Deck 10: Global Capital Markets

Question 1

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

Answer 1

A

Question 2

A major challenge to Global Positioning Systems in providing foreign-exchange services to its clients is that ________.

A) GPS lacks access to major foreign exchange quoting services
B) GPS has to constantly upgrade the quality of the services it offers
C) GPS cannot provide individualized attention to its customers, so it has to commoditize its product lines
D) new regulations have stopped GPS from selling foreign-exchange services that compete with the banks

Answer 2

B

Question 3

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

Answer 3

A

Question 4

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 5

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 6

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 7

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

Question 8

According to 2010 data,which of the following statements about the mix of debt and equity to fund operations is true?

A) The debt/asset ratio has risen in Japan since 2007.
B) A growing number of Russian firms are relying more on debt.
C) The equity/asset ratio fell for firms in France and Germany since 2007.
D) In most emerging markets, shares of stock are broadly held, like in the U.S.

Question 9

Global Positioning Solutions Inc.is a Utah-based company that ________.

A) provides location assistance for global executives who travel frequently
B) is a division of a banking syndicate in the Western part of the United States
C) assists firms that have foreign-exchange needs but that lack in-house foreign-exchange teams
D) started out by providing foreign exchange services that were not being offered by commercial banks

Question 10

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 11

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 12

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 13

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 14

A financial manager in an international company would most likely be responsible for all of the following activities except.

A) managing currency risk
B) assessing foreign market entry
C) learning global tax systems
D) overseeing employee repatriation

Question 15

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 16

Which of the following is a primary task of international financial managers?

A) raise funds for the firm through product marketing
B) oversee cash-flow of the firm's value-adding activities
C) manage international joint-venture arrangements
D) determine the salaries of executives and personnel

Question 17

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 18

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

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

Question 19

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 20

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 21

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 22

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

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

Question 23

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 24

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 25

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 26

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 27

The stock market is also known as the ________.

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

Question 28

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 29

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 30

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 31

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 32

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

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

Question 33

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 34

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

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

Question 35

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 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 is NOT an advantage of ADRs to U.S.shareholders?

A) Transfer of ownership is done in the U.S. in accordance with U.S. laws.
B) In the event of the death of the shareholder, the estate does not go through a foreign court.
C) Settlement for trading is generally faster in the United States.
D) All of the above are advantages of ADRs.

Question 38

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 39

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 40

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

A) the U.K.
B) the U.S.
C) Japan
D) China

Question 41

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 42

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 43

One way to account for the challenge of the variability of future cash flows is to ________.

A) adjust the hurdle rate for the project
B) use the most likely cash flow estimate
C) ignore different rates of inflation to prevent confusion
D) leave out a consideration of the terminal value of an investment

Question 44

Tax-haven subsidiaries categorically referred to as International Offshore Financial Centers,have the following characteristics EXCEPT ________.

A) A low tax on foreign investment or sales income earned by resident corporations and a low dividend withholding tax on dividends paid to the parent firm.
B) A stable currency to permit easy conversion of funds into and out of the local currency. This requirement can be met by permitting and facilitating the use of Eurocurrencies.
C) A stable government that encourages the establishment of foreign-owned financial and service facilities within its borders.
D) All of the above are tax-haven subsidiary characteristics.

Question 45

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

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

Question 46

When Sistema,a Russian company,issued a U.S.dollar stock offering in London,its shares were classified as a(n)________.

A) Global Depositary Receipt
B) American Depositary Receipt
C) European Depositary Receipt
D) International Depositary Receipt

Question 47

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 48

Which of the following is unique to foreign project assessment in the capital budgeting decision?

A) Project cash flows must be determined.
B) Parent cash flows and project cash flows are the same.
C) Local tax issues affect the determination of free cash flows and the remittance of earnings.
D) Inflation is not an issue, because companies use the same inflation rate in both the domestic and international setting in order to make the analysis more comparative.

Question 49

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 50

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 51

Vale,the large Brazilian mining company,is trying to decide if it wants to invest in a Canadian nickel mine.Which of the following questions is LEAST relevant to Vale's capital budgeting decision?

A) How will differing rates of inflation in Canada and Brazil affect the parent and subsidiary?
B) How will dividends be affected by the Canadian and Brazilian tax systems?
C) What is the difference in inflation rates between Brazil and Canada?
D) Does Brazil or Canada have the absolute advantage in exporting?

Question 52

Which of the following is a true statement about the Euroloan market?

A) It is extremely competitive and lenders operate on razor-thin margins.
B) It is extremely competitive but lenders still receive substantial margins.
C) It is monopolistic, yet lenders operate on razor-thin margins.
D) It is monopolistic and lenders receive substantial margins.

Question 53

What is the main challenge companies' face in listing ADRs in the United States?

A) paying costly fees and tariffs
B) complying with SEC reporting requirements
C) listing shares in U.S. dollars instead of Eurodollars
D) conducting time-consuming performance evaluations

Question 54

Capital budgeting is best described as the ________.

A) process that determines which countries will receive capital investment funds
B) procedure for determining the proper mix of debt and equity for a country
C) proper management of a country's current assets and liabilities
D) simplification of corporate tax procedures

Question 55

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 56

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 57

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 58

________ 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 59

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 60

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 61

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

Question 62

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 63

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

Question 64

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

Question 65

If a foreign subsidiary is located in a low tax country,the parent company would probably use a ________.

A) high transfer price on inventory shipped from the parent to the subsidiary
B) high transfer price on goods sold by the subsidiary to the parent
C) low transfer price on inventory shipped from the subsidiary to the parent
D) tax credit price to minimize local tax liabilities

Question 66

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

Question 67

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

Question 68

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

Question 69

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

Question 70

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

Question 71

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 72

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

A) transfer pricing
B) a tax credit
C) lag strategies in tax planning
D) passive income reductions

Question 73

________ is the pricing of goods,services,and technology between related companies.

A) Among pricing
B) Retail pricing
C) Transfer pricing
D) Wholesale pricing

Question 74

MNCs can cross-list their common stocks on multiple stock exchanges.

Question 75

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

Question 76

Assume that U.S.MNE A earns $100,000 of foreign source income,that the tax rate in the foreign country is 40 percent,and that the tax rate in the United States is 35 percent.How much total (both domestic and foreign)tax would the company pay on that foreign source income,assuming that the tax credit principle applies?

A) $40,000
B) $35,000
C) $75,000
D) $5,000

Question 77

Two forms of equity financing are private placement with a venture capital firm and the equity capital market,otherwise known as the stock market.

Question 78

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 79

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

Question 80

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