Deck 19: Current Asset Management and Short-Term Financing

Question 1

Since a large percentage of multinational fund transfers are subsidiary-to-subsidiary,the payoff from ____________ can be large.

A)wire transfers
B)multiple bank accounts
C)multilateral netting
D)local cash management

Answer 1

C

Question 2

By centralizing affiliate credit policy and monitoring collection performance,parents companies can do all of the following but NOT

A)reduce the investment in receivables
B)reduce foreign exchange and other transaction costs
C)reduce banking fees
D)increase the rate of return on new subsidiary projects

Answer 2

D

Question 3

SCI borrows SFr 1.5 million from Credit Suisse for one year at 12% interest.Interest is prepaid.What is the effective SFr interest rate on SCI's loan?

A)14.52%
B)13.64%
C)16.44%
D)21.22%

Answer 3

B

Question 4

Treasurers of multinationals will likely demand more cash management services when

A)foreign exchange markets are relatively calm
B)foreign exchange transactions costs rise
C)inflation rates are relatively low
D)telecommunications costs rise

Question 5

Which one of the following types of wire transfers is probably the fastest method to remit payment but is plagued with efficiency challenges globally?

A)bank-to-bank
B)subsidiary-to-subsidiary
C)U.S.bank
D)U.K.bank

Question 6

One of the cash manager's greatest problems is that ____________ wire transfers do not always operate with great efficiency globally.

A)bank-to-bank
B)subsidiary-to-subsidiary
C)U.S.bank
D)U.K.bank

Question 7

It's 1998 and Philips N.V.requires Lit 500 million for one year.It can borrow from Banca di Roma at a 15% interest rate.How many lira must Philips borrow to receive this amount if the loan is quoted on a discount basis?

A)Lit 667 million
B)Lit 588 million
C)Lit 435 million
D)Lit 556 million

Question 8

In an attempt to control an affiliate's cash reserves,corporate management may present local managers with interest rates for borrowing or lending funds that reflect the opportunity cost of money to the parent corporation.These interest rates are known as

A)imputed rates
B)internal interest rates
C)corporate prime rates
D)LIBOR rates

Question 9

Firms can minimize delays in receipt of payments and in conversion of payments into cash but NOT by using

A)SWIFT
B)wire transfers
C)cash pooling
D)mobilization centers

Question 10

One of the principal goals of the cash manager is participating in the establishment of an affiliate's credit policy and monitoring of collection performance in order to minimize

A)credit defaults
B)float
C)transaction costs
D)slow payments

Question 11

Which of the following is NOT an advantage of a centralized international cash management program.

A)Pools of excess liquidity are eliminated
B)Financing costs can be reduced
C)Information at the level of the operating unit is better utilized
D)Cash management is decentralized

Question 12

Companies can usually improve bank relations by

A)increasing the number of banks it deals with so as to increase competition among them
B)decentralize cash management and allowing subsidiaries to negotiate better deals with more local banks
C)centralizing cash management in one or two banks
D)appointing a team of cash managers

Question 13

The Apex Supplies Corporation needs to acquire €100 million in funds to expand their facilities.The bank has offered them a discounted loan at 10% and a compensating balance of 6%.What is the effective interest rate on this loan?

A)5.5%
B)7.8%
C)11.9%
D)14.5%

Question 14

Most U.S.international dollar payments are made via

A)Bankwire
B)CHIPS
C)FedWire
D)SWIFT

Question 15

The appropriate split of liquid balances between cash and marketable securities depends on all but

A)interest rates
B)costs of buying and selling securities
C)the variability of cash flows
D)the existence of foreign exchange risk

Question 16

Which one of the following is a key element of international cash management both within a foreign country and across borders?

A)accelerating collections
B)lagging payments
C)reducing customs delays
D)greater expertise in cash and portfolio management

Question 17

Consolidated Corporation requires C$50 million in funds.The banks has offered them a discounted loan at 8% with a compensating balance of 15%.How much must they borrow in order to net this amount?

A)64,935,165
B)55,455,700
C)85,985,005
D)35,097,555

Question 18

Which of the following factors would NOT add value to centralized cash management?

A)tax differentials across countries
B)violations of interest rate parity
C)differences between borrowing and lending rates
D)more freedom to local subsidiary project managers to handle local funds

Question 19

A crucial means for companies to minimize delays in receipt of payments and in conversion of payments to cash is through the use of

A)correspondent banks
B)letter of credit payments
C)cable remittances
D)lock boxes

Question 20

Allied Products has been offered a one?year loan of £100,000 at 14%,payable at maturity.What is the effective pound interest rate on Allied's loan?

A)14.0%
B)17.5%
C)15.2%
D)18.3%

Question 21

Intel has the choice of borrowing dollars at 9.5% or yen at 7% for one year.The current exchange rate is ¥152 = $1.At what end?of?year exchange rate would the yen costs of these two loans be equal?

A)¥156.0 = $1
B)¥149.2 = $1
C)¥153.6 = $1
D)¥148.5 = $1

Question 22

Which one of the following noninterest costs is NOT associated with using commercial paper?

A)licensing fees
B)backup lines of credit
C)fees to commercial banks
D)rating service fee

Question 23

What of the following reasons has NOT been cited as the root cause of inventory stockpiling by subsidiaries of multinationals?

A)long delivery lead times
B)currency restrictions
C)customs delays
D)pegging the currency's exchange rate

Question 24

Suppose that a firm located in Belgium in 1994 can borrow dollars at 8% or Belgium francs at 14%.If the Belgian franc is expected to depreciate from BF58 = $1 at the beginning of the year to BF61 = $1 at the end of the year,then the expected dollar cost of the Belgian franc loan is

A)8.39%
B)20.14%
C)12.37%
D)9.15%

Question 25

Which one of the following problems is NOT associated with bank relations?

A)too many relations
B)high banking costs
C)inadequate reporting
D)accelerated clearings

Question 26

Which one of the following current assets do multinationals find it more difficult to control?

A)cash
B)accounts receivable
C)overseas inventories
D)cash equivalents

Question 27

Netting can do all of the following EXCEPT

A)reduce foreign exchange risk
B)reduce foreign exchange costs
C)reduce float
D)reduce cable charges

Question 28

Referring to question 19.18,at what end-of-year exchange rate will the dollar costs of borrowing Belgian francs or dollars be equal?

A)BF63.1/$
B)BF61.2/$
C)BF56.3/$
D)BF60.8/$

Question 29

Why has the commercial paper market been dominated by the largest and most creditworthy firms?

A)commercial paper bears only the name of the issuer and is unsecured
B)the largest companies can afford the flotation costs
C)credit reporting agencies screen out smaller firms
D)commercial paper is issued at a discount

Question 30

All of the following are major forms of bank financing EXCEPT

A)overdrafts
B)factoring
C)discounting
D)term loans

Question 31

Liberalized credit terms involve the following costs EXCEPT

A)risk of default
B)increased liquidity for the firm
C)increased interest expense on the larger investment in receivables
D)the deterioration of the value of accounts receivable denominated in buyer's currency

Question 32

Suppose that A sells $1 million monthly to subsidiary B and $1.5 monthly to subsidiary C,B sells $2.2 million monthly to A and $100,000 monthly to C,and C sells $600,000 monthly to A and $500,000 to B.Bilateral netting will reduce intercompany payment flows by ?????,whereas multilateral netting will reduce these flows by ?????.

A)$2.0 million,$1.7 million
B)$3.2 million,$5.2 million
C)$1.4 million,$3.3 million
D)7 million,$2.7 million

Question 33

Suppose it is May 1985 and the current value of the Greek drachma is Dr 1 = $0.006369,but the expected spot rate 90 days hence is Dr 1 = $0.005980.What is the value of a sales order of Dr 50 million sold on 90?day terms?

A)$318,450
B)$562,491
C)$299,000
D)5,430

Question 34

Pre-authorized payment can do all of the following for customers except

A)increase disbursement float
B)reduce processing costs
C)eliminate mail costs
D)eliminate the possibility of skipping a payment

Question 35

Which one of the following is NOT a wise guideline for globally managing the marketable securities portfolio of a multinational corporation?

A)concentrate the instruments in the portfolio to one growth industry to maximize the yield for a given level of risk
B)review the portfolio daily to decide which securities should be sold
C)carefully consider opportunities for covered interest arbitrage
D)tailor the maturity of the investment to the firm's projected cash needs