Deck 13: International Financial Management

Question 1

A financial manager handling exports and imports of a company needs to have a good working knowledge of foreign currencies, tariffs, shipping and insurance.

Answer 1

True

Question 2

In international business it is important to have liability insurance but less so for nondelivery or delay of goods shipped overseas.

Answer 2

False

Question 3

Reconciling taxes between a parent company and its overseas subsidiaries can be difficult because of the difference in local accounting standards.

Answer 3

True

Question 4

If an overseas subsidiary can borrow from the local markets, the ability to pay back in local currencies can be a drawback.

Question 5

The third stage of a company's expansion overseas is setting up multiple subsidiaries.

Question 6

A branch office is just a legal extension of the parent company and is not treated as a separate corporate entity.

Question 7

A subsidiary is just a legal extension of the parent company and is not treated as a separate corporate entity.

Question 8

Offshore banks serve a useful function for banks that are engaged in international transactions because they allow banks to park their cash for temporary periods as they shift their resources globally.

Question 9

In 1981 the Federal Reserve Board allowed commercial banks to create its own offshore unit outside of the United States.

Question 10

The most common method of payment for corporate international transactions is through wire transfers, which takes between one and three days.

Question 11

T+7 refers to seven days from the date of transaction and the actual receipt of payments for the sale or purchase of a financial instrument like a bond or stock.

Question 12

In an advance payment terms in international transactions, the risk is borne by the exporter and not the importer.

Question 13

The Letter of Credit is the most common form of payment in international transfers of goods.

Question 14

If the exporter's bank also confirms the letter of credit, the exporter had managed to get double insurance.

Question 15

A documentary collection (DC) is commonly used when the exporter and importer are not too familiar with each other.

Question 16

In an open revolving account, the risk of payment is borne completely by the importer.

Question 17

Wire transfer is the most common form of payment in international transactions.

Question 18

SWIFT uses an eight- and eleven-letter bank identifier code (BIC), based on ISO (International Standards Organization) standard 9362 to identify a bank.

Question 19

The Export-Import Bank of the United States, usually called the EX-IM Bank, provides insurance to exporters in direct competition with private insurers so to improve competition.

Question 20

Political risk insurance protects firms against expropriation, currency inconvertibility, political violence, and stand-alone terrorism.

Question 21

For a company that is engaged in exports and imports

A) there is usually very little paperwork required to sending or receiving payments overseas
B) if invoices to overseas customers are stated in dollars, then a financial manager has to be aware of exchange-rate issues,
C) if invoices to overseas customers are stated in the foreign currency, there are no exchange-rate issues,
D) if invoices to overseas customers are stated in the foreign currency, then a financial manager has to be aware of exchange-rate issues,
E) none of the above

Question 22

For a company that is engaged in exports and imports

A) a thorough knowledge is required of tariffs because they can vary between countries
B) tariffs do not affect the prices of commodities
C) tariffs are usually a flat rate imposed on all different types of goods
D) if tariffs are high, companies may have to increase export prices to compensate
E) a U.S. company that is purchasing goods from overseas need not worry about U.S. tariffs

Question 23

For a company that is engaged in exports and imports

A) it is not necessary to insure for delay or nondelivery of products shipped overseas
B) the time lag for replacement is much lower for overseas shipments
C) insurance for liability protection is not required for overseas shipments
D) in recent years lawsuits against foreign companies have become more routine than the past
E) none of the above

Question 24

When establishing a subsidiary overseas, the following holds, except

A) a financial manager has to be aware of the different types of taxes in a country
B) reconciling taxes can be challenging because of the different accounting standards between countries
C) a parent and a subsidiary have to follows both country's tax laws
D) a subsidiary usually prefers to work with the local offices of major international banks
E) a subsidiary in a foreign country is not a separate freestanding incorporated company unlike a branch

Question 25

When establishing a subsidiary overseas

A) a company is subject to only one tax rule, that of the host or home country
B) a subsidiary does not incur exchange rate risk when it takes a loan domestically and is repaid by the parent company
C) local stock and debt markets are not available to the large subsidiaries
D) A subsidiary prefers does not prefer to deal the branch office of the parent company's bank.
E) a financial manager has to be aware of the different types of taxes in a country

Question 26

In international banking

A) all commercial banks have their own traders to buy and sell foreign exchange
B) large commercial banks find it advantageous to set up subsidiaries in other countries
C) a subsidiary is just a legal extension of the parent company in the foreign country
D) a branch office is a freestanding legal entity separate from the parent company
E) a branch usually offers a full range of services in the local country

Question 27

In international banking

A) deposits of foreign branches in the United States can be insured by the FDIC
B) a commercial bank does not usually maintain a deposit in the correspondent bank
C) a representative office does not accept deposits, engage in lending, or offer other banking activities
D) maintaining a corresponding banking relationship is not important for banks that have multinationals as their customers
E) a parent bank's ownership of its overseas subsidiary has to be 100 percent

Question 28

The following is true for offshore banks except

A) they are usually located in what are termed "tax-haven countries."
B) allow banks to temporarily park their cash overseas before making disbursements globally
C) multinationals prefer to use offshore banks to deposit money for the short term
D) U.S. banks are not allowed to create offshore banks in the United States
E) offshore banks are able to offer higher deposit rates

Question 29

When an advance payment is used as the method of payment in international transactions

A) it provides full security to the importer
B) the risk is completely borne by the exporter
C) advance payment is preferred when the exporter and importer are familiar with each other
D) exporter incurs an interest expense because of the upfront payment
E) advance payments in international business are not common in international business

Question 30

When a letter of credit is used as a method of payment in international transactions,

A) the importing bank has to make the payment if all the documents are in order
B) it is always revocable and the exporter, importer or the bank can refuse to honor the obligations if advance warning is given
C) the usual terms of payments are net 45 days
D) it can be confirmed by a importer's bank for an additional fee
E) it is the least common form of payment in international transactions

Question 31

When a documentary collection as a method of payment is used in international transactions,

A) the importer's bank will pay immediately if it is a document against acceptance
B) the importer's bank will pay on the specified date if it is a document against payment
C) it is less expensive than a letter of credit
D) it is often used with shipments by air
E) it is commonly used when the parties are not familiar with each other

Question 32

In an open revolving account

A) an exporter sends the documents after shipping directly to the importer
B) the risk of payment is borne completely by the importer.
C) open revolving accounts are usually undertaken by companies with new relationships
D) An open revolving account is a very strong selling tool for the importer
E) usually an open purchase order (P.O.) is requested from the exporter

Question 33

Under methods of payments in international transactions,

A) The routing number known as the ABA number is used by all banks in the world,
B) Wire transfer is the least common form of payment in international transactions.
C) The routing number known as IBAN is used by all banks in the world
D) Some banks require routing numbers for the actual delivery of the payment
E) SWIFT is used by most banks use a messaging system to notify recipient bank of the arrival of funds

Question 34

In global shipping:

A) Tanker carriers transport mostly raw materials such as hydrocarbons and wet chemicals.
B) Dry Bulk carriers transport mostly dry raw materials or food, such as stones and maize
C) Dry bulk carriers transport mostly finished products shipped in containers.
D) Wet Bulk carriers transport mostly dry raw materials or food, such as stones and maize
E) Container sizes are standardized at 100 feet in length for direct loading to trains and trucks

Question 35

Among global stock exchange markets,

A) the London Stock Exchange is the youngest of the exchanges
B) the New York Stock Exchange merged with Euronext to create NYSE Euronext
C) the NASDAQ Stock Exchange merged with Euronext to create NASDAQ Euronext
D) the New York Stock Exchange merged with OMX to create the NYSE OMX
E) prior to its merger, the OMX was a derivatives exchange based in Amsterdam

Question 36

In the global depository market,

A) The popularity of ADRs has been decreasing over the last twenty years.
B) if a depository receipt is trading on more than one stock exchange, it is called a global depository receipt (GDR)
C) American ADR holders can only sell them to investors overseas
D) One difference between stocks and ADRS is that ADRs do not pay dividends
E) JP Morgan was the first bank to introduce the American depository receipt in 1827

Question 37

In the Eurocurrency market,

A) the original Eurodollar can be traced to the American financing of the war in England
B) all dollars that are traded in Europe are known as Eurodollars
C) a quarter of the Eurocurrency market is dominated by the Eurodollar.
D) London is the largest center for Eurodollar deposits
E) New York is the largest center for Eurodollar deposits

Question 38

The Office of Foreign Assets Control, a part of the U.S. Department of the Treasury

A) monitors both exports and imports of goods
B) ensures that fair trade is implemented among countries
C) monitors the reporting of foreign-exchange earnings
D) subjects all exports to that foreign country to customs duties
E) ensures that investments are not undertaken in countries where investment is prohibited by law

Question 39

The following applies to the Foreign Corrupt Practices Act (FCPA) of 1977 except

A) companies cannot make payments to foreign officials to obtain new business
B) companies cannot make payments to foreign officials to renew business
C) companies are not liable if payments to officials are made through intermediaries
D) companies are not liable if payments are to facilitate routine government actions
E) companies are not liable if payments are to facilitate routine private contracts

Question 40

Political risk insurance protects against the following, except

A) expropriation
B) currency inconvertibility
C) labor strikes
D) political violence
E) stand-alone terrorism

Question 41

What additional skills are required of a financial manager of a firm that is engaged in exports and imports?

Question 42

What variables impact financial decision making when establishing an overseas subsidiary?

Question 43

What is the difference between a subsidiary and a branch of an international bank?

Question 44

What are offshore banks and why are they useful to multinationals?

Question 45

Explain how a letter of credit is used in international transactions? How is it different from advance payment and documentary collections as a means of payment?

Question 46

What are the three types of global shipping? Are they losing market share to air shipments?

Question 47

What U.S. agencies provide insurance coverage to encourage exports?

Question 48

What are American depository receipts and how do they help foreign companies in their financing?