Deck 18: International Financial Management

Question 1

FedEx provided Lewis Exporters with a document that serves as a contract for transporting twenty boxes from Boston to Paris. Which term best describes this document?

A) sight draft
B) bill of lading
C) bill of exchange
D) trade acceptance

Answer 1

B

Question 2

Why would an exporter most likely consider an open account undesirable?

A) high fees from host country governments
B) heavy reliance on financial institutions
C) significant paperwork required
D) working capital tied up

Answer 2

D

Question 3

Which currency do importers typically prefer to use in transactions?

A) U.S. dollars
B) Japanese yen
C) home country currency
D) host country currency

Answer 3

C

Question 4

Which task listed below is primarily handled by Singapore Airlines' financial managers?

A) maintaining local currency cash balances in each country
B) contacting other carriers for potential joint ventures
C) monitoring group dynamics among team members
D) conducting regular performance assessments

Question 5

What document serves as a title to the goods in question under the document collection payment method?

A) sight draft
B) bill of lading
C) bill of exchange
D) trade acceptance

Question 6

Thompson Exporters, a new exporting firm, provides a 5% discount to customers who use the safest method of payment. Which method of payment most likely receives this discount?

A) payment in advance
B) open account
C) letter of credit
D) countertrade

Question 7

An accepted time draft is called a ________.

A) sight draft
B) bill of lading
C) bill of exchange
D) trade acceptance

Question 8

More than 70 percent of developing country exports are invoiced in ________.

A) U.S. dollars
B) euros
C) Japanese yen
D) Swiss francs

Question 9

In specialized international lending activity, firms may engage in ________, where they buy foreign accounts receivable at a discount from face value.

A) factoring
B) lading
C) documentary collecting
D) financial drafting

Question 10

Theresa, an importer, uses a variety of payment methods when paying for goods. Which of the following is most likely the safest for Theresa?

A) letter of credit
B) wire transfer
C) open account
D) payment in advance

Question 11

Fulsom Exporting prefers that customers who pay in advance use a wire transfer. What is the most likely reason for this preference?

A) protection from FDIC
B) immediate access to funds
C) minimal interest rates and fees
D) protection from currency fluctuation

Question 12

A ________ requires payment upon the transfer of title to the goods from the exporter to the importer.

A) sight draft
B) time draft
C) bill of lading
D) bill of exchange

Question 13

A ________ extends credit to the importer by requiring payment at some specified time after the importer receives the goods.

A) sight draft
B) time draft
C) bill of lading
D) bill of exchange

Question 14

Major exporting countries typically invoice foreign customers in ________.

A) U.S. dollars
B) Japanese yen
C) their home currency
D) the foreign customer's currency

Question 15

When paying via ________, the goods are shipped by the exporter and received by the importer prior to payment, and the exporter then bills the importer for the goods, stipulating the amount, form, and time at which payment is expected.

A) payment in advance
B) open account
C) letters of credit
D) countertrade

Question 16

Which currency is used most often for transactions involving commercial aircraft?

A) U.S. dollars
B) euros
C) Japanese yen
D) Swiss francs

Question 17

Theresa, an importer, uses a variety of payment methods when paying for goods. Which of the following is most likely Theresa's LEAST preferred form of payment?

A) letter of credit
B) wire transfer
C) open account
D) payment in advance

Question 18

Which currency do exporters typically prefer to use in transactions?

A) U.S. dollars
B) Japanese yen
C) home country currency
D) host country currency

Question 19

Janson Enterprises, a U.S. firm, is exporting medical equipment to an Indonesian firm that has poor credit. Which method of payment would Janson most likely prefer?

A) payment in advance
B) open account
C) letter of credit
D) credit card

Question 20

When a transaction involves a buyer and a seller from two countries, what issue is LEAST likely to arise?

A) which currency to use for the transaction
B) when and how to check credit
C) which form of payment to use
D) how to assess the market

Question 21

After issuing the letter of credit, the importer's bank sends it and the accompanying documents to the exporter's bank, which advises the exporter of the terms of the instrument, thereby creating a(n) ________.

A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) revocable letter of credit

Question 22

The ________ is a letter of credit that the bank may alter at any time and for any reason.

A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) revocable letter of credit

Question 23

When acceptances are sold ________, it means that the buyer of the acceptance is stuck with the loss if the importer does not pay.

A) without recourse
B) with recourse
C) with pay
D) without pay

Question 24

Credit card companies collect ________ from the merchant for assuming the costs of collecting the funds from the customer and any risks of nonpayment.

A) flat fees
B) transaction fees
C) translation fees
D) floating fees

Question 25

A(n) ________ confirms that the goods being shipped were produced in the exporting country.

A) export license
B) certificate of product origin
C) inspection certificate
D) bill of lading

Question 26

Which form of countertrade is used when each party simultaneously swaps its products for the products of the other?

A) barter
B) parallel barter
C) offset purchase
D) clearinghouse accounts

Question 27

Which of the following is NOT a characteristic of documentary collection?

A) high bank fees due to risks involved
B) legally enforceable in most countries
C) simplified collection process
D) local bank is collection agent

Question 28

________ are considered less risky and are usually discounted less than ________.

A) Letters of credit; bills of exchange
B) Trade acceptances; bills of lading
C) Banker's acceptances; trade acceptances
D) Bills of exchange; banker's acceptances

Question 29

Martin Exporting requests ABC Bank to add its own guarantee of payment to a letter of credit, which creates a(n) ________.

A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) unconfirmed letter of credit

Question 30

The ________ is a letter of credit that cannot be altered without the written consent of both the importer and the exporter.

A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) revocable letter of credit

Question 31

Columbus Trading agrees to exchange coffee and rice to Romania in return for machinery. Which term best describes this transaction?

A) countertrade
B) in-kind payment
C) open account payment
D) documentary collection

Question 32

Japan's Fukusuke Corporation sold 10 knitting machines and raw materials to Chinatex, a Shanghai-based clothing manufacturer in exchange for one million pairs of underwear to be produced on the knitting machines. What form of countertrade is this?

A) buy-back
B) parallel barter
C) offset purchase
D) clearinghouse accounts

Question 33

Which document is issued by a bank and contains its promise to pay the exporter on receiving proof that the exporter has fulfilled all requirements specified in the document?

A) bill of lading
B) bill of exchange
C) letter of credit
D) trade acceptance

Question 34

A(n) ________ provides assurance that the products have been checked by authorities and that they conform to relevant standards.

A) certificate of product origin
B) inspection certificate
C) trade acceptance
D) bill of lading

Question 35

Which of the following is not a type of letter of credit?

A) advised letter of credit
B) confirmed letter of credit
C) irrevocable letter of credit
D) unconfirmed letter of credit

Question 36

What is the simplest form of countertrade?

A) barter
B) parallel barter
C) offset purchase
D) clearinghouse accounts

Question 37

Company X sold its products to Company Z in September. Company X will be compnsated with Company Z's products in December. Which term best describes this transaction?

A) offset purchase
B) parallel switch
C) counterpurchase
D) clearinghouse accounts

Question 38

What is the most common form of countertrade?

A) barter
B) offset purchase
C) counterpurchase
D) clearinghouse accounts

Question 39

When acceptances are sold ________, it means that the exporter will have to reimburse the buyer of the acceptance in the case of nonpayment by the importer.

A) without recourse
B) with recourse
C) with pay
D) without pay

Question 40

The State Trading Corporation of India agreed to exchange wheat and other grains to Turkmenistan in return for cotton. What form of countertrade is this?

A) counterpurchase
B) barter
C) parallel barter
D) offset purchase

Question 41

Which of the following strategies offers firms the potential for capital gain if the home currency rises in value?

A) buying a forward currency
B) buying a currency option
C) acquiring offsetting assets
D) going naked

Question 42

Which term refers to an accounting system used to facilitate international countertrade that requires a firm to balance its overall countertrade transactions but not any single countertrade transaction?

A) open accounts
B) parallel barters
C) offset purchases
D) clearinghouse accounts

Question 43

A(n) ________ is created when an international firm matches its assets denominated in a given currency with its liabilities denominated in that same currency.

A) offsetting asset
B) income statement hedge
C) balance sheet hedge
D) cash account

Question 44

Which form of countertrade is used when part of an exported good is produced in the importing country?

A) barter
B) counterpurchase
C) offset purchase
D) clearinghouse accounts

Question 45

Why does Eximbank offer a working capital guarantee loan program?

A) promote foreign imports
B) encourage U.S. exports
C) protect emerging economies
D) encourage trade in U.S. dollars

Question 46

________ occurs when exchange rate movements that occur after the firm is legally obligated to complete the transaction can affect the financial benefits and costs of an international transaction.

A) Exchange rate risk
B) Transaction exposure
C) Translation exposure
D) Currency conversion risk

Question 47

Which of the following is not a strategy for managing transaction exposure?

A) use a natural hedge
B) buy currency options
C) buy forward currency
D) acquire an offsetting asset

Question 48

Which payment method does not time the payment of goods when the goods arrive in the importer's country?

A) countertrade
B) credit card
C) letter of credit
D) open account

Question 49

Boeing has a contract with Country X for the sale of four 737 airplanes. All of the following are most likely elements included in the contract EXCEPT ________.

A) down payment
B) hard loan clause
C) inflation clause
D) penalty payment for cancellation

Question 50

How can firms reduce their translation exposure?

A) go naked
B) use a balance sheet hedge
C) buy forward currency
D) acquire an offsetting asset

Question 51

What is the primary risk an exporter faces with documentary collection?

A) bank changing terms
B) importer defaulting
C) issuing bank defaulting
D) importer failing to pay account balance

Question 52

Which of the following is not a type of transaction that could lead to transaction exposure?

A) the sale of goods, services, or assets
B) extension of credit
C) a balance sheet hedge
D) borrowing of money

Question 53

Which form of countertrade involves compensation arrangements whereby one firm sells capital goods to a second firm and is compensated in the form of output generated as a result of their use?

A) buy-back
B) parallel barter
C) offset purchase
D) clearinghouse accounts

Question 54

Which of the following strategies could result in a lost opportunity for capital gain if the home currency rises in value?

A) buying a forward currency
B) buying a currency option
C) acquiring offsetting assets
D) buying a currency future

Question 55

________ is the impact on the firm's consolidated financial statements of fluctuations in exchange rates that change the value of foreign subsidiaries as measured in the parent's currency.

A) Exchange rate risk
B) Transaction exposure
C) Translation exposure
D) Currency conversion risk

Question 56

Which payment method is appropriate when the exporter has complete trust in the importer?

A) payment in advance
B) open account
C) letter of credit
D) countertrade

Question 57

The purchase of goods, services, or assets denominated in a foreign currency most likely leads to ________.

A) exchange rate risk
B) translation exposure
C) transaction exposure
D) currency conversion risk

Question 58

Countertrade is primarily important to countries that lack ________.

A) foreign trade zones
B) convertible currencies
C) greenfield investments
D) democratic governments

Question 59

A sogo sosha might assist in the sale of Mitsubishi trucks in Ghana, taking payment in cocoa, which then can be sold to keiretsu-linked food processors back in Japan or to independent candy makers anywhere. This is an example of ________.

A) counterpurchase
B) switching arrangements
C) offset purchase
D) clearinghouse accounts

Question 60

Which of the following is not a type of foreign-exchange exposure?

A) transaction exposure
B) currency conversion
C) translation exposure
D) economic exposure

Question 61

Financial managers at Parker Computers, an MNC, want to decrease the tariffs paid on components imported from Parker's subsidiaries. Which of the following would most likely accomplish this goal?

A) increasing the internal rate of return offered by the subsidiaries
B) lowering the transfer price charged by the subsidiaries
C) engaging in currency swaps with the subsidiaries
D) raising the transfer prices paid by the subsidiaries

Question 62

The ________ is the number of years it will take the firm to recover the original cash investment from the project's earnings.

A) internal rate of return
B) net present value
C) payback period
D) return on equity

Question 63

Which of the following is not one of the commonly used methods for evaluating investment projects among international financial officers?

A) net present value
B) internal rate of return
C) payback period
D) return on equity

Question 64

All of the following are internal sources of investment capital for international businesses EXCEPT ________.

A) adjusted transfer prices
B) operation profits
C) subsidiary loans
D) managed floats

Question 65

The minimum rate of return the firm finds acceptable for its capital investments is called the ________.

A) hurdle rate
B) internal rate of return
C) return on investment
D) saturation rate

Question 66

More than 70 percent of the exports of less developed countries are invoiced using the euro.

Question 67

Exporters usually prefer their payment in the host currency.

Question 68

Ford Motor Company is considering a cash investment in a joint venture with Hyundai in South Korea. Ford considers the number of years it will take the firm to recover the original cash investment from the project's earnings, which is called the ________.

A) internal rate of return
B) net present value
C) payback period
D) return on equity

Question 69

Rubbermaid has set a minimum rate of return of 15 percent on all its capital investments. Fifteen percent is Rubbermaid's ________.

A) payback period
B) hurdle rate
C) internal rate of return
D) return on investment

Question 70

Exporters prefer that payments in advance be made by check.

Question 71

Megan, a financial manager at Price Manufacturing, an MNE, strives to minimize the firm's working capital balances. Why would this most likely be important for Price Manufacturing?

A) Subsidiaries need working capital in host-country currencies.
B) Working capital has an increased foreign-exchange risk.
C) Working capital earns a very low rate of return.
D) Working capital is highly taxed overseas.

Question 72

Phil works as a centralized cash manager at Lawson Enterprises, an MNC. All of the following tasks are most likely aspects of Phil's job EXCEPT ________.

A) pooling Lawson's cash reserves
B) conducting Lawson's countertrade
C) planning Lawson's short-term investments
D) coordinating Lawson's worldwide cash flows

Question 73

Karcher Enterprises, an MNE, is considering building a new factory overseas but has not determined the best location. Which of the following potential locations would require Karcher Enterprises to make the largest risk adjustment?

A) Syria
B) India
C) Japan
D) Mexico

Question 74

What is the LEAST likely reason that an international business would participate in the swap market?

A) modify the firm's translation exposure
B) alter the nature of the firm's interest obligations
C) change the currency in which the firm's debt is denominated
D) adjust the firm's exposure profile without undoing the underlying transactions

Question 75

KLM Royal Dutch Airlines is considering an investment in new routes that should bring in significant revenues in the future. Which of the following will KLM most likely evaluate to determine the value of the investment?

A) external rate of return
B) net present value
C) foreign exchange
D) natural hedge

Question 76

International commercial transactions are so common now that credit checks are unnecessary.

Question 77

Payment in advance is the riskiest method from the exporter's perspective.

Question 78

The price paid for goods and services in intracorporate transfers is the ________.

A) hurdle rate
B) net present value
C) transfer price
D) swap price

Question 79

Which of the following is a common characteristic of a tax haven?

A) sophisticated banking system
B) stringent judicial oversight
C) flexible transit tariff system
D) moderate income tax rates

Question 80

A leads and lags strategy is typically implemented by financial managers to minimize ________.

A) macropolitical risks
B) foreign-exchange risks
C) working capital balances
D) currency conversion costs