Question 1

Which of the following statements about transfer pricing is true?

Accepted Answer

A) The higher the transfer price, the larger the gross profits of the transferring division relative to the receiving division. 
B) Very high markup policy used in the transfer pricing to a subsidiary makes the adjusted present value (APV) of that subsidiary's capital expenditure appear less attractive. 
C) Very low markup policy used in the transfer pricing to a subsidiary makes the adjusted present value (APV) of that subsidiary's capital expenditure appear less attractive. 
D) Both a and b 
A) The higher the transfer price, the larger the gross profits of the transferring division relative to the receiving division. 
B) Very high markup policy used in the transfer pricing to a subsidiary makes the adjusted present value (APV) of that subsidiary's capital expenditure appear less attractive. 
C) Very low markup policy used in the transfer pricing to a subsidiary makes the adjusted present value (APV) of that subsidiary's capital expenditure appear less attractive. 
D) Both a and b

Question 2

Simplify the following set of intra company cash flows for this Swiss Firm
Consider the following exchange rates.

Accepted Answer

Step 1: Convert all cash flows

Question 3

Find the net cash flow in (out of) the U.S. affiliate.

Accepted Answer

A) $0 in or out 
B) $5,000 out 
C) $10,000 in 
D) $15,000 out 
E) None of the above 
A) $0 in or out 
B) $5,000 out 
C) $10,000 in 
D) $15,000 out 
E) None of the above

Question 4

Find the net cash flow in (out of) the U.K. affiliate.

Accepted Answer

A) $0 in or out 
B) $5,000 out 
C) $30,000 in 
D) $30,000 out 
E) None of the above 
A) $0 in or out 
B) $5,000 out 
C) $30,000 in 
D) $30,000 out 
E) None of the above

Question 5

Simplify the following set of intra company cash flows for this Swiss Firm. Use the following exchange rates.   The fewest number of intra-affiliate cash flows is

Accepted Answer

A) Zero. 
B) One. 
C) Two. 
D) Three. 
E) Four. 
A) Zero. 
B) One. 
C) Two. 
D) Three. 
E) Four.

Question 6

A centralized cash pool assists in reducing the problem of mislocated funds and in funds mobilization.

Accepted Answer

A) True 
 B)False

Question 7

If foreign exchange transactions cost ABC 0.45 percent, what savings results from netting?

Accepted Answer

A) S$684 
B) S$765 
C) S$1,449 
D) S$1,823 
A) S$684 
B) S$765 
C) S$1,449 
D) S$1,823

Question 8

Find the net cash flow in (out of) the German affiliate.

Accepted Answer

A) $5,000 in 
B) $5,000 out 
C) $30,000 out 
D) $30,000 in 
E) None of the above 
A) $5,000 in 
B) $5,000 out 
C) $30,000 out 
D) $30,000 in 
E) None of the above

Question 9

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 10

For a recent month, the following payments matrix of interaffiliate cash flows was forecasted:   The spot exchange rates are $1.20 = €1.00 and $2.00 = £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 others. 
A)    
B)    
C)    
D) None of the others.

Question 11

Not all countries allow MNCs the freedom to net payments,

Accepted Answer

A) the U.S., Canada, and Great Britain allow only netting between each other. 
B) some countries require the MNC to ask permission, and some countries limit netting. 
C) but that is fine, since netting typically has costs that outweigh the benefits for a MNC. 
D) all of the above may be correct 
A) the U.S., Canada, and Great Britain allow only netting between each other. 
B) some countries require the MNC to ask permission, and some countries limit netting. 
C) but that is fine, since netting typically has costs that outweigh the benefits for a MNC. 
D) all of the above may be correct

Question 12

If French-based Affiliate A owes U.S.-based affiliate B $1,000 and Affiliate B owes Affiliate A €2,000 when the exchange rate is $1.10 = €1.00. The net payment between A and B should be

Accepted Answer

A)  €1,091 from B to A. 
B)  €1,091 from A to B. 
C)  $1,200 from B to A. 
D)  None of the above 
A)  €1,091 from B to A. 
B)  €1,091 from A to B. 
C)  $1,200 from B to A. 
D)  None of the above

Question 13

Which of the following statements about multilateral netting system are correct? (i) - Each affiliate nets all its interaffiliate 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 14

Assuming that the interaffiliate cash flows are uncorrelated with one another, calculate the standard deviation of the portfolio of cash held by the centralized depository for the following affiliate members:

Accepted Answer

A) $34,960.33 
B) $139,841.33 
C) $104,880.88 
D) None of the above 
A) $34,960.33 
B) $139,841.33 
C) $104,880.88 
D) None of the above

Question 15

One benefit of a centralized cash depository is

Accepted Answer

A) the MNC's investment in precautionary cash balances can be substantially reduced without a reduction in its ability to cover unforeseen expenses. 
B) each affiliate will have greater autonomy in managing its own cash balances. 
C) exchange rate restrictions can be easily circumvented. 
D) none of the above 
A) the MNC's investment in precautionary cash balances can be substantially reduced without a reduction in its ability to cover unforeseen expenses. 
B) each affiliate will have greater autonomy in managing its own cash balances. 
C) exchange rate restrictions can be easily circumvented. 
D) none of the above

Question 16

Which term correctly describes the following situation? When a country imposes exchange restrictions on its own currency, limiting conversion to other currencies, a 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 17

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 
E) None of the above 
A) $5,000 in 
B) $5,000 out 
C) $30,000 in 
D) $30,000 out 
E) None of the above

Question 18

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 
E) None of the above 
A) $55,000 in 
B) $15,000 out 
C) $0 in or out 
D) $40,000 out 
E) None of the above

Question 19

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

Accepted Answer

A)    
B)    
C)    
D) None of the above 
A)    
B)    
C)    
D) None of the above

Question 20

Calculate, in Singapore dollars, the amount that the interaffiliate foreign exchange transaction will be reduced by with multilateral netting.

Accepted Answer

A) S$152,000 
B) S$170,000 
C) S$322,000 
D) S$405,000 
A) S$152,000 
B) S$170,000 
C) S$322,000 
D) S$405,000

Which of the following statements about transfer pricing is true?

Simplify the following set of intra company cash flows for this Swiss Firm Consider the following exchange rates.

Find the net cash flow in (out of) the U.S. affiliate.

Find the net cash flow in (out of) the U.K. affiliate.

Simplify the following set of intra company cash flows for this Swiss Firm. Use the following exchange rates. The fewest number of intra-affiliate cash flows is

A centralized cash pool assists in reducing the problem of mislocated funds and in funds mobilization.

If foreign exchange transactions cost ABC 0.45 percent, what savings results from netting?

Find the net cash flow in (out of) the German affiliate.

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

Not all countries allow MNCs the freedom to net payments,

If French-based Affiliate A owes U.S.-based affiliate B $1,000 and Affiliate B owes Affiliate A €2,000 when the exchange rate is $1.10 = €1.00. The net payment between A and B should be

Assuming that the interaffiliate cash flows are uncorrelated with one another, calculate the standard deviation of the portfolio of cash held by the centralized depository for the following affiliate members:

One benefit of a centralized cash depository is

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

Find the net cash flow in (out of) the U.S. affiliate.

Find the net cash flow in (out of) the U.S. affiliate.

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

Calculate, in Singapore dollars, the amount that the interaffiliate foreign exchange transaction will be reduced by with multilateral netting.

Globalization and the Multinational Firm

International Monetary System

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

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Exam 19: Multinational Cash Management

Which of the following statements about transfer pricing is true?

Simplify the following set of intra company cash flows for this Swiss Firm Consider the following exchange rates.

Find the net cash flow in (out of) the U.S. affiliate.

Find the net cash flow in (out of) the U.K. affiliate.

Simplify the following set of intra company cash flows for this Swiss Firm. Use the following exchange rates. The fewest number of intra-affiliate cash flows is

A centralized cash pool assists in reducing the problem of mislocated funds and in funds mobilization.

If foreign exchange transactions cost ABC 0.45 percent, what savings results from netting?

Find the net cash flow in (out of) the German affiliate.

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

Not all countries allow MNCs the freedom to net payments,

If French-based Affiliate A owes U.S.-based affiliate B $1,000 and Affiliate B owes Affiliate A €2,000 when the exchange rate is $1.10 = €1.00. The net payment between A and B should be

Assuming that the interaffiliate cash flows are uncorrelated with one another, calculate the standard deviation of the portfolio of cash held by the centralized depository for the following affiliate members:

One benefit of a centralized cash depository is

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

Find the net cash flow in (out of) the U.S. affiliate.

Find the net cash flow in (out of) the U.S. affiliate.

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

Calculate, in Singapore dollars, the amount that the interaffiliate foreign exchange transaction will be reduced by with multilateral netting.

Globalization and the Multinational Firm

International Monetary System

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