Question 1

The market consisting of all the world's currencies that are banked outside their countries of origin is called the ________.

Accepted Answer

A)  foreign exchange market 
B)  interbank market 
C)  Eurocurrency market 
D)  offshore financial center

Question 2

Debt financing comes from either of two sources: (1) loans from banks and other financial intermediaries, or (2) the sale of corporate bonds to individuals or institutions.

Accepted Answer

A) True 
 B)False

Question 3

Financing Corporate Expansion (Scenario)
Intensity Games is an MNE based in San Francisco that manufactures a popular line of video game consoles and accessories. Intensity owns manufacturing facilities in China and Russia, where the components of the game consoles are manufactured and assembled before being shipped around the world. Intensity also owns numerous subsidiaries that manufacture game cartridges for Intensity game platforms. Intensity managers have determined that the firm needs to expand its Chinese facility to accommodate the increasing demand. The firm needs to raise several million dollars to finance the expansion. The financial managers of Intensity are discussing the various financing options available to the firm.
-Which of the following is most likely a disadvantage of Intensity raising funds through equity financing?

Accepted Answer

A)  Intensity management could lose a controlling interest in the firm. 
B)  Intensity would not be able to repay shareholders at any time. 
C)  Intensity management would end up in bankruptcy. 
D)  Intensity could lose money from currency fluctuations in emerging markets.

Question 4

Which of the following is the purpose of a forward contract?

Accepted Answer

A)  reduce corporate exposure to tax audits 
B)  maximize intracorporate finance 
C)  minimize the risk of exchange rate fluctuations 
D)  earn profits from outsourcing activities

Question 5

Direct taxes are typically imposed on income from profits, capital gains, royalties, interest, and dividends. Which of the following is a direct tax?

Accepted Answer

A)  customs tax 
B)  corporate income tax 
C)  VAT 
D)  sales tax

Question 6

Firms obtain debt financing by selling stock bonds to investors.

Accepted Answer

A) True 
 B)False

Question 7

In terms of financial management tasks that are key to MNE success, which of the following comes after the task of assessing the financial attractiveness of major investment projects?

Accepted Answer

A)  oversees transactions in various foreign currencies and manages risk exposure resulting from exchange-rate fluctuations 
B)  administers funds passing in and out of the firm's value-adding activities 
C)  obtains financing for funding value-adding activities and investment projects 
D)  learns to operate in a global environment with diverse accounting practices and international tax regimes

Question 8

________ is the process of combining and integrating the financial results of foreign subsidiaries into the financial statements of the parent firm.

Accepted Answer

A)  Hedging 
B)  Dumping 
C)  Consolidation 
D)  Trade credit

Question 9

Which of the following statements is TRUE of the Export Import (Ex-IM) Bank in the United States?

Accepted Answer

A)  It is an international agency run by the WTO that provides capital to firms from emerging and developing economies. 
B)  It is a federal agency for loans and loan guarantees. Governments in the developing world often provide loans to promote inward direct investment projects such as the construction of dams, power plants, and airports. 
C)  It is a branch of the EU that provides working capital loans to SMEs that are based in the economic bloc. 
D)  It is a privately owned bank that offers high interest loans to international firms with poor credit ratings.

Question 10

Which of the following is a major purpose of the international capital market?

Accepted Answer

A)  to reduce entrepreneurial initiatives 
B)  to increase the cost of borrowing 
C)  to reduce risk for lenders 
D)  to reduce the money supply for borrowers

Question 11

A centralized depository lets managers reduce the size of highly liquid accounts and invest the funds, generally at the higher interest rates offered for large deposits, to generate maximal returns.

Accepted Answer

A) True 
 B)False

Question 12

Speculators are currency traders who seek profits by investing in currencies with the expectation their value will change in the future.

Accepted Answer

A) True 
 B)False

Question 13

A value-added tax (VAT) is payable at each stage of processing in the value chain of a product or service.

Accepted Answer

A) True 
 B)False

Question 14

Tax havens are characterized by all of the following EXCEPT that they are ________.

Accepted Answer

A)  legal means to reduce corporate income taxes 
B)  regions where certain taxes are absent 
C)  supported by the World Bank and the EU 
D)  used to establish operations or funnel transactions

Question 15

Why have global capital markets grown so rapidly in the past decade? Why has the growth of international business pressured multinational firms and international organizations to harmonize world accounting systems?

Accepted Answer

The answer of Why have global capital markets grown so...

Question 16

Freedom Energy Group (Scenario)
Freedom Energy Group (FEG) is a major American energy services group based in Oklahoma. FEG manufactures products to facilitate oil and gas exploration and is involved in the construction of oil refineries and gas pipelines around the world. FEG managers are considering the purchase of a Canadian energy firm, Maple Leaf Energy, which manufactures pipeline stabilization products. The financial management division of FEG is considering the risks and benefits of purchasing Maple Leaf.
-Which of the following questions would be more important for FEG financial managers to evaluate before the firm purchases Maple Leaf?

Accepted Answer

A)  What is the anticipated impact of hybrid technology and alternative fuel sources on the gas and oil industry? 
B)  Should FEG continue to employ Maple Leaf personnel after the acquisition, or should they be given severance packages? 
C)  What type of global marketing package should be created to inform potential customers about FEG's purchase of Maple Leaf? 
D)  What mix of debt and equity financing should FEG employ in the purchase and ownership of Maple Leaf?

Question 17

Which of the following has contributed to the emergence of a large Eurocurrency market?

Accepted Answer

A)  lower interest rates on Eurocurrency loans 
B)  regulations of home-country banking systems 
C)  loans repaid interest-free at face value 
D)  low interest rates on Eurocurrency deposits

Question 18

Which of the following financing tactics would most likely help an MNE to avoid bankruptcy?

Accepted Answer

A)  integrating e-commerce opportunities with domestic sales in order to maintain a steady balance of income and expenditures 
B)  agreeing to forward contracts with customers and hedging purchases and sales on future currency rates 
C)  organizing the capital structure so that the amount of debt financing is twice the level of equity financing 
D)  keeping the debt proportion of their capital structure to a level that can be managed even during difficult business conditions

Question 19

To minimize currency risk, managers should distinguish economic exposure from transaction and translation exposures.

Accepted Answer

A) True 
 B)False

Question 20

The volume and complexity of a firm's intracorporate transfers depends on ________.

Accepted Answer

A)  the amount of cash available from loans 
B)  the value of the shareholders' stock 
C)  the country from which the firm originates 
D)  the number of subsidiaries and alliances the firm maintains worldwide

Exam 10: Financial Management and Accounting in the Global Firm

The market consisting of all the world's currencies that are banked outside their countries of origin is called the ________.

Debt financing comes from either of two sources: (1) loans from banks and other financial intermediaries, or (2) the sale of corporate bonds to individuals or institutions.

Which of the following is the purpose of a forward contract?

Direct taxes are typically imposed on income from profits, capital gains, royalties, interest, and dividends. Which of the following is a direct tax?

Firms obtain debt financing by selling stock bonds to investors.

In terms of financial management tasks that are key to MNE success, which of the following comes after the task of assessing the financial attractiveness of major investment projects?

________ is the process of combining and integrating the financial results of foreign subsidiaries into the financial statements of the parent firm.

Which of the following statements is TRUE of the Export Import (Ex-IM) Bank in the United States?

Which of the following is a major purpose of the international capital market?

A centralized depository lets managers reduce the size of highly liquid accounts and invest the funds, generally at the higher interest rates offered for large deposits, to generate maximal returns.

Speculators are currency traders who seek profits by investing in currencies with the expectation their value will change in the future.

A value-added tax (VAT) is payable at each stage of processing in the value chain of a product or service.

Tax havens are characterized by all of the following EXCEPT that they are ________.

Why have global capital markets grown so rapidly in the past decade? Why has the growth of international business pressured multinational firms and international organizations to harmonize world accounting systems?

Which of the following has contributed to the emergence of a large Eurocurrency market?

Which of the following financing tactics would most likely help an MNE to avoid bankruptcy?

To minimize currency risk, managers should distinguish economic exposure from transaction and translation exposures.

The volume and complexity of a firm's intracorporate transfers depends on ________.