Question 1

Tax arbitrage

Accepted Answer

A) arises when subsidiary profits vary due to local regulations 
B) occurs when firms move funds to lower tax jurisdictions 
C) arises when barriers to trade exist 
D) occurs due to the incidence of capital flight 
A) arises when subsidiary profits vary due to local regulations 
B) occurs when firms move funds to lower tax jurisdictions 
C) arises when barriers to trade exist 
D) occurs due to the incidence of capital flight B

Question 2

A firm that earns $1 million before-tax in Brazil pays Brazilian tax of $250,000 and remits the remaining $750,000 as a dividend to its U.S.parent.It pays a 10% dividend withholding tax on its remittance.Under current U.S.tax law,the parent will owe U.S.tax on this dividend of

Accepted Answer

A) $40,000 
B) $340,000 
C) $15,000 
D) nothing.It will also receive a foreign tax credit of $90,000. 
A) $40,000 
B) $340,000 
C) $15,000 
D) nothing.It will also receive a foreign tax credit of $90,000. C

Question 3

Using transfer prices may lead to _____.

Accepted Answer

A) increased local taxes 
B) reduced ad valorem tariffs 
C) exchange rate controls 
D) decreased political risk 
A) increased local taxes 
B) reduced ad valorem tariffs 
C) exchange rate controls 
D) decreased political risk B

Question 4

When MNCs transfer funds among foreign units to earn higher risk-adjusted yields on excess funds,we say they are conducting

Accepted Answer

A) regulatory arbitrage 
B) financial arbitrage 
C) tax arbitrage 
D) centralization of fund management 
A) regulatory arbitrage 
B) financial arbitrage 
C) tax arbitrage 
D) centralization of fund management

Question 5

Through which one of the following does the MNC have considerable freedom to transfer funds,allocated profits or both?

Accepted Answer

A) financial channels 
B) supply chains 
C) economies of scope 
D) transfer prices 
A) financial channels 
B) supply chains 
C) economies of scope 
D) transfer prices

Question 6

______ from the subsidiary to the parent is still the MOST important method of transferring funds in the MNC.

Accepted Answer

A) Parallel loans 
B) Leading and laggng 
C) Dividends 
D) Credit rationing 
A) Parallel loans 
B) Leading and laggng 
C) Dividends 
D) Credit rationing

Question 7

Intercompany loans are useful during periods of ______ in the financial markets.

Accepted Answer

A) credit rationing 
B) hyperinflation 
C) currency depreciations 
D) capital flight 
A) credit rationing 
B) hyperinflation 
C) currency depreciations 
D) capital flight

Question 8

The extensive system of foreign tax credits allows

Accepted Answer

A) U.S.MNCs to lower their effective tax rate on foreign-source income to below the U.S.corporate tax rate 
B) governments to collect more taxes from MNCs 
C) reduce the amount of taxes they owe the host country 
D) MNCs to avoid double taxation on foreign?source income 
A) U.S.MNCs to lower their effective tax rate on foreign-source income to below the U.S.corporate tax rate 
B) governments to collect more taxes from MNCs 
C) reduce the amount of taxes they owe the host country 
D) MNCs to avoid double taxation on foreign?source income

Question 9

Subsidiaries A and B buy from and sell to each other.Suppose that A has excess cash,whereas B is short of cash.How can A funnel money to B?

Accepted Answer

A) A can lead payments owed to B 
B) B can lag payments owed to A 
C) A can raise transfer prices on goods sold to B 
D) a and b only 
A) A can lead payments owed to B 
B) B can lag payments owed to A 
C) A can raise transfer prices on goods sold to B 
D) a and b only

Question 10

Suppose a firm earns $2.5 million before-tax in Spain.It pays Spanish tax of $1.3 million and remits the remaining $1.2 million as a dividend to its U.S.parent.The Spanish dividend withholding tax is 5%.Under current U.S.tax law,the parent will owe U.S.tax on this dividend equal to

Accepted Answer

A) $1.15 million 
B) $552,000 
C) nothing.It will also receive a foreign tax credit equal to $1.3 million. 
D) nothing.It will also receive a foreign tax credit equal to $510,000. 
A) $1.15 million 
B) $552,000 
C) nothing.It will also receive a foreign tax credit equal to $1.3 million. 
D) nothing.It will also receive a foreign tax credit equal to $510,000.

Question 11

Suppose affiliate A sells 10,000 chips monthly to affiliate B at a unit price of $15.A's tax rate is 45% and B's tax rate is 55%.In addition,B must pay an ad valorem tariff of 12% on its imports.If the transfer price on chips can be set anywhere between $11 and $18,how much can the total monthly cash flow of A and B be increased by switching to the optimal transfer price?

Accepted Answer

A) $3,000 
B) $4,000 
C) $1,840 
D) $1,380 
A) $3,000 
B) $4,000 
C) $1,840 
D) $1,380

Question 12

Suppose affiliate A sells goods worth $1 million monthly to affiliate B on 30 day credit terms.A switch in credit terms to 120 days will involve a one-time shift in cash of

Accepted Answer

A) $3 million from A to B 
B) $3 million from B to A 
C) $4 million from A to B 
D) $4 million from B to A 
A) $3 million from A to B 
B) $3 million from B to A 
C) $4 million from A to B 
D) $4 million from B to A

Question 13

One of the few legal means of moving funds internationally that an MNC has is the use of the

Accepted Answer

A) transfer price mechanism 
B) intercompany loan 
C) back-to-back loan 
D) parallel loan 
A) transfer price mechanism 
B) intercompany loan 
C) back-to-back loan 
D) parallel loan

Question 14

Which one of the following cash flow mechanisms arouses the least suspicion from a host government concerning a multinationals attempts to avoid additional taxes?

Accepted Answer

A) transfer pricing 
B) reinvoicing centers 
C) royalties 
D) leading and lagging 
A) transfer pricing 
B) reinvoicing centers 
C) royalties 
D) leading and lagging

Question 15

Which one of the following is NOT a factor in developing a global remittance policy?

Accepted Answer

A) number of financial links 
B) global investment yields 
C) ownership patterns 
D) volume of transactions 
A) number of financial links 
B) global investment yields 
C) ownership patterns 
D) volume of transactions

Question 16

A French subsidiary that earns $1 million before-tax pays French tax of $.5 million and remits the remaining $.5 million as a dividend to its U.S.parent.It pays a 10% dividend withholding tax on its remittance.Under current tax law,the parent will owe U.S.tax on this dividend equal to

Accepted Answer

A) $40,000 
B) $460,000 
C) $207,000 
D) nothing.It will also receive a foreign tax credit of $210,000. 
A) $40,000 
B) $460,000 
C) $207,000 
D) nothing.It will also receive a foreign tax credit of $210,000.

Question 17

Which of the following is NOT characteristic of a back-to-back loan?

Accepted Answer

A) it is a method to reduce exchange rate risk 
B) it is know as a fronting loan 
C) it is a loan channeled through a bank 
D) it is collateralized by the parent's deposit 
A) it is a method to reduce exchange rate risk 
B) it is know as a fronting loan 
C) it is a loan channeled through a bank 
D) it is collateralized by the parent's deposit

Question 18

Which one of the following is an example of a market imperfection in the domestic capital market?

Accepted Answer

A) transactions costs 
B) costs of obtaining information 
C) ceilings on interest rates 
D) restrictions by nationality of investor 
A) transactions costs 
B) costs of obtaining information 
C) ceilings on interest rates 
D) restrictions by nationality of investor

Question 19

Suppose a foreign subsidiary earns $1 million after paying foreign income taxes of $800,000.If the subsidiary pays a dividend of $600,000,what is the amount of the indirect foreign tax credit that its parent will receive?

Accepted Answer

A) $480,000 
B) $800,000 
C) $400,000 
D) it receives no foreign tax credit 
A) $480,000 
B) $800,000 
C) $400,000 
D) it receives no foreign tax credit

Question 20

Suppose a foreign subsidiary earns $2 million after paying foreign income taxes of $500,000.If the subsidiary retains all of its earnings,what is the amount of the indirect foreign tax credit that its parent will receive?

Accepted Answer

A) $500,000 
B) $250,000 
C) $400,000 
D) it receives no foreign tax credit 
A) $500,000 
B) $250,000 
C) $400,000 
D) it receives no foreign tax credit

Tax arbitrage

A firm that earns $1 million before-tax in Brazil pays Brazilian tax of $250,000 and remits the remaining $750,000 as a dividend to its U.S.parent.It pays a 10% dividend withholding tax on its remittance.Under current U.S.tax law,the parent will owe U.S.tax on this dividend of

Using transfer prices may lead to _____.

When MNCs transfer funds among foreign units to earn higher risk-adjusted yields on excess funds,we say they are conducting

Through which one of the following does the MNC have considerable freedom to transfer funds,allocated profits or both?

______ from the subsidiary to the parent is still the MOST important method of transferring funds in the MNC.

Intercompany loans are useful during periods of ______ in the financial markets.

The extensive system of foreign tax credits allows

Subsidiaries A and B buy from and sell to each other.Suppose that A has excess cash,whereas B is short of cash.How can A funnel money to B?

Suppose a firm earns $2.5 million before-tax in Spain.It pays Spanish tax of $1.3 million and remits the remaining $1.2 million as a dividend to its U.S.parent.The Spanish dividend withholding tax is 5%.Under current U.S.tax law,the parent will owe U.S.tax on this dividend equal to

Suppose affiliate A sells goods worth $1 million monthly to affiliate B on 30 day credit terms.A switch in credit terms to 120 days will involve a one-time shift in cash of

One of the few legal means of moving funds internationally that an MNC has is the use of the

Which one of the following cash flow mechanisms arouses the least suspicion from a host government concerning a multinationals attempts to avoid additional taxes?

Which one of the following is NOT a factor in developing a global remittance policy?

A French subsidiary that earns $1 million before-tax pays French tax of $.5 million and remits the remaining $.5 million as a dividend to its U.S.parent.It pays a 10% dividend withholding tax on its remittance.Under current tax law,the parent will owe U.S.tax on this dividend equal to

Which of the following is NOT characteristic of a back-to-back loan?

Which one of the following is an example of a market imperfection in the domestic capital market?

Suppose a foreign subsidiary earns $1 million after paying foreign income taxes of $800,000.If the subsidiary pays a dividend of $600,000,what is the amount of the indirect foreign tax credit that its parent will receive?

Suppose a foreign subsidiary earns $2 million after paying foreign income taxes of $500,000.If the subsidiary retains all of its earnings,what is the amount of the indirect foreign tax credit that its parent will receive?

Introduction

The Determination of Exchange Rates

The International Monetary System

Parity Conditions in International Finance and Currency Forecasting

The Balance of Payments and International Economic Linkages

Country Risk Analysis

The Foreign Exchange Market

Currency Futures and Options Markets

Swaps and Interest Rate Derivatives

Measuring and Managing Translation and Transaction Exposure

Measuring and Managing Economic Exposure

International Financing and National Capital Markets

Functions of Euromarkets

The Cost of Capital for Foreign Investments

Examining International Portfolio Investing

Corporate Strategy and Foreign Direct Investment

Capital Budgeting for the Multinational Corporation

Financing Foreign Trade

Current Asset Management and Short-Term Financing

Filters

Exam 20: Managing the Multinational Financial System

Tax arbitrage

A firm that earns $1 million before-tax in Brazil pays Brazilian tax of $250,000 and remits the remaining $750,000 as a dividend to its U.S.parent.It pays a 10% dividend withholding tax on its remittance.Under current U.S.tax law,the parent will owe U.S.tax on this dividend of

Using transfer prices may lead to _____.

When MNCs transfer funds among foreign units to earn higher risk-adjusted yields on excess funds,we say they are conducting

Through which one of the following does the MNC have considerable freedom to transfer funds,allocated profits or both?

______ from the subsidiary to the parent is still the MOST important method of transferring funds in the MNC.

Intercompany loans are useful during periods of ______ in the financial markets.

The extensive system of foreign tax credits allows

Subsidiaries A and B buy from and sell to each other.Suppose that A has excess cash,whereas B is short of cash.How can A funnel money to B?

Suppose a firm earns $2.5 million before-tax in Spain.It pays Spanish tax of $1.3 million and remits the remaining $1.2 million as a dividend to its U.S.parent.The Spanish dividend withholding tax is 5%.Under current U.S.tax law,the parent will owe U.S.tax on this dividend equal to

Suppose affiliate A sells goods worth $1 million monthly to affiliate B on 30 day credit terms.A switch in credit terms to 120 days will involve a one-time shift in cash of

One of the few legal means of moving funds internationally that an MNC has is the use of the

Which one of the following cash flow mechanisms arouses the least suspicion from a host government concerning a multinationals attempts to avoid additional taxes?

Which one of the following is NOT a factor in developing a global remittance policy?

A French subsidiary that earns $1 million before-tax pays French tax of $.5 million and remits the remaining $.5 million as a dividend to its U.S.parent.It pays a 10% dividend withholding tax on its remittance.Under current tax law,the parent will owe U.S.tax on this dividend equal to

Which of the following is NOT characteristic of a back-to-back loan?

Which one of the following is an example of a market imperfection in the domestic capital market?

Suppose a foreign subsidiary earns $1 million after paying foreign income taxes of $800,000.If the subsidiary pays a dividend of $600,000,what is the amount of the indirect foreign tax credit that its parent will receive?

Suppose a foreign subsidiary earns $2 million after paying foreign income taxes of $500,000.If the subsidiary retains all of its earnings,what is the amount of the indirect foreign tax credit that its parent will receive?

Introduction

The Determination of Exchange Rates

The International Monetary System

Parity Conditions in International Finance and Currency Forecasting

The Balance of Payments and International Economic Linkages

Country Risk Analysis

The Foreign Exchange Market

Currency Futures and Options Markets

Swaps and Interest Rate Derivatives

Measuring and Managing Translation and Transaction Exposure

Measuring and Managing Economic Exposure

International Financing and National Capital Markets

Functions of Euromarkets

The Cost of Capital for Foreign Investments

Examining International Portfolio Investing

Corporate Strategy and Foreign Direct Investment

Capital Budgeting for the Multinational Corporation

Financing Foreign Trade

Current Asset Management and Short-Term Financing

Filters