Question 1

The direct quote, also known as the normal quote, is the number of units of domestic currency needed to acquire one unit of foreign currency.

Accepted Answer

A) True 
 B)False

Question 2

The current rate method is typically employed when translating records of ________.

Accepted Answer

A)  foreign subsidiaries that are part of the parent firm's operations 
B)  domestic affiliates that conduct business abroad occasionally 
C)  foreign subsidiaries that are considered stand-alone legal entities 
D)  joint venture partnerships that participate in global operations

Question 3

Multilateral netting would enable an MNE with numerous subsidiaries to ________.

Accepted Answer

A)  consolidate intracorporate cash transfers and reduce transaction fees 
B)  charge its subsidiaries as they exchange goods and services with the parent company 
C)  transfer goods and services within the firm without paying host-country taxes 
D)  channel funds from small subsidiaries to large ones without paying interest

Question 4

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 an advantage of Intensity accessing funds through the global capital market instead of domestic sources?

Accepted Answer

A)  The maturity period of instruments is restricted to less than 365 days. 
B)  access to a vast number of competitive funding sources 
C)  access to short-term financing exclusively 
D)  reduced exposure to currency risk and rate fluctuation

Question 5

Capital budgeting in MNEs is protected from country risks or government intervention.

Accepted Answer

A) True 
 B)False

Question 6

When Mexican cement giant Cemex sells dollar-denominated bonds in the United States, it is issuing foreign bonds.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is the first task in international financial management?

Accepted Answer

A)  managing working capital and cash flow 
B)  managing currency risk 
C)  choosing a capital structure 
D)  managing the diversity of international accounting and tax practices

Question 8

The purpose of capital budgeting is to help managers decide which international projects provide the best financial return.

Accepted Answer

A) True 
 B)False

Question 9

EZ Lawn Currency Risk (Scenario)
The EZ Lawn Corporation manufactures lawn equipment such as lawn mowers, blowers, and trimmers. The lawn equipment is assembled in the U.S. at a facility in Florida, but the firm outsources inputs from a number of countries, each with varying degrees of economic stability. Given the importance of the firm's sourcing activities, EZ Lawn managers are discussing methods that might reduce the currency risk faced by EZ Lawn.
-Contracting with secondary suppliers outside the U.S. for critical input components would most likely enable EZ Lawn to ________.

Accepted Answer

A)  limit the amount of debt financing necessary for global expansion 
B)  shift production from one country to another in case of currency fluctuations 
C)  purchase components based on currency options instead of currency swaps 
D)  hedge translation exposure by limiting the amount of interest payments

Question 10

The average debt ratio in Germany, Italy, Japan, and numerous developing economies typically exceeds 50 percent. High reliance on debt financing can arise if a country lacks a well-developed stock market or other systems for obtaining capital from equity sources.

Accepted Answer

A) True 
 B)False

Question 11

EZ Lawn Currency Risk (Scenario)
The EZ Lawn Corporation manufactures lawn equipment such as lawn mowers, blowers, and trimmers. The lawn equipment is assembled in the U.S. at a facility in Florida, but the firm outsources inputs from a number of countries, each with varying degrees of economic stability. Given the importance of the firm's sourcing activities, EZ Lawn managers are discussing methods that might reduce the currency risk faced by EZ Lawn.
-Which of the following would most likely be an effective currency risk strategy for EZ Lawn management?

Accepted Answer

A)  increase prices of EZ Lawn products to cover currency issues 
B)  decentralize the entire currency management to local managers 
C)  use a spot rate for long-term transactions between suppliers 
D)  monitor the economic trends of the suppliers' nations

Question 12

A parent's perspective approach in capital budgeting can be employed by managers interested in initially screening the appropriateness of an international capital investment project.

Accepted Answer

A) True 
 B)False

Question 13

Explain the difference between working capital and net working capital, and discuss why managers employ net present value (NPV) analysis to evaluate domestic and international capital investment projects.

Accepted Answer

The answer of Explain the difference between working capital and...

Question 14

Current rate method is the translation of foreign currency balance sheet and income statements at an exchange rate that varies with the underlying method of valuation.

Accepted Answer

A) True 
 B)False

Question 15

How has technology affected foreign exchange trading?

Accepted Answer

The answer of How has technology affected foreign exchange trading?...

Question 16

Intracorporate fund transfers enable MNEs to access cash from subsidiaries through royalty payments, transfer pricing, and multilateral netting.

Accepted Answer

A) True 
 B)False

Question 17

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, if TRUE, supports Intensity raising funds through intracorporate financing to expand its Chinese facility?

Accepted Answer

A)  Intensity would save money on transaction fees and tax deductible interest payments. 
B)  Intensity's subsidiaries are struggling due to price wars with video game competitors. 
C)  The Chinese government has offered Intensity a low-interest loan for the expansion. 
D)  Eurobonds have been a popular choice among MNEs with facilities in China.

Question 18

What are four advantages to large firms lending funds to their foreign subsidiaries?

Accepted Answer

The answer of What are four advantages to large firms...

Question 19

Unlike exporters and licensors, who both face currency risk, managers of foreign investment portfolios can also be impacted by the fluctuation in exchange rates.

Accepted Answer

A) True 
 B)False

Question 20

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 questions would be more important for Intensity financial managers to evaluate when deciding the best method for the firm to raise funds?

Accepted Answer

A)  What percentage of stock is owned by the CEO of Intensity Games? 
B)  How will the dividend be paid to shareholders if the firm expands its Chinese facility? 
C)  What type of debt financing would be most economical for Intensity? 
D)  At which bank does Intensity do the majority of its business transactions?

Exam 10: Financial Management and Accounting in the Global Firm

The direct quote, also known as the normal quote, is the number of units of domestic currency needed to acquire one unit of foreign currency.

The current rate method is typically employed when translating records of ________.

Multilateral netting would enable an MNE with numerous subsidiaries to ________.

Capital budgeting in MNEs is protected from country risks or government intervention.

When Mexican cement giant Cemex sells dollar-denominated bonds in the United States, it is issuing foreign bonds.

Which of the following is the first task in international financial management?

The purpose of capital budgeting is to help managers decide which international projects provide the best financial return.

The average debt ratio in Germany, Italy, Japan, and numerous developing economies typically exceeds 50 percent. High reliance on debt financing can arise if a country lacks a well-developed stock market or other systems for obtaining capital from equity sources.

A parent's perspective approach in capital budgeting can be employed by managers interested in initially screening the appropriateness of an international capital investment project.

Explain the difference between working capital and net working capital, and discuss why managers employ net present value (NPV) analysis to evaluate domestic and international capital investment projects.

Current rate method is the translation of foreign currency balance sheet and income statements at an exchange rate that varies with the underlying method of valuation.

How has technology affected foreign exchange trading?

Intracorporate fund transfers enable MNEs to access cash from subsidiaries through royalty payments, transfer pricing, and multilateral netting.

What are four advantages to large firms lending funds to their foreign subsidiaries?

Unlike exporters and licensors, who both face currency risk, managers of foreign investment portfolios can also be impacted by the fluctuation in exchange rates.