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BSA 36P FM II (LONG-TERM) > CH19 TB INTERNATIONAL MANAGERIAL FINANCE > Flashcards

CH19 TB INTERNATIONAL MANAGERIAL FINANCE Flashcards

1
Q

(T/F) NAFTA is a treaty establishing free trade and open markets among Europe and the United States.

A

FALSE

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2
Q

(T/F) The World Trade Organization is an international body established to police world trading practices
and to mediate disputes among member countries.

A

TRUE

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3
Q

(T/F) Offshore Centers are cities or states that have achieved prominence as major centers for Euromarket
business.

A

TRUE

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4
Q

(T/F) NAFTA is an international financial market that provides for borrowing and lending currencies
outside their country of origin.

A

FALSE

Euromarket

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5
Q

(T/F) Fluctuations in foreign exchange markets can affect foreign revenues and profits of a multinational
company, but they have no impact on its overall value.

A

FALSE

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6
Q

(T/F) The Euromarket is the international financial market that provides for borrowing and lending
currencies outside their country of origin.

A

TRUE

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7
Q

(T/F) The Euromarket provides multinational companies with an external opportunity to borrow or lend
funds with the additional feature of less government regulation.

A

TRUE

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8
Q

(T/F) The existence of specific regulations and controls on dollar deposits in the United States, including
interest rate ceiling imposed by the government, has contributed to the growth of the Euromarket.

A

TRUE

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9
Q

(T/F) A joint venture is a partnership under which the participants have contractually agreed to contribute
specified amounts of money and expertise in exchange for stated proportions of ownership and profit.

A

TRUE

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10
Q

(T/F) The official melding of the national currencies of the European Union into one currency, the euro,
created the European monetary union in 2002.

A

TRUE

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11
Q

(T/F) Mercosur is a major South American trading bloc that includes countries that account for more than
half of the total of Latin America’s GDP.

A

TRUE

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12
Q

(T/F) The Mercosur is a major European trading bloc that includes former Soviet bloc countries in Eastern
Europe.

A

FALSE

Mercosur is a major South American trading bloc that includes countries that account for more than
half of the total of Latin America’s GDP.

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13
Q

(T/F) Multinational companies are firms that have international assets but operations in domestic markets
only and draw part of their total revenue and profits from such markets.

A

FALSE

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14
Q

(T/F) In 2003-2004, the United States signed a regional trade pact with the Dominican Republic, Costa Rica,
El Salvador, Guatemala, Honduras, and Nicaragua called the Central American Free Trade Agreement or
CAFTA.

A

TRUE

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15
Q

(T/F) As a result of the Maastricht Treaty of 1991, 12 EU nations adopted a single currency, the euro, as a
continent-wide medium of exchange.

A

FALSE

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16
Q

(T/F) In the grossing up procedure, MNCs add the before-tax subsidiary income to their total taxable
income, calculate the U.S. tax liability on the grossed -up income, and the related taxes are paid in the
foreign country are applied as a credit against the additional U.S. tax liability.

A

TRUE

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17
Q

A partnership between a multinational company and a foreign investor in which contractually specified amounts of money and expertise are contributed by the participants for stated proportions of ownership and profit is a ________.
A) multinational corporation
B) floating relationship
C) joint venture
D) consolidation

A

C

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18
Q

The ________ is the taxation technique that increases the U.S. income of an MNC by the amount of
foreign income (before foreign taxes). The U.S. tax calculation is then based on that higher level.
A) unitary tax law
B) grossing up procedure
C) GmbH
D) nationalization procedure

A

B

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19
Q

Which of the following is considered as a major offshore center for Euromarket business?
A) Cuba
B) North Korea
C) Iran
D) Hong Kong

A

D

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20
Q

A partnership under which the participants have contractually agreed to contribute specified amounts
of money and expertise in exchange for stated proportions of ownership and profit is called a(n)
________.
A) S corporation
B) GmbH
C) S.A.R.L.
D) joint venture

A

D

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21
Q

Which of the following factors can influence the operations of an MNC?
A) foreign ownership of portions of equity
B) debt and equity structures based on home country’s capital market
C) dividend payout policy
D) consolidation of financial statements based on only one currency

A

A

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22
Q

Which of the following is a reason for growth of the Euromarket?
A) The sudden decline of U.S dollars after the introduction of Euro.
B) The functional-currency-denominated financial statements of the foreign subsidiary were translated
into the parent’s currency without authorization.
C) The existence of offshore centers caused massive financial losses and problems for MNCs.
D) The consistently large U.S. balance-of-payments deficits helped scatter dollars around the world.

A

D

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23
Q

The negative implications for the operation of a foreign-based subsidiary due to joint venture laws
and restrictions can result in ________.
A) high degree of leverage
B) deficit in balance-of-payment position for the home country
C) difficulties obtaining the remission of profits
D) manipulation of tax rules

A

C

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24
Q

The ________ is a significant economic force currently made up of 28 nations with a population of
more than 500 million that permits free trade within the countries that make up this group.
A) North American Free Trade Agreement (NAFTA)
B) Mercosur Group
C) Asian Economic Area Network (ASEAN)
D) European Union (EU)

A

D

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25
Q

________ is a major South American trading bloc that includes countries that account for more than
half of total Latin American GDP.
A) The group of five
B) Mercosur
C) Latin and South American Free Trade Area (LASTA)
D) The group of seven

A

B

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26
Q

CAFTA is ________.
A) a treaty establishing free trade and open markets between Europe and five Central American
Countries
B) a major South American trading bloc that includes countries that account for more than half of total
Latin American GDP
C) a significant economic force currently made up of 28 nations with a population of more than 500
million that permits free trade within the countries that make up this group
D) a trade agreement signed in 2003—2004 by the United States, the Dominican Republic, and five
Central American countries

A

D

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27
Q

________ is an international body that polices world commercial trading practices and mediates
disputes among two or more member countries.
A) NAFTA
B) GATT
C) WTO
D) CAFTA

A

C

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28
Q

________ is a treaty that has governed world trade throughout most of the post World War II era.
A) NAFTA
B) GATT
C) WTO
D) CAFTA

A

B

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29
Q

(T/F) FASB No. 52 requires U.S. multinationals to first convert the financial statement accounts of foreign
subsidiaries into their functional currency and then to translate the accounts into the parent firm’s
currency using the all-current-rate method.

A

TRUE

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30
Q

(T/F) The all-current-rate method is the method by which the functional currency-denominated financial
statements of an MNC’s subsidiary are translated into the parent company’s currency.

A

TRUE

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31
Q

(T/F) Self-sustaining foreign entity operates independent of the parent multinational and the current-rate
method is the primary approach for translation of individual accounts.

A

TRUE

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32
Q

(T/F) The temporal method requires specific assets and liabilities to be translated at so-called historic
exchange rates and that foreign-exchange translation gains or losses be reflected in the current year’s
income.

A

TRUE

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33
Q

(T/F) Current U.S. tax laws require the separation of financial statements of subsidiaries and the operating
results for some subsidiaries are excluded from the parent entirely for some countries such as China and
India.

A

FALSE

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34
Q

(T/F) A functional currency is the currency of the parent company’s country.

A

FALSE

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35
Q

A functional currency is the currency of the host country in which a subsidiary primarily generates and
expends cash and in which its accounts are maintained.

A

TRUE

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36
Q

FASB No. 52 is a statement issued by the Financial Accounting Standards Board requiring American
MNCs to first convert the financial statement accounts of foreign subsidiaries into the country’s
functional currency and then translate the accounts into the parent firm’s currency using the ________
method.
A) historical rate
B) all-current-rate
C) average rate
D) weighted average

A

B

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37
Q

The all-current-rate method dictated by the FASB No. 52 statement requires the translation of all
balance sheet accounts at the ________ rate and all income statement items at the ________ rates.
A) closing; average
B) average; closing
C) historical; current
D) average; historical

A

A

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38
Q

(T/F) The spot exchange rate is the rate of exchange between two currencies at some specified future date.

A

FALSE

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39
Q

(T/F) The forward exchange rate is the rate of exchange between two currencies on any given day.

A

FALSE

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40
Q

(T/F) The functional currency is the currency in which a business entity primarily generates and expends
cash and in which its accounts are maintained.

A

TRUE

41
Q

(T/F) Accounting exposure is the risk resulting from the effects of changes in foreign exchange rates on the
translated value of a firm’s financial statement accounts denominated in a given foreign currency.

A

TRUE

42
Q

(T/F) Economic exposure is the risk resulting from the effects of changes in foreign exchange rates on a firm’s
value.

A

TRUE

43
Q

(T/F) The three basic types of risks associated with international cash flows are business and financial risks,
inflation and exchange rate risks, and political risks.

A

TRUE

44
Q

(T/F) Countries that experience high inflation rates will see their currencies decline in value relative to the
currencies of countries with lower inflation rates.

A

TRUE

45
Q

(T/F) When more units of a foreign currency are required to buy one dollar, the currency is said to have
appreciated with respect to the dollar.

A

FALSE

46
Q

(T/F) Although several economic and political factors can influence foreign exchange rate movements, by far
the most important explanation for long-term changes in exchange rates is a differing inflation rate
between two countries.

A

TRUE

47
Q

(T/F) Although several economic and political factors can influence foreign exchange rate movements, by
far the most important explanation for long-term changes in exchange rates is fiscal policy that a country
adopts.

A

FALSE

48
Q

(T/F) Macro political risk is the risk faced by all foreign firms in a host country related to political change,
revolution, or the adoption of new policies by the government of host country.

A

TRUE

49
Q

(T/F) Micro political risk is the risk faced by all foreign firms in a host country related to political change,
revolution, and the adoption of new policies by the government of host country.

A

FALSE

Macro

50
Q

(T/F) Recent years have seen the emergence of a third path to political risk that encompasses “global” events
such as terrorism, antiglobalization movements and protests, Internet-based risks, and concerns over
poverty, AIDS, and the environment all affect various MNCs’ operations worldwide.

A

TRUE

51
Q

(T/F) National entry control systems are comprehensive rules, regulations, and incentives introduced by
host governments to regulate inflows of foreign direct investment from MNCs and at the same time
extract more benefits from their presence.

A

TRUE

52
Q

(T/F) National entry control systems are comprehensive rules, regulations, and immigration policies
introduced by xenophobic host governments to regulate inflows of foreign workers.

A

FALSE

53
Q

(T/F) Both theory and empirical evidence indicate that the capital structures of MNCs differ from those of
purely domestic firms.

A

TRUE

54
Q

(T/F) Both theory and empirical evidence indicate that the capital structures of MNCs are not different from
those of purely domestic firms.

A

FALSE

55
Q

Which of the following is considered to be a major or hard currency?
A) the Algerian dinar
B) the Barbadian dollar
C) the Mexican peso
D) the Japanese yen

A

D

56
Q

When fewer units of a foreign currency are required to buy one dollar, the currency is said to have
________.
A) appreciated with respect to the dollar
B) depreciated with respect to the dollar
C) appreciated with respect to the home currency
D) appreciated with respect to the average rate of the home currency

A

A

57
Q

The risk resulting from the effects of changes in foreign exchange rates on the translated value of a
firm’s accounts denominated in a given foreign currency is ________.
A) economic exposure
B) macro political risk
C) accounting exposure
D) micro political risk

A

C

58
Q

The risk resulting from the effects of changes in foreign exchange rates on the firm’s value is ________.
A) economic exposure
B) macro political risk
C) accounting exposure
D) micro political risk

A

A

59
Q

The potential risk of a host government’s implementation of specific rules and regulations that can
result in the discontinuity or seizure of the operations of a foreign company is called ________.
A) exchange rate risk
B) financial risk
C) political risk
D) business risk

A

C

60
Q

Macro political risk and micro political risk in international business refer to the risk ________.
A) that will affect all foreign firms and the risk that will affect an individual firm or specific industry,
respectively
B) of the devaluation of the host country’s currency and the risk of sudden taxes on exporting the
manufactured goods of a particular industry, respectively
C) that will affect an individual firm or specific industry and the risk that will affect all foreign firms,
respectively
D) of sudden taxes on exporting the manufactured goods of a particular industry and the risk of the
devaluation of the host country’s currency, respectively

A

A

61
Q

A political risk that might affect all foreign firms in a host country is termed a ________ risk; a
political risk that might affect only an individual firm or specific industry in a host country is termed a
________ risk.
A) macro political; micro political
B) micro political; macro political
C) micro political; foreign exchange
D) foreign exchange; micro political

A

A

62
Q

Which of the following is a positive approach of coping with political risk?
A) control of transportation to external markets
B) control of downstream processing
C) license or patent restrictions under international agreement
D) joint venture with government or local private sector

A

D

63
Q

Fixed relationship among currencies refers to ________.
A) the relationship in which the value of any one currency with respect to all other currencies is allowed
to fluctuate on a yearly basis
B) the relationship in which the value of any two currencies with respect to each other is allowed to
fluctuate on a monthly basis
C) the constant relationship of a currency to one of the major currencies, a combination of major
currencies, or some type of international foreign exchange standard
D) the constant relationship of a currency to one of the major foreign exchange market or a combination
of markets

A

C

64
Q

Between two major currencies, the spot exchange rate is the rate ________ and the forward exchange
rate is the rate ________.
A) on that date; today
B) at some specified future date; on that date
C) today; on that date
D) on that date; at some specified future date

A

D

65
Q

Foreign exchange risk refers to the risk created by ________.
A) the potential seizure of an MNC’s operations in a host country
B) the varying exchange rate between two currencies
C) the fixed exchange rate between two currencies
D) the potential nationalization of the MNC’s operations by a host government

A

B

66
Q

(T/F) A foreign bond is an international bond that is sold primarily in countries other than the country of the
currency in which the issue is denominated.

A

FALSE

67
Q

(T/F) In general, an international bond is one that is initially sold in the country of the borrower and, then,
often distributed in home country.

A

FALSE

68
Q

(T/F) Because of their access to the international bond and equity markets, MNCs may have lower long-term
financing costs, thus resulting in differences between the capital structures of these firms and those of
purely domestic companies.

A

TRUE

69
Q

(T/F) The foreign direct investment (FDI) is a multi-national corporation’s transfer of capital, managerial,
and technical assets from a foreign country to its home country.

A

FALSE

70
Q

(T/F) A multi-national corporation (MNC) can give some protection to international cash flows by reducing
its liabilities if the currency is appreciating, or by reducing its financial assets if the currency is
depreciating.

A

TRUE

71
Q

(T/F) For foreign bonds, interest rates are usually not directly correlated with the domestic rates prevailing
in the respective countries.

A

FALSE

72
Q

(T/F) For a Eurodollar bond, the interest rate will reflect several different rates, most notably the U.S. long
term rate, the Eurodollar rate, and long-term rates in other countries.

A

TRUE

73
Q

Comprehensive rules, regulations, and incentives aimed at regulating the inflow of direct foreign
investments involving MNCs and at extracting more benefits from their presence are termed as ________.
A) unitary tax laws
B) foreign direct investments
C) Eurocurrency markets
D) national entry control systems

A

D

74
Q

The transfer of capital, managerial, and technical assets by a multinational firm from its home country
to a foreign country is termed ________.
A) an MNC
B) an SDI
C) an FDI
D) a CAPM

A

C

75
Q

An international bond that is sold primarily in countries other than the country of the currency in
which the issue is denominated is called ________.
A) sovereign bond
B) foreign bond
C) Eurobond
D) global bond

A

C

76
Q

In capital budgeting for a multinational company, the starting discount rate to which risks stemming
from foreign exchange and political factors can be added, and from which benefits reflecting the parent’s
lower capital costs may be subtracted is ________.
A) the cost of capital of the parent (multinational) company
B) the risk-free rate of the parent company, adjusted for risk relevant to the foreign subsidiary
C) the local cost of equity capital applicable to the local business and financial environments within
which a subsidiary operates
D) the weighted average cost of capital applicable to all foreign subsidiaries combined

A

C

77
Q

Theory and empirical evidence indicate that the capital structures of multinational companies
________.
A) are basically the same as those of domestic firms
B) differ, but all multinationals are similar no matter the domicile country
C) not only differ from domestic firms, but also differ based upon the country in which they are
domiciled
D) differ only because of their operating structure and the country in which they are domiciled has no
impact on capital structure

A

C

78
Q

Relative to cash flows of domestic firms, by diversifying internationally, multinationals ________.
A) will have higher cash flows
B) can achieve further risk reduction
C) are unable to change the risk
D) pay higher dividends

A

B

79
Q

The capital structures of MNCs are influenced by ________.
A) domestic futures markets
B) international diversification
C) the overall relationship between the public and private sectors in home country
D) dividends paid by corporations

A

B

80
Q

MNCs have lower long-term financing costs in international capital markets than in domestic markets
because ________.
A) the cost of equity is less than the cost of debt in international capital markets
B) they have access to the international bond and equity markets
C) the cost of equity is more than the cost of debt in international capital markets
D) the international capital markets have less volatility and hence low risk

A

B

81
Q

(T/F) In the international context, the nominal interest rate is the stated interest rate charged on financing
when only the MNC parent’s currency is involved.

A

TRUE

82
Q

(T/F) In the case of short-term financing, the forces of supply and demand are among the main factors
determining exchange rates in Eurocurrency markets.

A

TRUE

83
Q

(T/F) Hedging strategies are techniques used to offset or protect against risk and include borrowing or
lending in different currencies.

A

TRUE

84
Q

(T/F) The interest rates offered in the Euromarket on the U.S. dollar are greatly affected by the prime rate
inside the United States.

A

TRUE

85
Q

(T/F) In the international context, the effective interest rate equals to the nominal rate plus (or minus) any
forecast appreciation (or depreciation) of a foreign currency relative to the currency of the MNC parent.

A

TRUE

86
Q

(T/F) Exchange rate risk hedging tools include forward contracts, options, interest rate swaps, currency
swaps, and hybrid securities.

A

TRUE

87
Q

(T/F) Exchange rate risk hedging tools include Monte Carlo swaps, synthetic insurance contracts, and
inventory swaps.

A

FALSE

88
Q

International short-term financing opportunities are available in ________.
A) future markets
B) bond markets
C) forward markets
D) Eurocurrency markets

A

D

89
Q

The usual capital markets used by U.S.-based MNCs that desire international ownership of their equity
are ________.
A) Western Europe and Japan
B) Mexico and Canada
C) Saudi Arabia and South Africa
D) Liechtenstein and Panama

A

A

90
Q

A Eurobond is ________.
A) a bond sold primarily to Europeans
B) a bond sold primarily in countries other than the country of the currency in which the issue is
denominated
C) a debt instrument sold exclusively in Europe
D) a bond issued by European Union

A

B

91
Q

The existence of ________ allows multinationals to take advantage of unregulated financial markets to
invest and raise short-term funds in a variety of countries and to protect themselves from foreign
exchange exposure.
A) a strong U.S. dollar
B) the International Monetary Fund
C) Eurocurrency markets
D) European Economic Council

A

C

92
Q

In the international context, the ________ interest rate involves only the MNC parent’s currency, while
the ________ interest rate includes any forecast appreciation or depreciation of a foreign currency relative
to that of the MNC parent.
A) effective; nominal
B) macro; nominal
C) nominal; effective
D) nominal; micro

A

C

93
Q

A short-term financial decision based on an MNC management’s expectation that the local foreign
currency will appreciate may be ________.
A) increasing local customers’ accounts receivable and increasing local notes payable
B) decreasing local notes receivable and decreasing accruals
C) increasing local inventories and increasing local notes payable
D) increasing local accounts receivable and decreasing local accounts payable

A

D

94
Q

As a foreign exchange hedging tool, options ________.
A) provide the right to buy or sell an amount of foreign currency
B) allow the trading of one interest rate stream for another
C) permit firms to change the interest rate structure of their assets/liabilities
D) represent an obligation to buy or sell an amount of foreign currency

A

A

95
Q

As a foreign exchange hedging tool, currency swaps ________.
A) provide the right to buy or sell an amount of foreign currency
B) allow each party to pay the other’s interest payments
C) represent an obligation to buy or sell
D) are a variety of combinations of the other hedging tools

A

D

96
Q

In terms of inventory management, multinational firms ________.
A) have only economic factors to consider, since this is a fixed asset and is minimally affected by political
factors
B) must deal with a wide number of factors, including exchange rate fluctuations, tariffs, nontariff
barriers, integration schemes such as the EU, and other rules and regulations
C) have only economic factors to consider, since this is a current asset and is minimally affected by
political factors
D) have only political factors to consider, since inventory is minimally affected by foreign economic
factors

A

B

97
Q

(T/F) The creation of international joint ventures has increased significantly beginning in the 1980s.

A

TRUE

98
Q

(T/F) In the U.S. over the past 30 years, foreign direct investment (FDI) came overwhelmingly in the form of
mergers and acquisitions rather than through establishments.

A

TRUE

99
Q

(T/F) In the most emerging/developing countries (including China) over the past 30 years, foreign direct
investment (FDI) came overwhelmingly in the form or mergers and acquisitions rather than through
establishments.

A

FALSE

BSA 36P FM II (LONG-TERM) (10 decks)

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