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| 1 | |
When evaluating foreign investment opportunities, the parent should be concerned with its cash flows, not those of the subsidiaries or projects. |
| | A) | True |
| | B) | False |
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| 2 | |
The higher the discount rate, the higher the projected net cash flows must be for an investment to have a positive new present value. |
| | A) | True |
| | B) | False |
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| 3 | |
According to UN statistics, transactions between subsidiaries represents a minor amount of international transactions, approximately 12 percent. |
| | A) | True |
| | B) | False |
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| 4 | |
A firm that is involved in unbundling might use royalty payments, transfer prices, and fronting loans to transfer funds across borders. |
| | A) | True |
| | B) | False |
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| 5 | |
A firm that sets low transfer prices for goods supplied to a subsidiary and high transfer prices for the goods sourced from the subsidiary is probably trying to move funds out of a country. |
| | A) | True |
| | B) | False |
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| 6 | |
Financial management includes decisions in three areas. Which of the following is not one of the decision areas? |
| | A) | Decisions about what activities to finance |
| | B) | Decisions about how to finance activities |
| | C) | Decisions about how to manage the firm's financial resources efficiently |
| | D) | Decisions about reconciling international accounting system differences |
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| 7 | |
A decision to invest in activities in a given country must include: |
| | A) | human resources management, logistics and marketing. |
| | B) | the attractiveness of the country, the economic theories of FDI and the value that might be created. |
| | C) | export and import financing as well as countertrade options. |
| | D) | consideration of trade barriers, technological change and communications. |
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| 8 | |
_________________ quantifies the benefits, costs and risks of an investment. |
| | A) | Financial management |
| | B) | Strategic planning |
| | C) | Capital budgeting |
| | D) | Logistics and operations management |
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| 9 | |
In addition to considering economic risks, a firm must consider political risks, which include all the following except: |
| | A) | expropriation of the firm's investment or assets |
| | B) | economic collapse |
| | C) | inflation |
| | D) | changes in the legal system that might imperil the investment |
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| 10 | |
Using local debt and capital markets to finance projects instead of global capital markets can result in: |
| | A) | higher costs due to higher interest rates |
| | B) | lower costs because of local competition from banks and investors |
| | C) | higher liquidity |
| | D) | stabilizing local currency and debt markets |
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| 11 | |
Debt financing is more common in _____ than in ______. |
| | A) | the U.S., France |
| | B) | France, Britain |
| | C) | Germany, Japan |
| | D) | Japan, the U.S. |
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| 12 | |
___________________ decisions attempt to manage working capital by minimizing cash balances and reducing transaction costs. |
| | A) | Capital budgeting |
| | B) | Currency exchange |
| | C) | Money management |
| | D) | Market force |
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| 13 | |
A firm must hold cash balances to service payables and act as a contingency. To manage these cash balances, a firm should |
| | A) | maintain 30 day reserves in local banks |
| | B) | invest heavily in short-term instruments to maximize returns |
| | C) | balance liquidity and investment options |
| | D) | comply with home-country regulations and restrictions |
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| 14 | |
A tax credit |
| | A) | allows an entity to reduce taxes paid to the home government by the amount of taxes paid to the foreign government |
| | B) | specifies that parent companies are not taxed on foreign source income until they actually receive a dividend |
| | C) | between two countries is an agreement specifying what items of income will be taxed by the authorities of the country where the income is earned |
| | D) | does not require firms to estimate cash flows associated with a project over time |
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| 15 | |
A tax treaty |
| | A) | allows an entity to reduce taxes paid to the home government by the amount of taxes paid to the foreign government |
| | B) | specifies that parent companies are not taxed on foreign source income until they actually receive a dividend |
| | C) | between two countries is an agreement specifying what items of income will be taxed by the authorities of the country where the income is earned |
| | D) | does not require firms to estimate cash flows associated with a project over time |
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| 16 | |
A deferral principle |
| | A) | allows an entity to reduce taxes paid to the home government by the amount of taxes paid to the foreign government |
| | B) | specifies that parent companies are not taxed on foreign source income until they actually receive a dividend |
| | C) | between two countries is an agreement specifying what items of income will be taxed by the authorities of the country where the income is earned |
| | D) | does not require firms to estimate cash flows associated with a project over time |
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| 17 | |
When the income of a foreign subsidiary is taxed both by the host-country government and by the parent company's government, there is |
| | A) | a tax credit |
| | B) | a tax treaty |
| | C) | double taxation |
| | D) | tax deferral |
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| 18 | |
Which of the following is not true of tax havens? |
| | A) | Some are located in the Bahamas. |
| | B) | They have exceptionally low or no income tax. |
| | C) | Firms use them to maximize their tax liabilities. |
| | D) | The tax have subsidiary owns the common stock of the operating foreign subsidiaries. |
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| 19 | |
_________________ is the most common method by which firms transfer funds from foreign subsidiaries to the parent company, though there is great variability depending on tax regulations, for exchange risk, etc. |
| | A) | wire transfers |
| | B) | letters of credit |
| | C) | fronting loan repayments |
| | D) | payment of dividends |
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| 20 | |
A firm might use ________ if it wants to avoid suspicion from the host country that it is trying to avoid taxes. |
| | A) | tax deferral strategies |
| | B) | unbundling |
| | C) | arms-length pricing |
| | D) | multilateral netting |
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| 21 | |
All of the following are benefits of manipulating transfer prices except: |
| | A) | reducing tax liabilities |
| | B) | moving funds out of a country in anticipation of foreign exchange risks |
| | C) | reducing import duties |
| | D) | avoiding having to report contributions to political parties or candidates |
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| 22 | |
In a survey of 164 U.S. firms, ______ percent of the firms used market-based transfer pricing systems. |
| | A) | 15 |
| | B) | 35 |
| | C) | 65 |
| | D) | 80 |
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| 23 | |
Firms use ________________ to circumvent host-country restrictions on remittance of funds and for tax advantages. |
| | A) | fronting loans |
| | B) | money laundering |
| | C) | currency speculation |
| | D) | transnational financing |
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| 24 | |
Firms use central depositories to hold cash balances for all for the following reasons except: |
| | A) | Firms can deposit large amounts to be eligible for higher interest rates. |
| | B) | If the central depository is located in a major international financial center, it will have access to better short-term investment opportunities. |
| | C) | Firms can reduce the total size of the cash pool. |
| | D) | They can get better bank services like free checking. |
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| 25 | |
A firm that wants to minimize the transaction costs that result from multiple transactions between subsidiaries might use |
| | A) | transfer pricing |
| | B) | tax deferral strategies |
| | C) | unbundling |
| | D) | multilateral netting |
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