Deck 11: Global Capital Markets

Question 1

All of the following are part of the global financial system EXCEPT the ________.

A)New York Stock Exchange
B)World Trade Organization
C)International Monetary Fund
D)Bank for International Settlements

Answer 1

B

Question 2

The international bond market is much larger and more lucrative than the domestic bond market.

Answer 2

False

Question 3

What term refers to a currency on deposit outside its country of issue?

A)Eurocurrency
B)Eurodollar
C)Euroyen
D)Europound

Answer 3

A

Question 4

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

Question 5

The long-term financing dimension of financial management deals with the selection, issuance, and management of long-term debt and equity.

Question 6

Equity financing is the degree to which a firm funds the growth of a business by debt.

Question 7

A Chief Financial Officer (CFO)in an international company would most likely be responsible for all of the following activities EXCEPT ________.

A)managing short-term capital needs
B)making financial decisions
C)making investment decisions
D)managing employee repatriation

Question 8

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

Question 9

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

Question 10

Acquiring and allocating financial resources among the company's activities and projects is the responsibility of the financial marketing manager.

Question 11

What are the major sources of internal funds for MNEs? Why do many MNEs acquire external funds through the Eurodollar market?

Question 12

You are the chief financial officer at an MNE.What are your main responsibilities in this position? What taxation issues have a significant effect on the decisions you make?

Question 13

Another source of financing, in which an investor takes an ownership position in return for shares of stock in the company and the promises of capital gains, is called debt financing.

Question 14

What is a Eurodollar?

A)a euro held by an American
B)a U.S. dollar deposited in a European bank
C)a euro deposited in a U.S. bank.
D)any currency deposited in a country other than the country of issue

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

In a country like Russia, where there is a great deal of corruption, an MNE would most likely use ________ to fund corporate activities.

A)equities
B)debt
C)cash
D)countertrade

Question 20

The long-term financing dimension of financial 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

Question 21

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.

Question 22

A(n)________ is a large, liquid financial asset that can be traded anywhere at any time.

A)international stock
B)global bond
C)global equity
D)Eurodollar

Question 23

The international bond market is a major source of debt financing for which of the following?

A)world governments
B)regional organizations
C)small firms
D)small businesses

Question 24

A bond that is issued by Nestle, a Swiss company, which is denominated in yen and sold to residents of Japan is most likely a ________.

A)Eurobond
B)global bond
C)foreign bond
D)country fund

Question 25

A bond issued by a Brazilian company in British pounds in London is a ________.

A)Eurobond
B)global bond
C)local bond
D)foreign bond

Question 26

When using equity financing, firms run the risk of ________.

A)losing a controlling interest to shareholders
B)acquiring capital through the sale of shares
C)incurring an unmanageable amount of debt
D)falling victim to currency exchange rates

Question 27

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

Question 28

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

Question 29

Which of the following is most likely a benefit for firms that participate in the global capital market?

A)numerous investment opportunities
B)large pool of financing sources
C)equally balanced capital structure
D)quick sale of stocks and bonds

Question 30

On the basis of which interest rate are Eurocredits often quoted?

A)United States Prime Rate
B)European Central Bank Offer Rate
C)London Interbank Offered Rate
D)International Monetary Fund Interest Rate

Question 31

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 ________.

A)global bond
B)domestic bond
C)Eurobond
D)foreign bond

Question 32

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

Question 33

The stock market is also known as the ________.

A)capital market
B)foreign-exchange market
C)bond market
D)equity capital market

Question 34

The global capital market offers all of the following advantages to firms EXCEPT ________.

A)short-term financing options
B)numerous investment opportunities
C)wide array of financing sources
D)financing at reduced cost

Question 35

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

Question 36

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

Question 37

Which of the following countries has the largest market for domestic bonds?

A)United Kingdom
B)United States
C)Japan
D)China

Question 38

Which of the following financing tactics would most likely help an MNE avoid bankruptcy?

A)integrating e-commerce opportunities with domestic sales in order to maintain a steady balance of income and expenditures
B)agreeing to forward contracts with customers and hedging purchases and sales on future currency rates
C)organizing the capital structure so that the amount of debt financing is twice the level of equity financing
D)keeping the percentage of debt in the capital structure to a level that can be managed even during difficult business conditions

Question 39

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

Question 40

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

Question 41

Why do many MNEs acquire external funds through the Eurodollar market?

Question 42

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

Question 43

An ADR is a negotiable certificate issued by a U.S.bank in the United States to represent the underlying shares of a foreign corporation's stock held at a custodian bank in the foreign country.

Question 44

Foreign branch income is ________.

A)deferred from U.S. taxation until a dividend is remitted to the parent company
B)considered passive income and therefore not subject to U.S. taxation
C)directly included in the parent's taxable income in the year in which it is earned
D)considered active income and therefore deferred until future years

Question 45

Depositary receipts traded outside the United States are called ________ depositary receipts.

A)Euro
B)Global
C)American
D)None of the above

Question 46

Each ADR represents ________ of the shares of the underlying foreign stock.

A)some number
B)100
C)1
D)ADRs have nothing to do with foreign stocks.

Question 47

A Eurocurrency is any currency that is banked outside its country of origin.

Question 48

Low-cost Eurocurrency loans can be obtained in offshore financial centers.

Question 49

A firm would decide to delist its stock from a foreign stock exchange for all of the following reasons EXCEPT ________.

A)the best price for the stock is in the home market
B)there is increased regulation in that particular foreign market
C)there are weak market returns on the stock
D)there are high trading volumes on the stock

Question 50

What are the major sources of external funds for an MNE's normal operations? Why do MNEs use offshore financial centers to raise funds?

Question 51

ADRs that are created at the request of a foreign firm wanting its shares traded in the United States are ________.

A)facilitated
B)unfacilitated
C)sponsored
D)unsponsored

Question 52

________ is the price between two companies that most accurately reflects the market price.

A)Economy price
B)Promotional price
C)Arm's length price
D)Average cost

Question 53

The ________ approach to corporate taxation is considered double taxation.

A)separate entity
B)integrated system
C)capital gains
D)value-added

Question 54

Which of the following was NOT a contributing factor to the turmoil in the global stock market in the last few years?

A)a decline in oil prices
B)the revaluation of the euro
C)emerging markets lowering interest rates
D)a rise in interest rates in the United States

Question 55

The Japanese yen makes up the largest portion of the international bond market.

Question 56

The dominant currencies in the international bond market are the euro and the U.S.dollar.

Question 57

The Eurocurrency market is limited to exchanges that include the euro.

Question 58

A French company floating a bond issued in Swiss francs in Switzerland would be selling a foreign bond.

Question 59

How do countries differ in terms of taxation? In regards to taxation, why do some MNEs turn to offshore financial centers? Why are offshore financial centers a concern to the OECD?

Question 60

The Eurocurrency market is a retail, rather than wholesale, market.

Question 61

Which of the following countries is an important offshore financial center?

A)Turks and Caicos
B)Mexico
C)South Korea
D)Bermuda

Question 62

According to U.S.tax law, if a foreign subsidiary earns income, ________.

A)its income is immediately taxable to the parent, irrespective of the type of income earned
B)that income is not taxable to the parent company as long as the subsidiary pays income taxes in the country where it is earned
C)passive income is taxable to the parent unless the parent company is a controlled foreign corporation
D)active income is taxable to the parent when it is remitted as a dividend

Question 63

The OECD has set transfer pricing guidelines to enhance the manipulation of prices and therefore taxes for MNEs and the countries where they operate.

Question 64

Taxation is an important cash flow issue, but it typically does not have a strong impact on the choice of organizational form (such as branch or subsidiary)or the location of an investment.

Question 65

Which of the following is a characteristic of most offshore financial centers?

A)political stability
B)services for residents
C)accounting scandals
D)a lack of legal expertise

Question 66

Subpart F income is passive and usually derived from operations in a tax-haven country.

Question 67

________ focus on offering banking and other financial services to nonresident customers.

A)Subsidiary banks
B)Branch banks
C)Affiliated banks
D)Offshore financial centers

Question 68

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

Question 69

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

Question 70

A transfer price is a price on goods and services sold by one member of a corporate family to another.

Question 71

Transfer pricing is a strategy that may be used by MNEs to ________.

A)reduce consolidated corporate income taxes
B)partially finance a subsidiary in another country
C)transfer funds from a subsidiary to the parent corporation
D)all of the above

Question 72

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

Question 73

Foreign source income that is derived from the active conduct of a trade or business and therefore subject to U.S.taxation is known as ________.

A)passive income
B)active income
C)uncontrollable foreign corporation income
D)tax haven income

Question 74

The principle by which the tax authorities allow firms to reduce their tax liability by the amount of income taxes paid to a foreign government is known as a tax credit.

Question 75

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

Question 76

A price on goods and services sold by one member of a corporate family to another is known as a(n)________.

A)transfer price
B)tax credit price
C)passive price
D)active price

Question 77

The OECD is concerned about transfer pricing practices because ________.

A)transfer pricing can help maximize a company's worldwide tax liability
B)transfer prices tend to be higher in industrial than developing countries
C)governments use transfer prices to manipulate companies' investment strategies
D)companies use transfer prices to manipulate prices and, therefore, taxes

Question 78

A tax credit is a credit on goods and services paid by one member of a corporate family to another.

Question 79

Subpart F income is ________.

A)usually earned by a branch rather than a corporation
B)not taxed to the parent unless a dividend is remitted
C)not eligible for the tax credit
D)passive and usually derived from operations in a tax-haven country

Question 80

The primary objective of multinational tax planning is to minimize the firm's worldwide tax burden.