receipts } & \text { U.S. } & \text { Canana } & \text { Cermany } & \text { U.K } & \text { Tatal Receipts } \
\hline \text { U.S. } & & 30 & 35 & 60 & 125 \
\hline \text { Caruada } & 20 & & 10 & 40 & 70 \
\hline \text { Germaryy } & 10 & 25 & & 30 & 65 \
\hline \text { U.K. } & 40 & 30 & 20 & & 90 \
\hline \text { Total Disburemerts } & 70 & 85 & 65 & 130 & \
\hline
\end{array}$$ Find the net cash flow in (out of)the German affiliate.

Accepted Answer

A) $55,000 in 
B) $15,000 out 
C) $0 in or out 
D) $40,000 out 
A) $55,000 in 
B) $15,000 out 
C) $0 in or out 
D) $40,000 out

Question 10

Multinational cash management

Accepted Answer

A) is really no different for an MNC than for a purely domestic firm in a closed economy. 
B) concerns itself with the size of cash balances,their currency denominations,and where these cash balances are located among the MNC's affiliates. 
C) concerns itself with the size of cash balances and their currency denominations,but not where these cash balances are located among the MNC's affiliates,since intra-affiliate default risk is not an issue. 
D) none of the options 
A) is really no different for an MNC than for a purely domestic firm in a closed economy. 
B) concerns itself with the size of cash balances,their currency denominations,and where these cash balances are located among the MNC's affiliates. 
C) concerns itself with the size of cash balances and their currency denominations,but not where these cash balances are located among the MNC's affiliates,since intra-affiliate default risk is not an issue. 
D) none of the options

Question 11

Under multilateral netting

Accepted Answer

A) each affiliate nets all its inter-affiliate receipts against all its disbursements.It then transfers or receives the balance,respectively,if it is the net payer or receiver. 
B) each pair of affiliates determines the net amount due between them,and only the net amount is transferred. 
C) no inter-affiliate payments are made or even computed,since no real cash flows are involved. 
D) all of the options 
A) each affiliate nets all its inter-affiliate receipts against all its disbursements.It then transfers or receives the balance,respectively,if it is the net payer or receiver. 
B) each pair of affiliates determines the net amount due between them,and only the net amount is transferred. 
C) no inter-affiliate payments are made or even computed,since no real cash flows are involved. 
D) all of the options

Question 12

The U.S.IRS allows transfer prices to be set using comparable uncontrolled price method.This method requires

Accepted Answer

A) finding the price that an unrelated willing seller would accept from an unrelated willing buyer. 
B) the price at which the good is resold by the distribution affiliate is reduced by an amount sufficient to cover overhead costs and a reasonable profit. 
C) an appropriate profit is added to the cost of the manufacturing affiliate. 
D) financial models and econometric techniques. 
A) finding the price that an unrelated willing seller would accept from an unrelated willing buyer. 
B) the price at which the good is resold by the distribution affiliate is reduced by an amount sufficient to cover overhead costs and a reasonable profit. 
C) an appropriate profit is added to the cost of the manufacturing affiliate. 
D) financial models and econometric techniques.

Question 13

Your firm's inter-affiliate cash receipts and disbursements matrix is shown here ($000): $$\begin{array} { | l | c | c | c | c | c | } 
\hline & { \text { Disbursements } } \
\hline \text { Receipts } & \text { U.S. } & \text { Canana } & \text { Cermany } & \text { U.K } & \text { Tatal Receipts } \
\hline \text { U.S. } & & 10 & 15 & 15 & 40 \
\hline \text { Caruada } & 10 & & 10 & 10 & 30 \
\hline \text { Germaryy } & 5 & 5 & & 5 & 15 \
\hline \text { U.K. } & 20 & 20 & 20 & & 60 \
\hline \text { Total Disburemerts } & 35 & 35 & 45 & 30 & \
\hline
\end{array}$$ Find the net cash flow in (out of)the U.S.affiliate.

Accepted Answer

A) $5,000 in 
B) $5,000 out 
C) $30,000 in 
D) $30,000 out 
A) $5,000 in 
B) $5,000 out 
C) $30,000 in 
D) $30,000 out

Question 14

According to a recent survey by Ernst and Young,the most important tax issue that multinational enterprises now face is

Accepted Answer

A) transfer pricing. 
B) choice of accounting method to use in preparing consolidated income statements when firms have subsidiaries in countries with different tax treatments of expense items. 
C) choice of accounting method to use in preparing consolidated income statements when firms have subsidiaries in countries with different tax treatments of income recognition. 
D) none of the options 
A) transfer pricing. 
B) choice of accounting method to use in preparing consolidated income statements when firms have subsidiaries in countries with different tax treatments of expense items. 
C) choice of accounting method to use in preparing consolidated income statements when firms have subsidiaries in countries with different tax treatments of income recognition. 
D) none of the options

Question 15

Which term correctly describes the following situation? When a country imposes exchange restrictions on its own currency,limiting conversion to other currencies,an MNC's frustrated remittance of profits from a subsidiary would be

Accepted Answer

A) blocked funds. 
B) stopped funds. 
C) constipated funds. 
D) money down the toilet. 
A) blocked funds. 
B) stopped funds. 
C) constipated funds. 
D) money down the toilet.

Question 16

Bilateral netting can reduce the number of foreign exchange transactions among an MNC with N affiliates to

Accepted Answer

A)  $\frac { N ! ( N - 1 ) ! } { 2 }$ 
B)  $\frac { N ! } { ( N - 1 ) ! }$ 
C)  $\frac { N \times ( N - 1 ) } { 2 }$ 
D) none of the options 
A)  $\frac { N ! ( N - 1 ) ! } { 2 }$ 
B)  $\frac { N ! } { ( N - 1 ) ! }$ 
C)  $\frac { N \times ( N - 1 ) } { 2 }$ 
D) none of the options

Question 17

Consider a U.S.MNC with three subsidiaries and the following foreign exchange transactions shown at left.Use multilateral netting to reduce the number of foreign exchange transactions.

Accepted Answer

A)    
B)    
C)    
D) none of the options 
A)    
B)    
C)    
D) none of the options

Question 18

Simplify the following set of intra company cash flows for this U.S.firm. Use the following exchange rates:
$$\begin{array} { r l l } 
 £ 1.00 & = & \$ 2.00 \
€ 1.00 & = & \$ 1.50 \
\text { SFr } 1.00 & = & \$ 0.80
\end{array}$$ The fewest number of intra-affiliate cash flows is

Accepted Answer

A) zero. 
B) one. 
C) two. 
D) three. 
A) zero. 
B) one. 
C) two. 
D) three.

Question 19

Your firm's inter-affiliate cash receipts and disbursements matrix is shown here ($000): $$\begin{array} { | l | c | c | c | c | c | } 
\hline & { \text { Disbursements } } \
\hline \text { Receipts } & \text { U.S. } & \text { Canana } & \text { Cermany } & \text { U.K } & \text { Tatal Receipts } \
\hline \text { U.S. } & & 30 & 35 & 60 & 125 \
\hline \text { Caruada } & 20 & & 10 & 40 & 70 \
\hline \text { Germaryy } & 10 & 25 & & 30 & 65 \
\hline \text { U.K. } & 40 & 30 & 20 & & 90 \
\hline \text { Total Disburemerts } & 70 & 85 & 65 & 130 & \
\hline
\end{array}$$ Find the net cash flow in (out of)the U.S.affiliate.

Accepted Answer

A) $55,000 in 
B) $15,000 out 
C) $0 in or out 
D) $40,000 out 
A) $55,000 in 
B) $15,000 out 
C) $0 in or out 
D) $40,000 out

Question 20

For a recent month,the following payments matrix of inter-affiliate cash flows was forecasted: $$\begin{array} { l c c c c } 
&&{ \text { Disbursernent From: } } \
\text { Receipts by: } & \text { France } & \text { Britain } & \text { U.S. } \
\text { France } && € 500 & € 800 \
\text { Britain }  & £ 300 & & £ 400 \
\text { U.S. }& \$ 1,000 & \$ 500 &
\end{array}$$ The spot exchange rates are $1.20 = €1.00 and $1.80 = £1.00; affiliates get paid in home currency.Use multilateral netting to find the net payments to and from all parties.
Which of the following is an accurate chart of their current situation?

Accepted Answer

A)    
B)    
C)    
D) none of the options 
A)    
B)    
C)    
D) none of the options

A netting center necessarily implies that the MNC has a central cash manager.

A central cash manager has a global view of the most favorable borrowing rates and most advantageous investment rates.

With a centralized cash depository

Good cash management boils down to

A centralized cash management system with a cash pool can reduce the investment the MNC has in precautionary cash balances,saving the firm money.

The cash manager of a domestic firm should source funds internationally to obtain the lowest borrowing cost and to place excess funds wherever the greatest return can be earned regardless of currency.

Multinational cash management

Under multilateral netting

The U.S.IRS allows transfer prices to be set using comparable uncontrolled price method.This method requires

According to a recent survey by Ernst and Young,the most important tax issue that multinational enterprises now face is

Which term correctly describes the following situation? When a country imposes exchange restrictions on its own currency,limiting conversion to other currencies,an MNC's frustrated remittance of profits from a subsidiary would be

Bilateral netting can reduce the number of foreign exchange transactions among an MNC with N affiliates to

Consider a U.S.MNC with three subsidiaries and the following foreign exchange transactions shown at left.Use multilateral netting to reduce the number of foreign exchange transactions.

International Monetary System

Globalization and the Multinational Firm

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 19: Multinational Cash Management

A netting center necessarily implies that the MNC has a central cash manager.

Simplify the following set of intra-company cash flows for this Swiss firm. Use the following exchange rates: £1.00 = \ 2.00 1.00 = \ 1.50 SFr 1.00 = \ 0.80 The fewest number of intra-affiliate cash flows is

A central cash manager has a global view of the most favorable borrowing rates and most advantageous investment rates.

With a centralized cash depository

Good cash management boils down to

A centralized cash management system with a cash pool can reduce the investment the MNC has in precautionary cash balances,saving the firm money.

The cash manager of a domestic firm should source funds internationally to obtain the lowest borrowing cost and to place excess funds wherever the greatest return can be earned regardless of currency.

Multinational cash management

Under multilateral netting

The U.S.IRS allows transfer prices to be set using comparable uncontrolled price method.This method requires

According to a recent survey by Ernst and Young,the most important tax issue that multinational enterprises now face is

Which term correctly describes the following situation? When a country imposes exchange restrictions on its own currency,limiting conversion to other currencies,an MNC's frustrated remittance of profits from a subsidiary would be

Bilateral netting can reduce the number of foreign exchange transactions among an MNC with N affiliates to

Consider a U.S.MNC with three subsidiaries and the following foreign exchange transactions shown at left.Use multilateral netting to reduce the number of foreign exchange transactions.

Simplify the following set of intra company cash flows for this U.S.firm. Use the following exchange rates: £1.00 = \ 2.00 1.00 = \ 1.50 SFr 1.00 = \ 0.80 The fewest number of intra-affiliate cash flows is

International Monetary System

Globalization and the Multinational Firm

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

International Trade Finance

International Tax Environment and Transfer Pricing

Filters