BT thanh toan quoc te multinational financial management dap an

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Suppose you start with 100 and buy stock for £50 when the exchange rate is £1 = 2. Oneyear later, the stock rises to £60. You are happy with your 20 percent return on the stock, butwhen you sell the stock and exchange your £60 for dollars, you only get 45 since the pound hasfallen to £1 = 0.75. This loss of value is an example ofa. Exchange Rate Riskb. Political Riskc. Market imperfectionsd. Weakness in the dollar2. The fundamental goal of sound business management isa. Shareholder wealth maximizationb. Market share maximizationc. Globalizationd. Increasing the size of the firm3. With regard to the financial structure of foreign subsidiariesa. It may be best to conform to the parent firm’s debttoequity ratiob. It may be best to conform to the local norm of the country where the subsidiary operates.c. It may be advantageous to vary judiciously to capitalize on opportunities to lower taxes,reduce financing costs and risk, and take advantage fo various market imperfectionsd. All of the above may be correct.4. When a parent company is willing to let its subsidiary default,a. Creditors and potential creditors will examine the subsidiary’s financial structureclosely to assess default risk.b. Potential creditors will still look to the parent company’s capital structure as it isstill legally and morally responsible for its subsidiary’s debts.c. It is incumbent upon the subsidiary to take on as much debt as possible, pay adividend to the parent and then default.d. None of the above.5. The cost of capitala. Is defined as K = (1 – λ)Kl + λ(1 – t)ib. Is the minimum rate of return an investment project must generate in order to payits financing costs.c. Is an accounting number reflecting historical costs.d. Is an accounting number reflecting historical costs. None of the above6. Companies can benefit from crossborder listing of stocks in what ways?a. The company can expand its potential investor base, which will lead to a higherstock price and a lower cost of capital.b. Crosslisting can enhance the liquidity of the company’s stock.c. Cross listing may improve the company’s corporate governance and transparency.d. All of the above 1 Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2 One year later, the stock rises to £60 You are happy with your 20 percent return on the stock, but when you sell the stock and exchange your £60 for dollars, you only get $45 since the pound has fallen to £1 = $0.75 This loss of value is an example of a Exchange Rate Risk b Political Risk c Market imperfections d Weakness in the dollar The fundamental goal of sound business management is a Shareholder wealth maximization b Market share maximization c Globalization d Increasing the size of the firm With regard to the financial structure of foreign subsidiaries a It may be best to conform to the parent firm’s debt-to-equity ratio b It may be best to conform to the local norm of the country where the subsidiary operates c It may be advantageous to vary judiciously to capitalize on opportunities to lower taxes, reduce financing costs and risk, and take advantage fo various market imperfections d All of the above may be correct When a parent company is willing to let its subsidiary default, a Creditors and potential creditors will examine the subsidiary’s financial structure closely to assess default risk b Potential creditors will still look to the parent company’s capital structure as it is still legally and morally responsible for its subsidiary’s debts c It is incumbent upon the subsidiary to take on as much debt as possible, pay a dividend to the parent and then default d None of the above The cost of capital a Is defined as K = (1 – λ)Kl + λ(1 – t)i b Is the minimum rate of return an investment project must generate in order to pay its financing costs c Is an accounting number reflecting historical costs d Is an accounting number reflecting historical costs None of the above Companies can benefit from cross-border listing of stocks in what ways? a The company can expand its potential investor base, which will lead to a higher stock price and a lower cost of capital b Cross-listing can enhance the liquidity of the company’s stock c Cross listing may improve the company’s corporate governance and transparency d All of the above A firm that can reduce its cost of capital a Has an arbitrage opportunity b Can identify more projects that generate returns exceeding the cost of capital and thereby increase the firm’s value c Will lower its overall risk d None of the above If international financial markets are fully integrated rather than segmented a Investors would require, on average, lower expected returns on securities b Investors would require, on average, higher expected returns on securities c Investors would require, the same expected returns on securities d None of the above If international financial markets are less than fully integrated, then a Any differences in the cost of capital across countries can be diversified away b Systematic differences in the cost of capital may exist across different countries c Any difference in the cost of capital that may exist across different countries is due to differences in unsystematic risk d None of the above 10 A consideration of political risk a Generally favors local financing over the parent’s direct financing b Generally favors external debt over equity financing c a) and b) are both true d None of the above 11 When Nestlé announced that it would lift restrictions on foreign ownership of its registered shares a The price of registered shares rose b The price of registered shares fell c The two classes of shares began a pricing to market phenomenon after the announcement d Both a) and c) are correct 12 When Nestlé announced that it would lift restrictions on foreign ownership of its registered shares a While the price of registered shares rose, the price of bearer shares fell As a result, the total market value of the company remained unchanged b The total market value of the firm increased c Nestlé’s cost of capital increased d None of the above 13 If a country were to offer your firm a concessionary loan a The value of this loan could be estimated explicitly as a component of the APV b The firm would simply adjust the discount rate downward c The firm would ignore the cash flow implications of this since it is a financing decision d All of the above may be correct 14 Suppose that domestic inflation is 3%; inflation in € is 6% and the spot exchange rate is €1 = $2 What is your estimate of the exchange rate expected to prevail in years? a €1 = $2.1855 b €1 = $2.00 c €1 = $1.8349 d €1 = $1.9434 e None of the above 15 Your firm has a project that will produce cash flows of CDATA[€>500,000 per year for five years The foreign government will only allow repatriation of €>250,000 per year Which cash flow should you use in estimating the APV? a €>500,000 b €>250,000 c Both d None of the above 16 Your U.S.-based firm is considering a capital budgeting project in Japan Suppose that the spot exchange rate for Japanese yen is ¥122/$ and that the one year forward exchange rate for Japanese yen is ¥130/$ The discount rate is 5% in the U.S What's the discount rate that should be used in Japan on yen-denominated cash flows? a 11.89% b 6.56% c 3.28% d 1.67% e None of the above 17 If a project has a timing option associated with it a This should add value to the project b This can add value but only if the option is exercised c The option could subtract value from the project in the right circumstances d None of the above 18 In the APV model, a Each cash flow is discounted at the discount rate appropriate with the risk associated with that cash flow b Cash flows are calculated with that cash flow c The cash flow from operations is used, not the amount that is available for remittance d All of the above 19 When thinking about a project, a If it is possible to finance the project entirely with debt, the project will have a higher APV than if all equity financed, since the return on debt is lower than the return on equity b It is never appropriate to think of the project as being financed separately from the way the firm is financed c Depreciation should always be ignored since it is a non cash item d None of the above 20 Consider a project to invest abroad, the size and timing of the after-tax incremental cash flows are shown in the following table: Year Cash Flow -€500,000 €100,000 €100,000 €500,000 Estimate the NPV of the project to the shareholders of a U.S firm The inflation rate in dollars is two percent per year, the inflation rate in euros is three percent The spot exchange rate is $1.08 = €1.00 and the discount rate appropriate for projects of this risk (denominated in dollars) is 10 percent a $38,767.63 b €49,211.12 c $35,895.95 d None of the above 21 In a sensitivity analysis a Different scenarios are used to estimate the value of any imbedded options that the project carries with it b Different scenarios are examined by using different exchange rate estimates, inflation rate estimates, and cost and pricing estimates in the calculation of APV c APV estimated are hardened by using the expected value of the exchange rate and inflation rate to arrive at one expected value of the APV d None of the above 22 The Schadenfreude Corporation has an optimal debt ratio of 50 percent Its cost of equity capital is 12 percent and its pre-tax borrowing rate is percent Given a marginal tax rate of 34 percent, calculate the weighted average cost of capital a 10 percent b 6.6 percent c 8.64 percent d None of the above 23 Not all countries allow MNCs the freedom to net payments, a The U.S., Canada, and Great Britain allow only netting between each other b Some countries require the MNC to ask permission, and some countries limit netting c But that is fine, since netting typically has costs that outweigh the benefits for a MNC d All of the above may be correct 24 The higher the transfer price a The higher the net profit reported by the MNC b The higher the gross profit of the receiving division relative to the transferring division c The higher the gross profit of the transferring division relative to the receiving division d None of the above 25 Your firm has a subsidiary in a foreign country which has placed restrictions on its own currency, limiting its conversion into other currencies What is up with that? a The MNC should shut down operations in protest b This is known as blocked funds c This will not affect the MNC since the accounting numbers in the consolidated financial statements will not change d None of the above 26 Affiliate A sells 1,000 units to Affiliate B per year The marginal income tax rate for Affiliate A is 20 percent and the marginal income tax rate for Affiliate B is 50 percent The transfer price can be set at any level between $100 and $200 Which transfer price between A and B should the parent select a $200 b $100 c $150 d It does not matter 27 Which will reduce the number of foreign exchange transaction the most for a MNC? a Multilateral netting b Bilateral netting c Fish netting d None of the above 28 Under multilateral netting a Each affiliate nets all its inter-affiliate receipts against all its disbursements It then transfers or receives the balance, respectively, if it is the net payer or receiver b Each pair of affiliates determines the net amount due between them, and only the net amount is transferred c No inter-affiliate payments are made or even computed, since no real cash flows are involved d All of the above 29 Multinational cash management a Is really no different for a MNC than for a purely domestic firm in a closed economy b Concerns itself with the size of cash balances, their currency denominations, and where these cash balances are located among the MNC's affiliates c Concerns itself with the size of cash balances and their currency denominations, but not where these cash balances are located among the MNC's affiliates, since intra-affiliate default risk is not an issue d None of the above 30 One benefit of a centralized cash depository is a The MNC's investment in precautionary cash balances can be substantially reduced without a reduction in its ability to cover unforeseen expenses b Each affiliate will have greater autonomy in managing its own cash balances c Exchange rate restrictions can be easily circumvented d None of the above 31 To establish an arms length price of a tangible good, a Use the resale price approach, where the price at which the good is resold by the distribution affiliate is reduced by an amount sufficient to cover overhead costs and a reasonable profit b Use a comparable uncontrolled price between an unrelated buyer and seller c Use the cost plus approach, where an appropriate profit is added to the cost of the manufacturing affiliate d All of the above 32 If French-based Affiliate A owes U.S.-based affiliate B $1,000 and Affiliate B owes Affiliate A €2,000 when the exchange rate is $1.10 = €1.00 The net payment between A and B should be a €1,091 from B to A b €1,091 from A to B c $1,200 from B to A d None of the above 33 The underlying principal of tax equity a Is that similarly situated taxpayers should participate in the cost of operating the government according to the same rules b Has been adopted worldwide, under U.N charter c Means that taxes should be fair, a consistent percentage of income regardless of where it is earned d All of the above may be correct 34 Tax neutrality is determined by which of the following criteria? a National neutrality b Capital import neutrality c Capital export neutrality d All of the above 35 A value added tax a Is preferred in place of a personal income tax by many economists because income taxes are a disincentive to work, whereas a VAT discourages unnecessary consumption b Is also known as a ad valorem tax c In an indirect national tax levied on the value added in the production of a good (or service) as it moves through the various stages of production d All of the above 36 When the income tax rate in the host country is greater than the tax rate in the parent country, a It is beneficial to follow a high markup policy on transferred goods and services from the parent to a foreign affiliate b It is beneficial to follow a low markup policy on transferred goods and services from the parent to a foreign affiliate c Transfer pricing will not affect the total tax liability, net of foreign tax credit offsets d None of the above 37 A tax haven is a Is a country that has a low corporate income tax rate and low withholding tax rates on passive income b A country with no taxes and no enforcement of foreign tax laws within its borders c Any country with a higher tax rate that available domestically d None of the above 38 There are three production stages required before a bicycle produced by Masi Bicicletia S.A can be sold at retail for €3,500 The VAT rate is 15% Find the total tax liability due Production stage Production stage €1,000 €1,750 €3,500 Value Added Incremental VAT Total VAT a €525 b €150 c €3,500 d None of the above 39 If U.S taxing authorities did not limit the amount of the foreign tax credit to the equivalent amount of the U.S tax c Induces the transfer of technology and skills which are frequently in short supply d Increases both national employment and domestic wages e All of the above 237 Construction of new plants abroad requires demand forecast Such a demand forecast does not depend on the following _ a Political system b Competition c Income d Population e Economic conditions 238 Total private flows to developing countries grew more than _ fold between 1992 and 1999 a Eight b Nine c Ten d Eleven e Twelve 239 Local companies often control the channels of distribution, the financial resources, and the marketing know-how, but they _ a Do not have competent managers to efficiently run daily operations b Do not have access to raw materials c Do not have the products for marketing to capitalize on their unique market position d Need the support and experience of multinational companies e Are overwhelmed by the strength of multinational companies 240 Like all aspects of good business, successful licensing requires _ a Good luck b Management and planning c Heavy investment in capital markets d A bureaucratic hierarchy e Support from a multinational company 241 Since the mid-1990s, _ has become the largest component of external financing to developing countries a Bank financing b Official flows c Bond financing d Foreign direct investments e Equity financing 242 Which of the following statements is false? a A merger is a transaction that combines two companies into one new company b An acquisition is the purchase of one firm by another firm c A tender offer is an offer to sell a certain number of shares d Keiretsu is a japanese word that stands for financially linked groups of firms e Cross-holdings in japan have recently weakened 243 The use of the purchase-of-assets method in case of a merger creates _ a Goodwill b Actual profits c Additional expenses d Additional sales e Additional market share 244 Newman said that a growth-oriented company can globally close several types of growth gaps between its sales potential and its current actual performance These gaps not include _ a A product-line gap b A distribution gap c A local gap d A usage gap e A competitive gap 245 Implications of increased private-investment flows include _ a Broader choices and higher returns for investors b Higher world-wide interest rates c Hindering some capital flows to industrial countries d All of the above e None of the above 246 Which of the following is not an oligopoly-created advantage of foreign investment for investing firms? a Proprietary technology b Management know-how c Access to scarce raw materials d All of the above e Political advantage 247 A merger can affect the following except _ a Earnings before taxes b Employee health care c Taxes d Capitalization rate e Debt capacity 248 A company's acquisition of another firm is economically justified only if _ a The bought out firm is undervalued b It improves cash flow c The market of the new company is increased d It increases the total value of the firm e It is bought on an all cash basis 249 The appropriate mix of debt and equity _ the overall cost of capital a Increase b Reduce c Does not change d Unknown e A and b 250 The economic cycles of different countries _ a Are tied to the correlation of multinational companies working in those countries b Are required to be unsynchronized c Tend to be the mostly synchronized d Tend to be totally synchronized e Do not tend to be totally synchronized 251 The tax benefit for mergers comes from the fact that the tax loss carryforward _ unless the firm makes sufficient profits to offset it completely a Does not expire at any moment b Expires at the end of ten years in the united states c Expires at the end of a specified number of years d Cannot expire during the first five years in japan e None of the above 252 When a profitable company acquires companies with a large tax loss carryforward, the merger _ a Increases its net operating income after taxes b Decreases its net operating income after taxes c Increases its net operating income before taxes d Decreases its net operating income before taxes e Neither decreases nor increases it nets operating income before taxes 253 Foreign companies with more favorable accounting and tax laws _ bid higher prices for target companies a Always b Cannot c May be able to d May not be able to e None of the above 254 An important advantage of mergers is the fact that _ a Increased productivity is guaranteed in larger companies b Larger companies acquire a greater tax advantage c Smaller companies acquire a greater tax advantage d Earnings of smaller companies are capitalized at lower rates e Earnings of larger companies are capitalized at lower rates 255 The potential benefit of international acquisition is the _ a Greater tax base of the newly acquired company b Guaranteed larger rate of return for the acquiring company c Lower required rate of return for the acquiring company d Guaranteed lower required rate of return for the bought-out company e Guaranteed larger rate of return for the bought-out company 256 The appropriate mix of debt and equity reduces the overall cost of capital and therefore a Raises the book value of the firm b Raises the market value of the firm c Lowers the market value of the firm d Lowers the book value of the firm e Raises the market and book value of the firm 258 Factors affecting international acquisitions exclude _ a Smaller taxes b Greater taxes c Higher earnings after taxes d Lower capitalization rate e Higher earnings before taxes 259 The market-based system of corporate governance is primarily used in _ a South Africa b the United States c Japan d Mexico e China 260 The bank-based system of corporate governance is primarily used in _ a Japan b the United States c the United Kingdom d Canada e North America 261 Two major reasons for the continuous growth of foreign direct investment in developing countries are _ a High wages and highly skilled workers b Various incentive programs and high wages c Market-based capitalism and low wages d Productivity and tax concessions e Various incentive programs and emerging market-based capitalism 262 Which of the following is not a step for determining the value of a firm: a Determine the earnings after taxes the company expects to produce b Determine the capitalization rate for the company’s earnings c Determine the extent to which the company may be leveraged or the adequate amount of debt d Determine the likelihood of increased or decreased debt e Determine earnings before taxes multiplied by (1 – tax rate) 263 Which of the following is not true of foreign direct investment in developing countries: a China receives more FDI than the United States b Latin American and the Caribbean have seen a decrease in investment c South America receives the greatest amount of FDI d the process of privatization has moved to completion in many developing countries e there has been decline in investment in developing countries 264 In a foreign investment analysis, the most important variable a company must forecast is a Net cash flow b Net earnings c Market price of the company stock d Book value of the company stock e Labor cost 265 Which of the following is not directly related to the cash flow analysis of a foreign investment project? a Foreign royalty payments b Foreign taxes c Foreign exchange rate changes d Management changes e Demand forecast 266 In a foreign investment analysis, which of the following objectives is most important and relevant? a To maximize the project cash flows b To maximize the parent cash flows c To maximize the project earnings d To maximize the overall parent earnings e To maximize the subsidiary cash flows 267 If a foreign project is financed entirely by local financing sources, which of the following is most important and relevant in the project analysis? a Analysis of the overall weighted average cost of capital b Comparison of the internal rate of return with the incremental cost of capital in a foreign subsidiary c Analysis of the stock price d Analysis of the exchange risk e Analysis of the political environment 268 The variables needed to calculate the cost of equity using the dividend valuation model not include a Expected dividend payments b The current market price of stock c Annual dividend growth rate d Earnings growth rate e A, b, and c 269 risk? In an international capital project analysis, is not a major cause of the systematic a Worldwide recessions b Worldwide wars c Worldwide energy supply d Both a and c e Host-country's exchange controls 270 Which of the following capital budgeting techniques is considered to be superior to other methods? a The average rate of return b The payback method c The net present value method d The rule-of-thumb methods e Both a and d 271 Many multinational companies use the risk-adjusted discounted rate and increase the discount rate if a country's risk is a Lower than normal risk b The same as normal risk c Greater than normal risk d Cannot tell e All of the above 272 In a foreign investment analysis, the certainty-equivalent approach adjusts for risk in the following variable a The cost of capital b Net cash flow c Inflation rate d Interest rate e Unemployment rate 273 The last three phases of a foreign investment analysis are: a Implementation, control, and post audit b Implementation, control, and the publication of annual financial reports c Implementation, post audit, and planning d Control, post audit, and planning e Control, search for projects, and planning 274 The portfolio theory relies on the following variable(s) a Risk b Project maturity c Project return d Both a and c e Both b and c 275 When net present value and internal rate of return produce different answers, net present value is better because: a The net present value is easier to compute than the internal rate of return b The primary goal of a firm is to maximize the value of the firm, which coincides with the net present value approach c The internal rate of return assumes a constant reinvestment rate d A single project may have more than one internal rate of return e All of the above 276 A review of the literature on foreign direct investment reveals the following: a Multinational firms should value only those cash flows which can be repatriated b Multinational firms should use discounted cash flow methods c Multinational firms should use their weighted average cost of capital d A and b e A, b, and c 277 Portfolio theory deals with the selection of investment projects that would a Maximize profit b Minimize risk c Maximize the rate of return for a given level of risk d Minimize risk for a given level of return e C and d 278 Use the following information to answer the next three questions: A foreign investment project with an initial cost of $15,000 is expected to produce net cash flows of $8,000, $9,000, $10,000, and $11,000 for each of the next four years The firm's cost of capital is 12 percent, but the international financial manager perceives the risk of this particular project is much higher than 12 percent The international financial manager feels that a 20 percent discount rate would be appropriate for the project What is the payback period of the project? a 1.8 years b 2.5 years c 2.7 years d 3.0 years e 4.0 years 279 What is the net present value of the project at the firm's cost of capital? a About $15,033 b About $13,433 c About $11,533 d About $10,433 e $12,000 280 What is the risk-adjusted net present value of the project? a about $9,002 b about $8,502 c about $7,900 d about $7,400 e $8,000 281 A multinational company is considering the establishment of a two-year project in Germany with a $8 million initial investment The company's cost of capital is 12 percent The required rate of return on this project is 18 percent The project with no salvage value after two years is expected to generate net cash flows of DM12 million in year and DM30 million in year Assume no taxes and a stable exchange rate of $0.60 per mark What is the net present value of the project in dollar terms? a About $30 million b About $12 million c About $11 million d About $10 million e About $ million 282 A foreign project has an initial investment of $1,400 Its net cash flows are expected to be $900, $1,000, and $1,400 for each of the next three years The certainty equivalent coefficients of the project are 0.75, 0.55, and 0.35 for each of the next three years With a 6-percent riskless rate of return, determine the certain net present value of the project a About $138 b About $458 c About $1,508 d About $2,508 e About $2,408 283 Which of the following is not a major political risk listed in a study by Goddard? a Expropriation b Restrictions on remittances of dividends c Tax law changes d Exchange controls e High inflation rates 284 Which of the following is not a major reason for the nationalization of both foreign and domestic companies by many governments? a The government believes that it could run the business more efficiently b The government believes that companies are concealing their profits c Politicians wish to win popular support as they save jobs by nationalizing d The government wants to operate business firms e The government can control a company or industry 285 According to a study by Kennedy, the largest number of expropriations took place between a 1970 and 1979 b 1980 and 1989 c 1960 and 1969 d 1950 and 1959 e 1990 and 1999 286 A significant upsurge in expropriation will not return in the future because _ a The International demonstration effect discourages expropriation b The economic consequences of mass expropriation have been negative c The loss of sovereignty over some sectors may be politically accepted d Foreign aids from socialist countries have almost disappeared e All of the above 287 Some popular techniques of political-risk assessment include the following a The delphi technique b The grand tour c Old hand d Quantitative analysis e All of the above 289 The grand tour relies on the visiting the countries where investment is considered a Opinions of company executives b Gut feeling of independent advisors c Opinions of bankers d Opinions of government officials e None of the above 290 The Delphi technique of political risk analysis involves a Compiling the opinions of independent experts b Using an outside consultant c Executive visits to a country d All of the above e Both b and c 291 Defensive measures before investment to avoid political risk of a foreign project include a Planned divestment b Joint venture with local partner c Adapting to host-country goals d Concession agreements e All of the above 292 To become a good citizen of a host country, the multinational company should take the following actions except _ a Use a large amount of locally-supplied raw materials b Hire local people for managerial positions c Maintain a competitive edge d Deflate the subsidiary's profits e Make the equity of the subsidiary available to local investors [...]... produce income that can specifically be used to repay the loan 72 Which is more important in financial planning for an MNC, ex ante financing cost or ex post financing cost? a Ex ante financing cost is more important since it is the projection of the financing cost b Ex post financing cost is more important because it is the actual cost of financing c Both are important in financial planning because they... has been made a Flexible parameters b Indefinite goals c Real options d Delayed decisions 63 Working capital management is essentially concerned with: a Short-and long-term financing b Managing receivables c Current assets and current liabilities d Managing payables 64 Traditional cash management analysis considers: a The cost of short-term financing and the interest rate on investments b The benefit... return on the equity d At the appropriate risk-adjusted required rate of return on the debt 133 Assuming an upward-sloping term structure of spot interest rates, if the expected profits from a foreign project are discounted by a higher discount rate found in later years, the present value of the project is _ a Inaccurately inflated b Impossible to determine c Substantially increased d Needlessly penalized... Currency risk and interest rate risk d The inflation rate and the opportunity cost of holding cash 65 Improved financial system communications abilities have: a Increased the amount that firms pay to transfer funds between accounts because improved communications has increased the number of transfers that mncs make b Not affected MNC bank transactions c Reduced the importance of considering transaction... not a separate entity from the MNC c A foreign branch of an MNC and a foreign subsidiary of an MNC are essentially the same d A foreign branch of an MNC is an office of the MNC which is not a separate organization from the MNC, and a foreign subsidiary is an organization in a foreign country in which the MNC owns only a partial interest 53 What is parent-subsidiary asymmetry in the context of capital... between a foreign branch of an MNC and a foreign subsidiary of an MNC? a A foreign branch of an MNC is an office of the MNC which is not a separate organization from the MNC, but a foreign subsidiary is a separate organization in a foreign country that is owned by the MNC b A foreign branch of an MNC is a separate entity in a foreign country which the MNC owns, while a foreign subsidiary is an office of the... Will not be affected by where that financing is obtained c Can only be obtained by the parent and not by the subsidiary d Can only be obtained by the subsidiary and not by the parent 59 In evaluating the values associated with cash flow of the parent and the subsidiary, what are financial "side effects"? a Side effects are the components of cash value that may differ between the parent and the subsidiary... discount rate Buy the present value of the foreign currency obligation at the spot exchange rate Invest the proceeds at the foreign currency interest rate 107 Suppose a U.S firm has sold an airplane to a British firm for £20 million payable in one year The spot exchange rate is $2.00 = £1.00; the one-year forward exchange rate is $2.01 = £1.00 The one-year interest rate in the U.S is 3 percent and the... one-year interest rate in Great Britain is 2.50 percent Which of the following hedging strategies eliminates the exporter's exchange rate risk? a Sell £20 million forward at $2.01 = £1.00 b Since the forward rate is more than the spot rate, use a money market hedge instead of a forward market hedge c Borrow £19,512,195.12 from a British lender Exchange for $39,024,390.24 at the spot exchange rate In one... EXCEPT a It can reduce managers’ incentives to find ways to make the company operate more cost-effectively b It develops when a company chooses not to pay out dividends from its free cash flow c It will lead to lower agency costs d Management might be tempted to indulge in perks for themselves 126 An interest tax shield is a The value created by the tax deductibility of interest on debts b A tax benefit
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