Q&A Hero

Q: A Japanese company exports merchandise to a U.S. importer for 1,000,000 when the exchange rate is 107 per dollar. Payment is not due until the end of the month. At the end of the month, the exchange rate has moved to 105 per dollar, and the U.S. importer pays the Japanese exporter for the merchandise. From the standpoint of the U.S. importer, ________. A) there is no transaction exposure since they will sell the merchandise in the United States for dollars B) the merchandise will be carried on the books at $93,468 (rounded) C) the Japanese exporter will be paid $9,524 D) the exposure is considered to be a translation exposure, not a transaction exposure

Q: If a British company exports to a German company and the export is denominated in euros, which of the following is true? A) The German company would experience a loss if the euro strengthens against the pound. B) The British company would experience a gain if the euro strengthens against the pound. C) The British company would not experience a gain or a loss because the sale is denominated in euros, not pounds. D) Exports result in translation exposures but not transaction exposures.

Q: If a U.S. company exports to Canada and the sale is denominated in Canadian dollars, which of the following is true? A) The U.S. company would report a gain if the U.S. dollar rises against the Canadian dollar. B) The Canadian company would report a gain if the Canadian dollar falls against the U.S. dollar. C) The U.S. company would report a loss if the Canadian dollar falls against the U.S. dollar. D) Exports do not result in a gain or loss.

Q: A transaction exposure for a U.S. company ________. A) occurs when the dollar value of a payable from exports changes as the exchange-rate changes B) generally takes place when foreign currencies weaken against the dollar C) occurs when reporting systems are inadequate D) does not result in a gain or loss in cash flows

Q: Diego is a Brazilian mining company that has operations in Canada. Currently, the Canadian dollar is falling against the Brazilian real. Which of the following will most likely occur? A) Translated earnings will be lower after the fall in the dollar. B) Translated earnings will be lower than before the strengthening of the dollar. C) Translated earnings will be higher than when the Brazilian real was worth more. D) The gains or losses on translated earnings will not affect earnings per share and stock prices.

Q: FTX, a U.S. electronics firm, has operations in Japan. Currently, the yen is rising against the dollar. Which of the following will most likely occur? A) Translated earnings will be higher than before the strengthening of the exchange rate. B) Translated earnings will be lower than before the strengthening of the exchange rate. C) There will be no gain or loss on translating the financial statements into dollars. D) The gains or losses will not affect earnings per share and stock prices.

Q: The effect of an exchange-rate change on the financial statements of a foreign subsidiary ________. A) generally results in a foreign exchange gain B) generally results in a foreign exchange loss C) is neither a gain nor a loss because of accounting rules D) is either a net gain or a net loss

Q: A foreign exchange exposure that occurs because of a change in the value of exposed assets or liabilities of foreign currency financial statements is a(n) ________. A) translation exposure B) transaction exposure C) economic exposure D) hedge exposure

Q: Multilateral netting in global cash management is best described as ________. A) establishing a safety net so companies don't run out of cash B) coordinating cash inflows and outflows among subsidiaries C) transferring currencies among subsidiaries to exhibit transparency D) transferring funds in the absence of a good cash budget or loan arrangement

Q: The process of coordinating cash inflows and outflows among subsidiaries so that only the balance in cash is transferred is known as ________. A) dividend remissions B) transfer pricing C) multilateral netting D) currency hedging

Q: Which of the following is NOT a major internal source of funds available to MNEs? A) intercompany loans B) equity investments by the parent company in its subsidiaries C) equity capital raised within the country where the subsidiary is located D) intercompany receivables and payables

Q: One way to account for the challenge of the variability of future cash flows is to ________. A) adjust the hurdle rate for the project B) use the most likely cash flow estimate C) ignore different rates of inflation to prevent confusion D) leave out a consideration of the terminal value of an investment

Q: Vale, the large Brazilian mining company, is trying to decide if it wants to invest in a Canadian nickel mine. Which of the following questions is LEAST relevant to Vale's capital budgeting decision? A) How will differing rates of inflation in Canada and Brazil affect the parent and subsidiary? B) How will dividends be affected by the Canadian and Brazilian tax systems? C) What is the difference in inflation rates between Brazil and Canada? D) Does Brazil or Canada have the absolute advantage in exporting?

Q: Which of the following is unique to foreign project assessment in the capital budgeting decision? A) Project cash flows must be determined. B) Parent cash flows and project cash flows are the same. C) Local tax issues affect the determination of free cash flows and the remittance of earnings. D) Inflation is not an issue, because companies use the same inflation rate in both the domestic and international setting in order to make the analysis more comparative.

Q: Capital budgeting is best described as the ________. A) process that determines which countries will receive capital investment funds B) procedure for determining the proper mix of debt and equity for a country C) proper management of a country's current assets and liabilities D) simplification of corporate tax procedures

Q: What is the primary concern about offshore financial centers? A) engaging in illegal activities B) enabling firms to avoid taxation C) allowing the transfer of large funds D) existing in politically risky environments

Q: Which of the following has extensive banking activities involving short-term financial transactions? A) booking center B) operational center C) foreign exchange market D) international regulatory market

Q: Which of the following is a characteristic of most offshore financial centers? A) strict domestic regulation B) minimal banking activities C) large foreign currency markets D) nominal or non-existent tax rates

Q: A city or country that provides large amounts of funds in currencies other than its own is a(n) ________. A) offshore financial center B) ADR facilitator C) interbank market D) currency regulator

Q: What is the main challenge companies face in listing ADRs in the United States? A) paying costly fees and tariffs B) complying with SEC reporting requirements C) listing shares in U.S. dollars instead of Eurodollars D) conducting time-consuming performance evaluations

Q: When Sistema, a Russian company, issued a U.S. dollar stock offering in London, its shares were classified as a(n) ________. A) Global Depositary Receipt B) American Depositary Receipt C) European Depositary Receipt D) International Depositary Receipt

Q: The best way for a Euroequity to get a listing in the United States is to issue a(n) ________. A) Global Depositary Receipt B) European Depositary Receipt C) American Depositary Receipt D) Domestic Depositary Receipt

Q: A negotiable certificate issued by a U.S. bank to represent the underlying shares of a foreign corporation's stock is called a(n) ________. A) Euroequity B) American Depositary Receipt C) Global Depositary Receipt D) European Depositary Receipt

Q: The stock market is also known as the ________. A) capital market B) foreign exchange market C) bond market D) equity-capital market

Q: The market for shares sold outside the boundaries of the issuing company's home country is the ________. A) Eurocurrency market B) international bond market C) international equity market D) Euroequity market

Q: Brooke buys shares of stock in a small bakery in a foreign country in return for an ownership position and promised capital gains. This is an example of ________. A) equity securities B) debt financing C) playing the stock market D) investing in Euroequities

Q: Firms most likely borrow money in the international bond market to ________. A) guarantee high yields and low rates B) enable diversification of funding sources C) protect against costly government regulations D) allow emerging markets to invest in foreign exchange

Q: A bond issued by a Brazilian company in British pounds in London is a(n) ________. A) Eurobond B) global bond C) local bond D) foreign bond

Q: Which of the following countries has the largest market for domestic bonds? A) the U.K. B) the U.S. C) Japan D) China

Q: A bond issue floated by a U.S. company in dollars in London, Luxembourg, and Switzerland by a syndication of bonds is an example of a(n) ________. A) global bond B) domestic bond C) Eurobond D) foreign bond

Q: A situation in which several banks pool resources in the Eurocurrency market to extend credit to a borrower and spread the risk is known as ________. A) credit collaboration B) leverage equity financing C) syndication D) short-term Eurocurrency financing

Q: LIBOR is best defined as the ________. A) interest rate of the National Bank of London B) short-term interest rate for dollars held in the Eurodollar market C) interest rate of the European Union D) deposit rate that applies to commercial loans in the European Union

Q: Which of the following is a characteristic of the Eurocurrency market? A) The Eurocurrency market is both short and medium term. B) Private borrowers are the major players in the Eurocurrency market. C) The Eurocurrency market is a retail, rather than wholesale, market. D) The interest rates in the Eurocurrency market are about the same as in domestic markets.

Q: Which of the following is NOT an advantage associated with Eurocurrencies? A) more convenience for users B) better yield for lenders C) tighter U.S. regulation D) cheaper lending rates

Q: MNEs most likely use offshore debt markets ________. A) to hide their cash from tax authorities B) to take advantage of their ability to access capital in different countries C) since debt in foreign countries is always cheaper than in the home country market D) because investors don't like to invest in companies that only raise capital in their home markets

Q: According to 2010 data, which of the following statements about the mix of debt and equity to fund operations is true? A) The debt/asset ratio has risen in Japan since 2007. B) A growing number of Russian firms are relying more on debt. C) The equity/asset ratio fell for firms in France and Germany since 2007. D) In most emerging markets, shares of stock are broadly held like in the U.S.

Q: The concept of leveraging in finance refers to ________. A) the degree to which companies rely on foreign exchange to fund operations B) how a company hedges its foreign currency obligations C) the degree to which a firm funds the growth of a business by debt D) how much cash the CFO has in the bank

Q: The degree to which a firm funds the growth of a business by debt is known as ________. A) leveraging B) equity financing C) hedging D) after-tax cost of debt

Q: Acquiring and allocating financial resources among the company's activities and projects is the responsibility of the ________. A) accounting function of the firm B) external auditors C) CFO D) financial marketing manager

Q: The CFO's function in a company focuses on ________. A) improving distributor relationships B) acquiring financial resources C) handling accounting issues D) creating financial statements

Q: The financial management activity that determines the proper mix of debt and equity is ________. A) capital structure B) long-term financing C) capital budgeting D) working capital management

Q: The long-term financing dimension of cash management ________. A) deals with the selection, issuance, and management of long-term debt and equity B) is unaffected by currency changes because everyone borrows in U.S. dollars C) focuses on the analysis of investment opportunities D) is independent of the capital structure of an MNE

Q: A major challenge to Global Positioning Systems in providing foreign exchange services to its clients is that ________. A) GPS lacks access to major foreign exchange quoting services B) GPS has to constantly upgrade the quality of the services it offers C) GPS cannot provide individualized attention to its customers, so it has to commoditize its product lines D) new regulations have stopped GPS from selling foreign exchange services that compete with the banks

Q: Global Positioning Solutions Inc. is a Utah-based company that ________. A) provides location assistance for global executives who travel frequently B) is a division of a banking syndicate in the Western part of the United States C) assists firms that have foreign-exchange needs but that lack in-house foreign-exchange teams D) started out by providing foreign exchange services that were not being offered by commercial banks

Q: Translation of foreign currency financial statements is the process of restating foreign currency financial statements from one currency into another.

Q: When recording the value of a purchase denominated in a foreign currency, the company is required to use the spot rate when payment is made as long as it is made 30 days or more in the future.

Q: According to U.S. GAAP, companies recognize transaction gains and losses in the income statement.

Q: The International Accounting Standards Board is composed of international securities regulators and is attempting to harmonize accounting standards through issuing International Financial Reporting Standards.

Q: The global integration of capital markets is a major force leading to the convergence of accounting standards.

Q: According to the accounting concept of mutual recognition, companies are required to reconcile financial statements to local GAAP.

Q: Currency is a major issue in financial reporting because companies must decide in which currency to present their financial information to the general public.

Q: From an accounting perspective, countries with strong equity markets and shareholder orientations tend to be macro-uniform systems.

Q: The Netherlands is an example of a country that is micro-based from an accounting perspective, as opposed to macro-uniform based.

Q: Germanic countries tend to be more transparent than the United States and the United Kingdom in terms of financial reporting due to their reliance on bank financing.

Q: U.S. and U.K. companies tend to be more transparent than Japanese companies.

Q: The degree of caution companies display in valuing assets and recognizing income is known as conservatism.

Q: Germanic and Japanese companies tend to be more optimistic than U.S. and U.K. companies.

Q: Both the form and content of financial statements are currently the same in most countries due to the convergence of accounting implemented by the International Accounting Standards Board.

Q: Which legislation triggered many foreign MNEs to exit the New York Stock Exchange?A) Davis-Bacon ActB) Sarbanes-Oxley ActC) Norris-LaGuardia ActD) McCarran-Ferguson Act

Q: Which term refers to the combination of external and internal mechanisms implemented to safeguard the assets of a company and protect shareholders' rights? A) consolidation B) transfer pricing C) balanced scorecard D) corporate governance

Q: Vanessa, a manager at an MNE, has been given the task of measuring the firm's performance by using the balanced scorecard approach. Which of the following would be best for Vanessa? A) review financial and nonfinancial factors broadly B) create a multidomestic strategy for the future C) closely compare industry and firm standards D) calculate the firm's return on investment

Q: ________ is an approach to performance measurement that closely links the strategic and financial perspectives of a business. A) Transfer pricing B) Budget to actual C) The balanced scorecard D) Return on investment

Q: Which of the following perspectives would LEAST likely be considered in a balanced scorecard? A) financial B) customer C) industry standards D) learning and growth

Q: Which of the following is one of the benefits of using the balanced scorecard approach? A) It helps managers avoid using only one measure of performance. B) It avoids using financial drivers so that it can focus on nonfinancial drivers. C) It avoids using nonfinancial drivers so that it can focus on financial drivers. D) It is separate from the strategic management system so that it can focus on financial measures.

Q: The balanced scorecard is ________. A) an average of foreign exchange rates B) an approach to performance measurement C) used widely by U.S. firms but not European firms D) not very successful at linking financial and nonfinancial performance

Q: Which of the following is conducive to low transfer prices from the parent company to a foreign subsidiary and high transfer prices to the parent company from a foreign subsidiary? A) political instability B) restrictions on profit or dividend remittances C) restrictions in the subsidiary country on the value of imported products D) desire to mask the profitability of the foreign subsidiary to keep competitors out

Q: What is the LEAST likely reason that MNEs set arbitrary transfer prices? A) take advantage of tax differences between countries B) achieve economies of scale on a global level C) circumvent national controls D) manipulate profits

Q: Transfer prices are ________. A) always based on production costs B) the prices on goods transferred from one country to another C) regulated by the United Nations so as to avoid manipulation D) often used to minimize taxation

Q: The price on the sale of goods from one member of a corporate family to another is known as a ________. A) transfer price B) sale/resale price C) global price D) multidomestic price

Q: The most preferred exchange rate used by British MNEs to translate the budget is the ________. A) current-rate method B) temporal method C) budgeted rate D) forecast rate

Q: The most common approach to translate budgets and compare a budget with actual performance uses the ________. A) spot rate B) forecast rate C) historical exchange rate D) temporal exchange rate

Q: An exchange rate variance results from ________. A) setting the budget at the actual exchange rate at that time and final performance at the rate used when the budget was set B) translating the budget and actual performance at the forecasted exchange rate C) translating the budget at the projected exchange rate and final results at the actual exchange rate D) translating the budget using the current-rate method and actual results at the new current-rate method

Q: Using the same exchange rate to set the budget and monitor results ________. A) allows management to focus on operating variances instead of exchange-rate variances B) enables management to focus on both operating and exchange-rate variances C) is an illegal reporting method according to the FASB D) is the only method that can be used in Europe

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Q: As a Japanese MNE, Sony is more likely to use ________ to evaluate performance of its foreign operations. A) quality targets B) market share C) ROI D) sales

Q: Budget versus actual comparisons, followed by some form of ROI, are most likely used by ________ MNEs. A) Japanese B) American C) British D) German

Q: Gavin Pharmaceuticals is a U.S.-based MNE. Which of the following is probably Gavin's most important metric when evaluating the firm's performance? A) foreign sales B) market share C) return on investment D) sales revenue budget

Q: Matt manages the sales unit at Global Electronics but has no control over input costs. The primary purpose of the sales division is to sell goods produced by another division at Global Enterprises. What is the most appropriate performance evaluation measure for Matt's division? A) market share B) profitability C) net income as a percentage of sales D) inventory costs as a percentage of sales

Q: Under the current-rate method of translation, any gain or loss is known as a(n) ________. A) liability B) foreign exchange C) annual net income D) accumulated translation adjustment

Q: If a U.S.-based MNE translates its German subsidiary's financial statements from euros into dollars using the current-rate method, how would it recognize translation gains and losses? A) Gains and losses would be taken to the income statement. B) Gains and losses would be recognized on the balance sheet in owners' equity. C) Gains and losses are not recognized since the financial statements are in dollars. D) There are transaction gains and losses but not translation gains and losses.