Deck 14: Financial Management for Global Operations

Question 1

Which of the following is accurate for having an open account selling?

A) Involves shipping goods first and billing the importer later
B) Involves billing first and then shipping the goods
C) Involves shipping and billing at the same time
D) None of the above

Answer 1

A

Question 2

In Latin America, firms kept a portion of excess cash in gold dollar related government bonds to help hedge operation exposure during a/an______________.

A) depression
B) inflationary period
C) recession
D) constant growth

Answer 2

B

Question 3

An example of _____________ is depicted through, a US firm focusing on exports to Canada to acquire its debt in Canadian dollar markets and use the Canadian dollar cash inflows from export sales to service loan payments on Canadian dollar.

A) matching
B) netting
C) price escalation
D) leading

Answer 3

A

Question 4

Export financing is important because many export projects require

A) private sources of funding.
B) governmental sources of funding.
C) forfeit houses.
D) a large amount of start-up costs.

Question 5

Today, interbank email systems have been extensively applied in lieu of ___________________ between cross-border banks

A) cash in advance
B) cash on delivery
C) airmail payment orders
D) open account terms

Question 6

The majority of international trade uses __________ as the payment method.

A) cash in advance
B) letters of credit
C) documentary collection
D) open account terms

Question 7

Widely-used payment methods in international trade include

A) working capital.
B) corporate guarantees.
C) closed account terms.
D) cash in advance.

Question 8

A firm's ability to raise its foreign currency selling price sufficiently to preserve its home currency profit margin in the case of foreign currency depreciation is considered to be

A) production/outsourcing flexibility.
B) pricing flexibility.
C) endaka.
D) localization structure.

Question 9

_____________ measures the change in the present value of the firm resulting from any change in the future operating cash flows of the firm caused by an unexpected change in exchange rates and macroeconomic factors.

A) Economic exposure
B) Translation exposure
C) Light exposure
D) Foreign exchange exposure

Question 10

MNEs encounter what types of foreign exchange exposure?

A) transaction exposure
B) economic (or operating) exposure
C) translation (or accounting) exposure
D) all of the above

Question 11

Which is used to partially or fully transfer foreign exchange risk to the importer?

A) mixed currency invoicing
B) price escalation clause
C) leads
D) lags

Question 12

In cash management, when considering efficient funding routes, a company must take into account

A) interest rates.
B) profitability of local operations.
C) tax rates.
D) all of the above

Question 13

In global coordination, financial EDI systems help companies relay information

A) slower.
B) the same.
C) faster.
D) not at all.

Question 14

A revolving letter of credit

A) automatically renews.
B) is always transferable.
C) is the obligation of only the issuing bank.
D) is always cumulative.

Question 15

A document discrepancy is

A) payment made only under compliance with the letter of credit's conditions.
B) a pre-deposit in an issuing bank.
C) an oversight on checking the documents that are required in the letter of credit.
D) a financial contract.

Question 16

The bankers acceptance is a two-armed instrument with one branch in financing and the other in ________________________.

A) sales
B) investment
C) corporate guarantees
D) promissory notes

Question 17

_____________ involve the exchange of interest or foreign currency exposures or a combination of both by two or more borrowers.

A) Transformations
B) Trades
C) Foreign trade flows
D) Swaps

Question 18

When managing foreign receivables in what stage does the exporting company decide what currency the transaction should be in?

A) pre-transaction
B) transaction
C) post-transaction
D) mid-transaction

Question 19

An example of_______________, is Westinghouse Electric having its subsidiaries in Spain increase production of generators in response to a weakening euro

A) production arrangement
B) intra-company re-invoicing
C) input outsourcing
D) matching

Question 20

An example of a/an ____________is if a subsidiary in Brazil needs Brazilian reals while a Brazilian company's subsidiary in the U.S. needs dollars. The Brazilian firm can lend reals to the U.S. owned subsidiary in Brazil while it borrows an equivalent amount of dollars from the U.S. parent in the U.S.

A) unparallel loan
B) overdraft
C) parallel loan
D) risky loan

Question 21

The ______________ is a payment mechanism that allows exporters to retain ownership of the goods until they receive payment or are reasonably certain that they will receive

A) letter of credit
B) cash in advance
C) documentary collection
D) open account terms

Question 22

When payment is made only under compliance with the ____________ conditions, the importer is able to ascertain that the merchandise is actually shipped on or before a certain date by requiring an on-board bill of lading

A) letter of credit
B) cash in advance
C) documentary collection
D) open account terms

Question 23

Which of the following is NOT an advantage to L/C?

A) eliminates credit risk
B) reduces uncertainty
C) stabilize production
D) advance payment

Question 24

Which of the following is often used in a country where there is political instability or where the buyer's credit is shaky?

A) letter of credit
B) cash in advance
C) documentary collection
D) open account terms

Question 25

Which of the following affords the exporter the greatest protection because payment is received either before shipment or upon arrival of the goods?

A) cash in advance
B) letter of credit
C) documentary collection
D) open account terms

Question 26

Financial management for global operations deals with the following major issues

A) international trade finance and Working capital management.
B) financing global operations.
C) managing foreign exchange risk and exposure.
D) all of the above

Question 27

A ____________ L/C exists where the exporter, as beneficiary of the first L/C, offers its credit as security to finance the opening of a second credit in favor of the exporter's own supplier of the goods needed for shipment under the first or original credit from the advising bank.

A) confirmed
B) transferable
C) unconfirmed
D) back-to-back

Question 28

A ______________ L/C is one under which the beneficiary has the right to instruct the paying bank to make the credit available to one or more secondary beneficiaries.

A) confirmed
B) transferable
C) unconfirmed
D) irrevocable

Question 29

A ___________ L/C is issued by one bank and confirmed by another, obligating both banks to honor any drafts drawn in compliance.

A) confirmed
B) transferable
C) unconfirmed
D) irrevocable

Question 30

A/An _____________ L/C, in contrast, cannot be revoked without the specific permission of all parties concerned, including the exporter.

A) confirmed
B) transferable
C) unconfirmed
D) irrevocable

Question 31

A/An ______________ L/C is the obligation of only the issuing bank.

A) confirmed
B) transferable
C) unconfirmed
D) irrevocable

Question 32

Private sources of export financing include private insurance companies and

A) Eximbank.
B) international leasing companies.
C) Foreign Credit Insurance Corporation.
D) Central Trust of China.

Question 33

Chase Manhattan's Collection Experience Bulletin provides

A) four methods of remitting payment.
B) open account sales.
C) sight drafts.
D) bank statistics.

Question 34

A Chinese exporter could collect its accounts receivable from the Bank of China if the Bank of China had confirmed the letter of credit issued by Citibank, and Citibank, for whatever reason, failed to honor its ________________ letter of credit.

A) confirmed
B) unconfirmed
C) transferable
D) irrevocable

Question 35

An MNEs equity financing can take the form of

A) crosslisting shares abroad.
B) selling new shares to foreign investors.
C) buying new shares from foreign investors.
D) both A and B

Question 36

If a U.S. exporter expects to receive a payment of £200,000 from a London importer in two months after the products are shipped. With the current rate it would be worth $300,000. Two months later the rate changes and reduces the actual dollar avenue to $260,000. Therefore, the U.S. exporter will suffer a $40,000___________________.

A) foreign exchange loss
B) foreign exchange gain
C) borrowing loss
D) net loss

Question 37

To purchase a stated number of units of the underlying foreign currency at a specific price per unit during a specific period of time is called a/an

A) put option.
B) market option.
C) call option.
D) operating option.

Question 38

____________________ refers to the sensitivity of changes in the real domestic-currency value of assets, liabilities, or operating incomes to unanticipated changes in exchange rates.

A) Foreign exchange exposure
B) Foreign exchange risk
C) A parallel loan
D) GDP (Gross Domestic Product)

Question 39

The line of credit against which drafts (checks) can be drawn (written) up to a specified maximum amount is called a/an

A) foreign bond.
B) Discounting.
C) Overdraft.
D) maximum withdrawal.

Question 40

A wide variety of firm decisions are tied to exchange rates and other developments in the global financial environment.

Question 41

The knowledge of international financial management helps a global business by helping the manager to anticipate events and to make profitable decisions before the events occur.

Question 42

Increasing global competition is causing Chief Financial Officers to review the cost structure, orientation and strategic role of the finance function.

Question 43

Local currency financing in a host country opens avenues for subsidiary financing.

Question 44

The Euronote is generally a more expensive source of short-term funds that syndicated loans, since the notes are place directly with the investor public.

Question 45

Financing through equity markets can be realized in an MNE's home country, a foreign affiliate's host country, and/or a third country.

Question 46

Production arrangement refers to a MNE with worldwide production systems can adjust quantities of its production in a specific location to respond to foreign exchange risk and exposure.

Question 47

The post-transaction stage establishes systems to track, manage, and collect foreign accounts receivable.

Question 48

A bank guarantee is a financial instrument which guarantees a specified sum of payment in the event of nonperformance by an exporter or by a foreign importer in the event of a payment default for goods purchased from a foreign supplier.

Question 49

The documentary collection is a payment mechanism that allows exporters to retain ownership of the good until they receive payment or are reasonably certain that they will receive it.

Question 50

A letter of credit is a letter addressed to the buyer, written and signed by a bank acting on behalf of the seller.

Question 51

Term loans are straight loans that are made for a fixed period of time and repaid in a single lump sum.

Question 52

Foreign bonds that are sold in the U.S. are also known as Bulldogs.

Question 53

International bank loans are often called Eurocredits.

Question 54

Working capital is the net position whereby a firm's current liability is added to its current assets.

Question 55

A pre-transaction stage is non-significant when dealing with a new client from a foreign country.

Question 56

One of the reasons that RTZ revamped its foreign exchange policies was the realization that currency fluctuations can erode shareholder wealth.

Question 57

A subsidiary that uses the leading srategy in managing its foreign exchange risk is expected to lose interest receivable and incurs charges on funds led.

Question 58

If a company has several subsidiaries in a single country it is very efficient to use cash surpluses from one to fund cash deficits of another.

Question 59

Matching is used to balance all of the following accounts EXCEPT

A) accounts payable.
B) accounts receivable.
C) currency cash flow.
D) interest.

Question 60

The two principal control documents in a documentary collection are a draft and a bill of lading

Question 61

A revolving L/C exists where the tenor (maturity) or amount of the L/C is required permission for every transaction.

Question 62

Most L/Cs issued in connection with commercial transactions are documentary.

Question 63

The letter of credit is a letter addressed to the seller, written and signed by a bank acting on behalf of the buyer. In the letter, the bank promises it will honor drafts drawn on itself if the seller conforms to the specific conditions set forth in the L/C.

Question 64

Using L/C heightens the importer's bargaining power and allows the importer to ask for a price reduction from the exporter.

Question 65

Knowledge of international financial management helps a global business in two important ways: it helps the financial manager decide how international events will affect a firm and what steps can be taken to exploit positive developments and insulate the firm from harmful; and it helps the manager anticipate events and make profitable decisions before the events occur.

Question 66

L/C eliminates credit risk if the bank that opens it is of good standing. It also increases the risk that payment will be delayed or withheld owing to exchange controls or other political acts.

Question 67

As MNEs continue to expand globally, their assets are increasingly widely dispersed and specialized.

Question 68

A certificate of commodity inspection is an example of a revocable letter of credit.

Question 69

The three types of guarantees involved with commercial banks include the loan guarantee, a distraint guarantee, and a bill of lading guarantee.

Question 70

A discount loan is an example of how its Eximbank may give U.S. exporters the necessary financial banking to compete in other countries.

Question 71

Foreign bonds that are sold in Japan are called Samurai bonds.

Question 72

Euronotes can be underwritten or non-underwritten.

Question 73

Working capital management concerns the efficiency enhancement of current assets like cash, accounts receivable, and debt.

Question 74

The in-house bank is better equipped to deal with currency exposure and has a lesser volume of international cash flow?

Question 75

Bilateral netting exists when two sister subsidiaries cancel out their receivable and payables, but settle only the net payment.