Deck 17: Financial Management

Question 1

Continental European and Japanese firms tend to seek ________.

A)shareholder wealth maximization
B)stockholder wealth maximization
C)shareholder wealth minimization
D)corporate wealth maximization
E)profit maximization

Answer 1

D

Question 2

________ dictates that the management of the company should actively seek to maximize the returns to stockholders by working to push shares prices up and to continually grow the dividends paid out to those same shareholders.

A)Shareholder wealth maximization
B)Stockholder wealth maximization
C)Shareholder wealth minimization
D)Stockholder wealth minimization
E)Profit maximization

Answer 2

B

Question 3

________ are the profits of all the individual units of the firm originating in many different currencies as expresses in the currency of the parent company.

A)Financing cash flows
B)Operating cash flows
C)Consolidated profits
D)Transfer prices
E)Hedges

Answer 3

C

Question 4

The leadership of the multinational firm is attempting to achieve ________.

A)high quality information services
B)international power
C)decreased time-to-market
D)profit maximization
E)improved flexibility

Question 5

What is the one mistake made more often than any other in international financial management?

A)Jumping into international financial management without understanding the cultures abroad
B)Poor management decisions in times of crisis
C)Inadequate capital for international operations
D)Not correctly understanding what borrowing or investing in a foreign currency really means
E)Insufficient planning on the part of management

Question 6

Earnings per share (EPS)is simply the ________ divided by the ________.

A)total number of shares outstanding; consolidated profits of the firm
B)consolidated profits of the firm; total number of shares outstanding
C)direct taxes of the firm; indirect taxes of the firm
D)indirect taxes of the firm; direct taxes of the firm
E)operating cash flows; financing cash flows

Question 7

________ is the management of cash balances owned by the firm held by banking and other financial institutions.

A)Cash management
B)Operating cash flows
C)Reinvoicing
D)Contractual hedging
E)Capital budgeting

Question 8

A contract between an exporter and a carrier indicating that the carrier has accepted responsibility for the goods and will provide transportation in return for payment is called a(n)________.

A)bank draft
B)trade draft
C)capital budget
D)lead
E)bill of lading

Question 9

A ________ is composed of three primary cash flow components: initial expenses and capital outlays,operating cash flows,and terminal cash flows.

A)bank draft
B)trade draft
C)draft
D)capital budget
E)draft

Question 10

The ________ of the firm dictates how cash flows and financial resources can be managed.

A)profitability
B)structure
C)employees
D)shareholder
E)stockholder

Question 11

________ arise from everyday business activities while ________ arise from the funding activities of the firm.

A)Direct taxes; indirect taxes
B)Indirect taxes,direct taxes
C)Financing cash flows; operating cash flows
D)Operating cash flows; financing cash flows
E)Transaction exposures; economic exposures

Question 12

When does the Japanese Carry Trade occur?

A)When Japan imports products from Canada
B)When U.S.companies export products to Japan
C)When companies and investors borrow in Japan because Japanese yen interest rates are some of the lowest in the world.
D)When European companies copy the investment patterns of Japanese companies
E)When the U.S.borrows money from the Japanese government for foreign investment

Question 13

The multinational firm must determine for itself the proper balance between three primary financial objectives.Of the following,which is NOT one of these objectives?

A)Maximization of the firm's effective global tax burden
B)Correct positioning of the firm's cash flows
C)Correct positioning of the firm's income
D)Minimization of the firm's effective global tax burden
E)Maximization of consolidated,after tax income

Question 14

________ is the determination of the relative quantities of debt capital and equity capital that will constitute the funding of the investment.

A)Working capital
B)Capital budgeting
C)Capital structure
D)Cash flow management
E)Cash pooling

Question 15

Of the following,which is a financial challenge for Genus Corporation in Brazil?

A)Unstable currency
B)Low tax
C)Blocked funds
D)Stable currency
E)High tax

Question 16

Daewoo of Korea had,in late 2007 and early 2008,entered into a series of ________.

A)forward exchange contracts
B)bank drafts
C)cash pools
D)drafts
E)hedges

Question 17

Payment terms are usually ________to ________ days.

A)10; 20
B)30; 60
C)70; 90
D)90; 120
E)120; 150

Question 18

The prices at which a firm sells its products to its own subsidiaries and affiliates are known as ________.

A)promotion prices
B)transfer prices
C)carrying prices
D)subsidiary prices
E)selling prices

Question 19

Germany's income tax rate is relatively ________.

A)high
B)low
C)nonexistent
D)unstable
E)dynamic

Question 20

A capital budget is composed of three primary cash flow components:

A)Net present value,operating cash flows,and terminal cash flows
B)Transfer prices,net present value,and initial expenses and capital outlays
C)Capital outlays,transfer prices,and terminal cash flows
D)Operating cash flows,initial expenses and capital outlays,and net transfer prices
E)Initial expenses and capital outlays,operating cash flows,and terminal cash flows

Question 21

________ refers to cash flow coordination between a corporation's global units so that only one smaller cash transfer must be made.

A)Netting
B)Cash pooling
C)Leads
D)Lags
E)Reinvoicing

Question 22

A foreign subsidiary of ABC Company is expecting its local currency to fall in value relative to the U.S.dollar.As a result,ABC is trying to speed up,or ________ its payments to the parent.

A)lead
B)lag
C)reinvoice
D)net
E)hedge

Question 23

Exchange rate movements are inherently ________.

A)rigid
B)fixed
C)random
D)stable
E)unchanging

Question 24

Of the following,which is NOT a form of cash management?

A)Netting
B)Cash pooling
C)Contractual hedging
D)Leads
E)Internal banks

Question 25

General Motors exchanged automobiles for a trainload of strawberries.Control Data swapped a computer for a package of Polish furniture,Hungarian carpet backing,and Russian greeting cards.These are examples of ________.

A)netting
B)lagging
C)leading
D)cash pooling
E)countertrade

Question 26

________ exposure and ________ exposure are "true exposures" in the financial sense.

A)Translation; economic
B)Transaction; economic
C)Translation; transaction
D)Capital; natural
E)Natural; economic

Question 27

________ exposure is the most commonly observed type of exchange rate risk.

A)Transaction
B)Translation
C)Economic
D)Capital
E)Natural

Question 28

Among the 30 industrialized countries in the Organization for Economic Cooperation (OPEC),only ________ has a higher tax rate than the U.S.

A)Mexico
B)Turkey
C)Japan
D)China
E)Germany

Question 29

Taxes are generally classified as:

A)Direct and indirect
B)Stable and unstable
C)Static and dynamic
D)High and low
E)Import and export

Question 30

Firms that buy or sell internationally have ________ if any of the cash flows are denominated in foreign currency.

A)translation exposure
B)capital exposure
C)economic exposure
D)natural exposure
E)transaction exposure

Question 31

Of the following,which is NOT true of countertrade?

A)It is an ineffective way to gain entry into new markets.
B)It is encouraged by stability and economic progress.
C)It provides stability for long-term sales.
D)It is highly sought after in large markets such as China.
E)Uncompetitive goods may be traded.

Question 32

Nations usually follow one of two basic approaches to international taxation:

A)A regional approach or a state approach
B)A district approach or a general approach
C)A residential approach or a regional approach
D)A residential approach or a territorial approach
E)A regional approach or a territorial approach

Question 33

Firms have,in varying degrees,three types of foreign currency exposure:

A)Natural exposure,economic exposure,and capital exposure
B)Transaction exposure,economic exposure,and translation exposure
C)Capital exposure,transaction exposure,and economic exposure
D)Natural exposure,capital exposure,and transaction exposure
E)Transaction exposure,natural exposure,and capital exposure

Question 34

A direct exchange of goods of approximately equal value,with no money involved is called ________.

A)bargain
B)haggle
C)exchange
D)barter
E)trade

Question 35

A ________ is an asset or a position whose value moves in the equal but opposite direction of the exposure.

A)net
B)lag
C)lead
D)forward contract
E)hedge

Question 36

Diversification is one way for a firm to:

A)Countertrade
B)Manage economic exposure
C)Invest internationally
D)Combine interest and exchange rates
E)Finance import-export trade

Question 37

Risk-sharing agreements became something of a rarity during the ________,when exchange rates were relatively stable.

A)1920s and 1940s
B)1940s and 1950s
C)1950s and 1960s
D)1960s and 1970s
E)1970s and 1980s

Question 38

A condition that encourages business activity such as barter is:

A)Lack of money
B)Lack of value of or faith in money
C)Lack of acceptability of money as an exchange medium
D)Greater ease of transaction by using goods
E)All of the above

Question 39

Economic exposure is also called ________ exposure.

A)operating
B)financial
C)monetary
D)fiscal
E)profitable

Question 40

The ________ approach to transnational income taxes all parties,regardless of country of residence.

A)district
B)territorial
C)regional
D)residential
E)state

Question 41

An internal bank is a multinational firm's financial management tool that actually acts as a bank to coordinate finances among its units.

Question 42

A major distinction between a domestic investment and a foreign investment is that the viewpoint or perspective of the parent and the project are no longer the same.

Question 43

If net present value is negative,then the project is an acceptable investment.If the project's net present value is positive,then the cash flows expected to result from the investment are sufficient to provide an acceptable rate of return,and the project should be accepted.

Question 44

A multinational firm's use of contracts to minimize its transaction exposure is known as natural hedging.

Question 45

Operating cash flows arise from the firm's everyday business activities.

Question 46

Brazil's government will apply a tax on Brazilian stocks traded as American depository receipts (ADRs)in an effort to stem the rapid flow of capital into Brazilian securities.

Question 47

Only the firms that actively trade internationally are affected by international financial events,such as exchange rates.

Question 48

International business most often occurs between two parties that know each other particularly well.

Question 49

Diversification is an active rather than a passive solution to the exposure problem.

Question 50

Agreements between firms and banks which permit the firm to either sell or buy a specific foreign currency at a future date at a known price are called hedges.

Question 51

Taxes applied to non-income items,such as value-added taxes,excise taxes,tariffs,and so on are referred to as ________.

A)direct taxes
B)indirect taxes
C)value-added taxes
D)withholding taxes
E)stable taxes

Question 52

The management philosophies of stockholder wealth maximization and corporate wealth maximization are exclusive.

Question 53

The euro is one of the world's primary currencies and is expected to maintain its value well over time.

Question 54

Exchange rate movements are inherently random.

Question 55

Many believe that it was Enron's own corporate culture,one based on nothing other than earnings-per-share growth,that led to many of the questionable ethical decisions and ultimately to its demise.

Question 56

Taxes applied to the payment of dividends,interest,or royalties by firms are called ________.

A)direct taxes
B)indirect taxes
C)value-added taxes
D)withholding taxes
E)stable taxes

Question 57

Sales taxes,severance taxes,and tariffs are examples of ________.

A)direct taxes
B)indirect taxes
C)value-added taxes
D)withholding taxes
E)stable taxes

Question 58

The global financial goals of multinational corporations,such as minimization of the firm's effective global tax burden,are often consistent.

Question 59

The primary revenue source for the European Union is ________.

A)direct tax
B)indirect tax
C)value-added tax
D)withholding tax
E)stable tax

Question 60

Taxes applied directly to income are called ________.

A)direct taxes
B)indirect taxes
C)value-added taxes
D)withholding taxes
E)stable taxes

Question 61

Governments alone do not have the power to tax.

Question 62

There are strong economic arguments against countertrade activity.

Question 63

A(n)________is the document used in international trade to require payment for goods from a buyer.

Question 64

________ arise from the funding activities of the firm.

Question 65

The prices at which a firm sells its products to its own subsidiaries and affiliates are called ________.

Question 66

________arise from the firm's everyday business activities.

Question 67

________ refers to the management of cash balances owned by the firm held by banking and other financial institutions.

Question 68

The sum of the present values of all cash inflows and outflows from an investment project discounted at the cost of capital is known as ________.

Question 69

________ is used by multinational firms to centralize individual units' cash flows,resulting in less spending or foregone interest unnecessary cash balances.

Question 70

A(n)________ refers to a withdrawal document drawn against a company.

Question 71

A financial document drawn against a bank is referred to as a(n)________.

Question 72

The financial evaluation of a proposed investment to determine whether the expected returns are sufficient to justify the investment expenses is called a(n)________.

Question 73

A contract between an exporter and a carrier indicating that the carrier has accepted responsibility for the goods and will provide transportation in return for payment is called a(n)________.

Question 74

Paying a debt late to take advantage of exchange rates is called ________.

Question 75

Countertrade is a sale that encompasses more than an exchange of goods,services,or ideas for money.

Question 76

Countertrade reduces commercial risk.

Question 77

Paying a debt early to take advantage of exchange rates is called ________.

Question 78

________ is the policy of buying goods from one unit and selling them to a second unit and reinvoicing the sale to the next unit,to take advantage of favorable exchange rates.

Question 79

Value-added taxes,excise taxes,and tariffs are forms of direct taxes.

Question 80

Cash flow coordination between a corporation's global units so that only one smaller cash transfer must be made is known as ________.