Question 1

If the cash a firm invests in net working capital does not earn the weighted average cost of capital,it should be ________.

Accepted Answer

A)  paid instead in returns to the firm's investors 
B)  held in retained earnings 
C)  placed in marketable securities 
D)  held as cash

Question 2

What are the guidelines to use transfer pricing to shift income around the world?

Accepted Answer

The answer of What are the guidelines to use transfer...

Question 3

Using a centralized cash management system results in a decreased ________ cash demand.

Accepted Answer

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

Question 4

To avoid paying the higher ad valorem tariff 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)  high 
B)  low 
C)  neutral 
D)  proportional

Question 5

When the parent lends to an affiliate in order to circumvent blocked fund policies of governments in affiliate countries,a financial intermediary is often used such as a(n)________.

Accepted Answer

A)  eurobank 
B)  investment bank 
C)  netting center 
D)  international bank

Question 6

One technique a multinational may use to avoid the blocked fund strategy of a foreign nation is for the parent to lend funds to the affiliate.The loan is known as a ________ loan.

Accepted Answer

A)  parallel 
B)  back-to-back 
C)  fronting 
D)  transfer pricing

Question 7

For a multinational corporation with many affiliates throughout the world,________ the management of the short-term cash balances of the affiliates provides significant savings to the firm.

Accepted Answer

A)  outsourcing offshore 
B)  arranging regionally 
C)  dispersing 
D)  centralizing

Question 8

Suppose ABC International Company's Canadian subsidiary sells 1,300 trucks monthly to the French affiliate at a transfer price of $27,000 per truck.The Canadian and French marginal tax rates on corporate income are 45% and 50%,respectively.Assume the transfer price of the trucks can be set at any level between $25,000 and $30,000.Explain the transfer price you will set in order to minimize the total taxes paid by the Company.

Accepted Answer

The answer of Suppose ABC International Company's Canadian subsidiary sells...

Question 9

The prices a multinational affiliate may charge another affiliate when selling inputs or services to them are known as ________.

Accepted Answer

A)  royalties 
B)  transfer prices 
C)  fees 
D)  dividends

Question 10

What are the determinants of leading payments between related international affiliates?

Accepted Answer

The answer of What are the determinants of leading payments...

Question 11

________ refers to the stock of current assets held by a firm at any point in time.

Accepted Answer

A)  Working capital 
B)  Cash 
C)  Marketable securities 
D)  Accounts receivable

Question 12

When using the cash management methods of lagging or leading payments,the basic idea is to move funds from

Accepted Answer

A)  a high tax jurisdiction to a lower one. 
B)  a low tax jurisdiction to a higher one. 
C)  a high tax jurisdiction to a tax neutral one. 
D)  the affiliate to the parent headquarters.

Exam 19: Managing Net Working Capital