跨国金融原理(第三版)题库ch-10

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FundamentalsofMultinationalFinance,3e(Moffett)

Chapter22WorkingCapitalManagement

22.1MultipleChoiceandTrue/FalseQuestions

1)Workingcapitalmanagementinvolvesthemanagementof

A)currentandlongtermassets.

B)currentassetsandcurrentliabilities.

C)currentliabilitiesandlongtermassets.

D)currentliabilitiesandlongtermdebtandequity.

Answer:B

Topic:WorkingCapitalManagement

Skill:Recognition

2)Thecashconversioncycle

A)isasubsetoftheoperatingcycle.

B)occursinthelatterstagesoftheoperatingcycle.

C)isasubsetoftheaccountsreceivableperiod.

D)alloftheabove.

Answer:D

Topic:CashConversionCycle

Skill:Recognition

3)Theproperorderofeventsfortheoperatingcycleis

A)inputservingperiod,accountsreceivableperiod,inventoryperiod,quotationperiod.

B)quotationperiod,accountsreceivableperiod,inventoryperiod,inputservicingperiod.

C)quotationperiod,inputservicingperiod,inventoryperiod,accountsreceivableperiod.

D)accountsreceivableperiod,inputservicingperiod,quotationperiod,inventoryperiod.

Answer:C

Topic:OperatingCycle

Skill:Recognition

4)PolarisCorporation(US)hasbidapriceonaprojectforaKoreanfirm,buttheKoreanfirmhasnotyetplacedanorder.Thisportionoftheoperatingcycleisbestdescribedasthe

A)quotationperiod.

B)inputsourcingperiod.

C)cashconversioncycle.

D)accountspayablecycle.

Answer:A

Topic:QuotationPeriod

Skill:Conceptual

5)Theperiodinthecashcyclewherethecustomerplacestheorder,andthefirmdetermineswhatmaterialsformanufacturearenotininventoryiscalledthe________period.

A)quotation

B)inputsourcing

C)accountspayable

D)accountsreceivable

Answer:B

Topic:InputSourcingPeriod

Skill:Recognition

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6)Theaccountspayableperiodoftheoperatingcycle

A)isequaltotheinventoryperiod.

B)mayrunconcurrentlybutshorterthantheinventoryperiod.

C)mayrunconcurrentlybutlongerthantheinventoryperiod.

D)anyoneoftheabovemaybetrue.

Answer:D

Topic:AccountsPayablePeriod

Skill:Recognition

7)AccordingtoGAAP,goodsshippedwithaforeigncurrency-denominatedinvoiceusethe________torecordthevalueofthesaleinthelocalcurrency.

A)beginningoftheyearexchangerate

B)averageyear-to-dateexchangerate

C)spotrateonthedayofthetransaction

D)actualspotrateattimeoffuturepayment

Answer:C

Topic:TransactionExposure

Skill:Conceptual

8)Onepossibledefinitionofnetworkingcapital(NWC)providedbyyourauthorsis

A)NWC=A/R+inventory-A/P.

B)NWC=cash+A/P-inventory.

C)NWC=A/P+A/R-short-termloans.

D)NWC=A/R+inventory-long-termdebt.

Answer:A

Topic:NWC

Skill:Recognition

9)WhichofthefollowingactionswillresultinanincreaseinNWC?

A)anincreaseinA/PthatexceedsanincreaseinA/R

B)areductionininventory

C)areductioninA/PplusasmallerreductioninA/R

D)anincreaseinA/Pandasmallerreductionininventory

Answer:C

Topic:NWC

Skill:Conceptual

10)Whichofthefollowingstatementsistrue?

A)A/Rprovidepartofthefundingforinventory.

B)A/PprovidepartofthefundingforA/Randinventory.

C)InventorypaysforA/RandA/P.

D)Noneoftheaboveistrue.

Answer:B

Topic:NWC

Skill:Conceptual

11)Inprinciple,thefirmtriestominimizeitsNWCbalance.Answer:TRUE

Topic:NWC

Skill:Recognition

TABLE22.1

Usetheinformationtoanswerfollowingquestion(s).

PolarisCorporationBalanceSheetDecember31,20xx

12)RefertoTable22.1.TheNWCforPolarisis________.

A)$80,000

B)$680,000

C)$35,000

D)$45,000

Answer:D

Topic:NWC

Skill:Analytical

13)RefertoTable22.1.IfPolarisincreasesinventoryby$10,000andA/Palsoby$10,000,thenetchangeinNWCis________.

A)$20,000

B)$10,000

C)$0

D)noneoftheabove

Answer:C

Topic:NWC

Skill:Analytical

14)RefertoTable22.1.NWCcurrentlymakesupwhatpercentageoftotalfirmvalueforPolaris?

A)6.6%

B)5.1%

C)11.8%

D)9.2%

Answer:A

Topic:NWC

Skill:Analytical

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Instruction22.1:

Usetheinformationtoanswerfollowingquestion(s).

SureDripIrrigationSystemsInc.issuppliedwithplasticchipsfortheirplasticinjectionmoldingmanufacturingprocess.Theirsupplier,SunChemical,Inc.offersfinancingtermsofa2%discountiftheaccountspayablearepaidin10daysorlesswiththefullbalanceduein45days.Short-termfinancingavailabletoSureDripisavailableatanannualrateof9.6%.SureDriphasjustpurchased$400,000ofplasticchipsfromSunChemical.

15)RefertoInstruction22.1.WhatistheamountofmoneySureDripwillsaveonaccountspayableiftheyacceptthediscount?

A)$400,000

B)$8,000

C)$33,333

D)$20,000

Answer:B

Topic:Discounts

Skill:Analytical

16)RefertoInstruction22.1.WhatistheeffectiveannualinterestcostofsupplierfinancingofferedbySunChemical?

A)7.3%

B)9.5%

C)10.4%

D)22.9%

Answer:D

Topic:InterestCostofSupplierFinancing

Skill:Analytical

17)RefertoInstruction22.1.ShouldSureDriptakethediscountofferedbySunChemical?

A)Yes,SureDripwillgettousetheirrawmaterials35daysearlierthaniftheywaitedtopayattheendofthe45days.

B)No,SureDripwillnothavetopayanyinterestiftheyjustpayin45days.

C)Yes,SureDrip'sshorttermborrowingrateof9.6%islessthanSun'sofferedcostofcarryof22.9%.

D)No,itcostsSureDrip22.9%toacceptthediscountandtheyarebetteroffpayingthefullamountin45days.

Answer:C

Topic:InterestCostofSupplierFinancing

Skill:Analytical

18)Daysworkingcapitalisequalto

A)dayspayables+daysreceivables-daysinventory.

B)daysinventory+daysreceivables-dayspayables.

C)dayspayables+daysinventory+daysreceivables.

D)noneoftheabove.

Answer:B

Topic:DaysWorkingCapital

Skill:Analytical

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19)Otherthingsequal,managerspreferalower"daysworkingcapital"toahigherone.Answer:TRUE

Topic:DaysWorkingCapital

Skill:Conceptual

20)AmundsenofNorwayreceivesrawmaterialsfromtheircorporateparentintheU.S.withpaymenttermsofnet60days.MostoftheirsalesaretofirmsinNorwaywherenormalpaymenttermsarenet30days.Thiscausesaproblemforthesubsidiarywithworkingcapitalmanagementbecause

A)accountsreceivablearesomuchlongerthanaccountspayable.

B)accountspayablearesomuchlongerthanaccountsreceivable.

C)accountsreceivableandaccountspayableareequal.

D)thisdoesn'treallycauseaproblem;infactitistothebenefitoftheNorwegiansubsidiary.

Answer:D

Topic:DaysWorkingCapital

Skill:Conceptual

21)Domesticsalesarealmostalwaysdenominatedinthelocalcurrency,butinternationalsalesmaybedenominatedin

A)theexporter'scurrency.

B)theimporter'scurrency.

C)athirdcountry'scurrency.

D)anyoftheabove.

Answer:D

Topic:CurrencydenominationofSales

Skill:Recognition

22)________maydeterminethecurrencyusedfortransactionsininternationalsales?

A)Custom

B)Competition

C)Bargainingandnegotiation

D)Anyoftheabove

Answer:D

Topic:CurrencydenominationofSales

Skill:Recognition

23)Otherthingsequal,afirmwouldratherhave________inadepreciatingcurrency,and________inanappreciatingcurrency.

A)accountsreceivable;accountspayable

B)accountsreceivable;accountsreceivable

C)accountspayable;accountsreceivable

D)noneoftheabove

Answer:C

Topic:CashManagementStrategies

Skill:Conceptual

24)Inaninflationaryeconomy,demandforcreditusuallyexceedssupply.Answer:TRUE

Topic:Inflation

Skill:Conceptual

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25)TheEuropeanshaveapopularliquiddiscountablebilloriginatingwiththeCodeNapoleonandbackedbyaccountsreceivablecalled

A)banker'sacceptances.

B)selfliquidatingbills.

C)commercialpaper.

D)negotiablecertificatesofdeposit.

Answer:B

Topic:SelfliquidatingBills

Skill:Recognition

26)Japanesemarketsarenotedfortheirshortmaturitypaymentterms(lessthan20days),andthegeneralreluctanceofthemanufacturertosupplyanytypeofcredittocustomers.Answer:FALSE

Topic:JapaneseCreditTerms

Skill:Recognition

27)Firmsmightbetemptedtoorder________inventoryfromforeignsourcesiftheythoughttheircurrencywasabouttobe________.

A)less;devalued

B)extra;revalued

C)extra;devalued

D)noneoftheabove

Answer:C

Topic:HomeCurrencyDevaluation

Skill:Conceptual

28)Firmswhosecurrencyisprimefordevaluationmaychoosetopurchaseextrainventoryfromforeignsourcesbeforethedevaluationoccurs.WhichofthefollowingisNOTapotentialproblemassociatedwithsuchapractice?

A)Asaresultofholdingextrainventory,thefirmnowhasextrasales.

B)Asaresultofdevaluation,thelocalgovernmentmayfreezethepriceatwhichthefirmcansellitsinventory.

C)Thedevaluationdoesn'toccurandthefirmnowexperiencesadditionalstoragecosts.

D)Alloftheabovearepotentialproblems.

Answer:A

Topic:HomeCurrencyDevaluation

Skill:Conceptual

29)Freetradezonesmaytaketheformof

A)warehousesforimportedgoods.

B)assemblyplantsforimportedparts.

C)manufacturingplantsforreexport.

D)alloftheabove.

Answer:D

Topic:FreetradeZone

Skill:Recognition

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30)WhichofthefollowingisNOTaprecautionarymotiveforholdingcash?

A)AnticipatedfundstoberemittedfromseveralMiddleEastcountriesareinquestionduetounrestintheregion.

B)Thefirmhasseveralshorttermobligationsinunhedgedforeigncurrencydenominatedcontracts.

C)Thefirmmustpayordinarywagesintwodays.

D)Allareprecautionarymotives.

Answer:C

Topic:CashManagement

Skill:Conceptual

31)Increasestocashflowscanbeanticipatedifwhichofthefollowingoccurs?

A)Areceivablescontractisdenominatedinanappreciatingforeigncurrency.

B)Salesarelessthananticipated.

C)Daysinaccountsreceivableincreaseby15days.

D)Noneoftheabove.

Answer:A

Topic:CashManagement

Skill:Recognition

32)Fordisbursementpurposes,itistothebenefitofthefirmtominimizefloat.Answer:FALSE

Topic:CashManagement

Skill:Recognition

33)WhichofthefollowingisNOTafunctioncoveredbyinternationalcashmanagement?

A)maximizinginterestearnedonidleinternationalcashbalances

B)manipulatingtransferprices

C)repositioningoffundswithinthemultinationalfirm

D)investingsurpluscashheldwithinthesystem

Answer:B

Topic:CashManagement

Skill:Conceptual

34)Acentralizeddepositorybenefitsthefirmprimarilyby

A)reducingthecostofrepatriatingfunds.

B)positioningprofitswheretaxesarelowest.

C)reducingthetotalamountofcapitalemployedwithinthetotalfirm.

D)earningahigherrateofreturnthanindomesticbankingdeposits.

Answer:C

Topic:CentralDepository

Skill:Recognition

35)TheClearingHouseInterbankPaymentSystem(CHIPS)is

A)thelargestpubliclyoperatedpaymentssystemintheworld.

B)ownedandoperatedbytheworldssevenlargestcentralbanks.

C)acomputerizednetworkthatconnectsbanksglobally.

D)noneoftheabove.

Answer:C

Topic:CHIPS

Skill:Recognition

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36)TheSocietyforWorldwideFinancialTelecommunications(SWIFT)isaninterbankcommunicationssystemthatcarriesover1.0billionmessagesperyear.

Answer:TRUE

Topic:SWIFT

Skill:Recognition

37)________isNOTanadvantageprovidedtoMNEsbyacentraldepository.

A)Obtaininginformation

B)Holdingprecautionarycashbalances

C)Reducinginterestratecosts

D)Allareadvantages

Answer:D

Topic:CentralDepository

Skill:Recognition

38)AnorganizationalstructureemployedbyanMNEtoreduceitsuseofbanklendingforthesupportofoperationsis

A)acentralizeddepository.

B)areinvoicingcenter.

C)acostcenter.

D)asyndicatedbank.

Answer:A

Topic:CentralDepository

Skill:Recognition

39)Afreetradezoneallowstheuserto

A)avoidpayingimportduties.

B)reducenetcashflowexposedduetonettingoffundsbetweenaffiliates.

C)reducetaxandtariffbillsbecauseofreinvoicing.

D)postponeimportduties.

Answer:D

Topic:FreetradeZone

Skill:Conceptual

40)________istheprocessthatcancelsviaoffsetall,orpart,ofthedebtowedbyoneentitytoanotherrelatedentity.

A)Syndicatedbanking

B)Centralizeddepositing

C)Multilateralnetting

D)Debtcancellation

Answer:C

Topic:MultilateralNetting

Skill:Recognition

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41)WhichofthefollowingisNOTacorrespondentbankingservice?

A)acceptingbankdrafts

B)honoringlettersofcredit

C)furnishingcreditinformational

D)Alloftheabovearecorrespondentbankactivities.

Answer:D

Topic:CorrespondentBanking

Skill:Recognition

42)Inatwocountry,twocurrencyinternationaloperation,anaffiliateincountry"A"needingmoreofitsowncurrencycan

A)borrowlocally.

B)exporttoanaffiliateandreceivefundsfromthataffiliate.

C)obtainfundsfromacentralpool,whichinturnmightborrowanyofseveralcurrenciesandexchangethemforcurrency"A."

D)alloftheabove.

Answer:D

Topic:SourcesofCurrency

Skill:Conceptual

43)Aprecautionarycashbalance

A)isusedtoreplacespoiledordamagedinventory.

B)isheldtofacilitatecashdisbursementswhenreceiptsslowdown.

C)isusedfornormaldaytodayoperations.

D)isheldforthebenefitofasisteraffiliate.

Answer:B

Topic:PrecautionaryCashBalance

Skill:Conceptual

44)Acashpoolis

A)excesscashheldcentrallyforasetofaffiliates,inordertobeinvestedonmorefavorableterms.

B)cashheldinapoolingofinterestbankaccount.

C)thecurrencyusedforfunctionalreporting.

D)cashroutedthroughtwoormoreaffiliatestoavoidtaxes.

Answer:A

Topic:CashPool

Skill:Recognition

45)A/An________isalocallyincorporatedbankownedinpartbutnotnecessarilycontrolledbyaforeignparent.

A)bankingaffiliate

B)EdgeActCorporation

C)internationalbranchbank

D)banksubsidiary

Answer:A

Topic:BankingAffiliate

Skill:Recognition

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46)AnEdgeActcorporationisasubsidiaryofaU.S.banklocatedoutsideoftheU.S.andincorporatedtoengageininternationalbankingandfinancingoperations.

Answer:FALSE

Topic:EdgeActCorporation

Skill:Recognition

47)Aninhousebank

A)isaseparatebankcharteredtooperatewithinabusinessfirm.

B)isinfactasetoffunctionsperformedbythefirm'sexistingtreasurydepartment.

C)assessesthecreditstandingofthebank'scustomers.

D)providesbankingservicesforemployees.

Answer:B

Topic:InhouseBank

Skill:Conceptual

48)Aforeignbankingofficethatisseparatelyincorporatedinthehostcountryis

A)acorrespondentbank.

B)arepresentativeoffice.

C)abanksubsidiary.

D)anEdgeActcorporation.

Answer:C

Topic:BankSubsidiary

Skill:Recognition

49)TheadvantagestounbundlingofcashflowsfromasubsidiarytoaparentincludeallofthefollowingEXCEPT:

A)itemsthatmayhavebeenclassifiedasresidualprofitsareviewedastaxdeductibleexpenses.

B)thefacilitationofallocatingsharedservices(i.e.,overhead).

C)thefacilitationoflocalcapitalintojointventureprojects.

D)Alloftheabovearelegitimatereasonsforunbundlingcashflowsbetweenaparentandsubsidiary.

Answer:D

Topic:SubsidiaryCashFlows

Skill:Recognition

50)WhichofthefollowingwouldmostlikelyNOTbeconsideredanaftertaxcostinthehostcountrywhenunbundlingcashflowsfromasubsidiarytoaforeignparent?

A)paymentsofinteresttoaparentforintrafirmdebt

B)paymentstoparentforgoodsorservices

C)paymentsofdividendstotheparent

D)paymentsforcopyrightsortrademarks

Answer:C

Topic:SubsidiaryCashFlows

Skill:Conceptual

51)Becausetheyaredirectpayments,dividendsareamongthemostefficientwayforforeignsubsidiariestoremitfundsbacktotheparent.

Answer:FALSE

Topic:SubsidiaryDividends

Skill:Conceptual

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52)Eventhoughdividendsarecashpayments,firmstypicallymustconsiderbothcashflowandnetincomewhenmakingdividenddistributiondecisions.

Answer:TRUE

Topic:SubsidiaryDividends

Skill:Conceptual

53)Dividendsarethemosttaxefficientwaytorepatriatefundsbecausetheyaredistributedonanaftertaxbasis.

Answer:FALSE

Topic:TaxPolicy

Skill:Recognition

54)FortheMNEarepositioningofprofitshelpsthefirmrealizegreateraftertaxprofitsfromthesameamountofsales.

Answer:TRUE

Topic:TaxPolicy

Skill:Recognition

55)________arecompensationfortheuseofintellectualpropertybelongingtosomeotherparty.

A)Royaltyfees

B)Licensefees

C)Remittancefees

D)Repositioningfees

Answer:A

Topic:Royaltyfees

Skill:Recognition

56)WhichofthefollowingareNOTtechniquesusedtomanagethecrossbordercashsettlementprocesses?

A)wiretransfers

B)cashpooling

C)paymentnetting

D)Alloftheabovearetechniquesusedinthesettlementprocess

Answer:D

Topic:Crossbordercashsettlement

Skill:Recognition

57)OnereasonNOTtoincludeaccountspayable(A/P)whencalculatingNWCisbecauseA/Pdonotincreasespontaneouslywithoperations.

Answer:TRUE

Topic:NetWorkingCapital

Skill:Recognition

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22.2EssayQuestions

1)Whatisafreetradezone?Identifythreetechniquesandprovideexamplesofhowfirmsandcountriescanbenefitfromhavingfreetradezones.

Answer:Freetradezonesarelocationswithinacountrywhereforeignfirmscanstore,assemble,ormanufacturegoodswithoutpayinganimportdutyuntilthegoodsareactuallydistributed.TheauthorsprovidetheexampleofToyotaMotorCorporationexportingcarstotheUnitedStatesandstoringthematafacilityinLosAngeles.ThisallowsToyotatocollectaninventoryofcarsinthestatesandtobemorereadilyabletomeetconsumerdemandforspecificmodels.However,theydonotpayanyimportdutyuntilthecarsaremovedfromthefreetradezone.

AsecondexampleprovidedbytheauthorsisthatofMercedesassemblingautomobilesinAlabama.Again,thepartsareshippedtoAlabamawithoutbeingassessedanimportdutyuntiltheassembledcarsaredistributed.Andthen,eventhoughthecarsareafinishedproducts,thedutyisassessedata