Question 1

Which one of the following methods would the U.S.Internal Revenue Service accept to establish an arm's length price?

Accepted Answer

A)  the comparable controlled price method 
B)  the wholesale price method 
C)  in-house price method 
D)  the comparable profits method 
A)  the comparable controlled price method 
B)  the wholesale price method 
C)  in-house price method 
D)  the comparable profits method D

Question 2

When the IRS determines an appropriate transfer price that a multinational's affiliate may use,the guideline is known as ________.

Accepted Answer

A)  reasonable man principle 
B)  the book value 
C)  arm's length price 
D)  resale price 
A)  reasonable man principle 
B)  the book value 
C)  arm's length price 
D)  resale price C

Question 3

Why is stockpiling inventories when faced with the threat of devaluation an insufficient reason to operate the firm?

Accepted Answer

The prospects of a depreciation of a local currency are insufficient in and of themselves to warrant an increase in inventories.Only by balancing the anticipated marginal benefits and anticipated marginal costs of holding the inventory can we arrive at the optimal stock.What will happen to future retail prices and whether nominal interest rates accurately and rationally reflect the probabilities of devaluation are equally as important as the fact that the local currency is expected to depreciate.

Question 4

What are the constraints facing international cash management from purely domestic cash management?

Accepted Answer

The goals of an international money mana

Question 5

When the value of a firm's current liabilities are subtracted from its stock of working capital,the resulting value is known as

Accepted Answer

A)  total working capital. 
B)  gross working capital. 
C)  net working capital. 
D)  free working capital. 
A)  total working capital. 
B)  gross working capital. 
C)  net working capital. 
D)  free working capital.

Question 6

A firm would increase its investment in net working capital in order to produce ________.

Accepted Answer

A)  dividends in the future 
B)  cash in the future 
C)  more marketable securities 
D)  larger inventories 
A)  dividends in the future 
B)  cash in the future 
C)  more marketable securities 
D)  larger inventories

Question 7

One goal of management is to operate the corporation efficiently in order to ________ the need for net working capital.

Accepted Answer

A)  maximize 
B)  maintain 
C)  eliminate 
D)  minimize 
A)  maximize 
B)  maintain 
C)  eliminate 
D)  minimize

Question 8

What is the term that refers to a firm's stock of cash,marketable securities,accounts receivable,and inventories?

Accepted Answer

A)  working capital 
B)  cash 
C)  marketable securities 
D)  accounts receivable 
A)  working capital 
B)  cash 
C)  marketable securities 
D)  accounts receivable

Question 9

What is the most important purpose for a foreign affiliate to have a well-defined dividend policy ?

Accepted Answer

It is often advantageous for a multinati

Question 10

To avoid paying the higher corporate tax to a foreign government,a multinational could set the transfer price for its goods entering the country for sale to an affiliate as ________ as possible.

Accepted Answer

A)  low 
B)  high 
C)  neutral 
D)  proportional 
A)  low 
B)  high 
C)  neutral 
D)  proportional

Question 11

When an affiliate is located in a high tax jurisdiction,the general rule is to set the transfer price that another affiliate would charge as ________ as possible.

Accepted Answer

A)  high 
B)  low 
C)  neutral 
D)  proportional 
A)  high 
B)  low 
C)  neutral 
D)  proportional

Question 12

When a multinational engages in a process where it intentionally minimizes the firm's taxes when it repatriates funds,it is known as ________.

Accepted Answer

A)  bilateral netting 
B)  lagging accounts payable 
C)  leading accounts receivable 
D)  tax planning 
A)  bilateral netting 
B)  lagging accounts payable 
C)  leading accounts receivable 
D)  tax planning

Question 13

What is the impact on the firm with if it always invoices their customers in hard currencies?

Accepted Answer

Invoicing in hard currencies forces the

Question 14

Ajax International always invoices its customers in hard currencies.What has the firm done to the currency risk that may prevent future sales?

Accepted Answer

A)  It has shifted the exchange rate risk entirely to the customer who may seek other suppliers with less rigid terms. 
B)  It has shared the exchange rate risk with its customers who may object. 
C)  It has done nothing to shift or share exchange rate risk with its customers. 
D)  It has avoided the possibility of exchange rate controls imposed by the governments of its customers. 
A)  It has shifted the exchange rate risk entirely to the customer who may seek other suppliers with less rigid terms. 
B)  It has shared the exchange rate risk with its customers who may object. 
C)  It has done nothing to shift or share exchange rate risk with its customers. 
D)  It has avoided the possibility of exchange rate controls imposed by the governments of its customers.

Question 15

What is the name of the type of demand for money that arises because a firm realizes that is has some expenditures that will be incurred in the near future?

Accepted Answer

A)  transactions 
B)  precautionary 
C)  short-term 
D)  long-term 
A)  transactions 
B)  precautionary 
C)  short-term 
D)  long-term

Question 16

What is the name of the condition that arises when the government of a foreign country makes the nation's currency inconvertible?

Accepted Answer

A)  controlled exchange rates 
B)  managed currency 
C)  blocked funds 
D)  expropriation 
A)  controlled exchange rates 
B)  managed currency 
C)  blocked funds 
D)  expropriation

Question 17

What is the name of the type of demand for money that arises because a firm may need to purchase something due to an unanticipated change in its environment?

Accepted Answer

A)  transactions 
B)  precautionary 
C)  short-term 
D)  long-term 
A)  transactions 
B)  precautionary 
C)  short-term 
D)  long-term

Question 18

Cash management can be enhanced using a process where payments and receipts between affiliates are recorded but the actual transfer of funds involves net amounts only for amounts owed between affiliates.The system is known as

Accepted Answer

A)  centralized cash management. 
B)  multilateral netting. 
C)  lagging accounts payables. 
D)  leading accounts receivables. 
A)  centralized cash management. 
B)  multilateral netting. 
C)  lagging accounts payables. 
D)  leading accounts receivables.

Question 19

To avoid paying the higher corporate tax to a foreign government,the rule states that a multinational could set the transfer price for its goods entering the country for sale to an affiliate as ________ as possible to lower tariff payments.

Accepted Answer

A)  low 
B)  high 
C)  neutral 
D)  proportional 
A)  low 
B)  high 
C)  neutral 
D)  proportional

Question 20

Which one of the following represents the most serious risk that arises when the government of a foreign country makes the nation's currency inconvertible?

Accepted Answer

A)  controlled exchange rates 
B)  managed currency 
C)  blocked funds 
D)  expropriation 
A)  controlled exchange rates 
B)  managed currency 
C)  blocked funds 
D)  expropriation

Exam 19: Managing Net Working Capital

Which one of the following methods would the U.S.Internal Revenue Service accept to establish an arm's length price?

When the IRS determines an appropriate transfer price that a multinational's affiliate may use,the guideline is known as ________.

Why is stockpiling inventories when faced with the threat of devaluation an insufficient reason to operate the firm?

What are the constraints facing international cash management from purely domestic cash management?

When the value of a firm's current liabilities are subtracted from its stock of working capital,the resulting value is known as

A firm would increase its investment in net working capital in order to produce ________.

One goal of management is to operate the corporation efficiently in order to ________ the need for net working capital.

What is the term that refers to a firm's stock of cash,marketable securities,accounts receivable,and inventories?

What is the most important purpose for a foreign affiliate to have a well-defined dividend policy ?

To avoid paying the higher corporate tax to a foreign government,a multinational could set the transfer price for its goods entering the country for sale to an affiliate as ________ as possible.

When an affiliate is located in a high tax jurisdiction,the general rule is to set the transfer price that another affiliate would charge as ________ as possible.

When a multinational engages in a process where it intentionally minimizes the firm's taxes when it repatriates funds,it is known as ________.

What is the impact on the firm with if it always invoices their customers in hard currencies?

Ajax International always invoices its customers in hard currencies.What has the firm done to the currency risk that may prevent future sales?

What is the name of the type of demand for money that arises because a firm realizes that is has some expenditures that will be incurred in the near future?

What is the name of the condition that arises when the government of a foreign country makes the nation's currency inconvertible?

What is the name of the type of demand for money that arises because a firm may need to purchase something due to an unanticipated change in its environment?

Cash management can be enhanced using a process where payments and receipts between affiliates are recorded but the actual transfer of funds involves net amounts only for amounts owed between affiliates.The system is known as

To avoid paying the higher corporate tax to a foreign government,the rule states that a multinational could set the transfer price for its goods entering the country for sale to an affiliate as ________ as possible to lower tariff payments.

Which one of the following represents the most serious risk that arises when the government of a foreign country makes the nation's currency inconvertible?

Globalization and the Multinational Corporation

The Foreign Exchange Market

Forward Markets and Transaction Exchange Risk

The Balance of Payments

Exchange Rate Systems

Interest Rate Parity

Speculation and Risk in the Foreign Exchange Market

Purchasing Power Parity and Real Exchange Rates

Measuring and Managing Real Exchange Risk

Exchange Rate Determination and Forecasting

International Debt Financing

International Equity Financing

International Capital Market Equilibrium

Country and Political Risk

International Capital Budgeting

Additional Topics in International Capital Budgeting

Risk Management and the Foreign Currency Hedging Decision

Financing International Trade

Foreign Currency Futures and Options

Interest Rates and Foreign Currency Swaps

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