Deck 8: Multinational Treasury Management

Question 1

You have a contractual cash inflow denominated in a foreign currency and to be received in six months. You will gain if the foreign currency appreciates in value over the next six months.

Answer 1

True

Question 2

Commercial banks will not accept trade drafts.

Answer 2

False

Question 3

Technical analysis is a passive approach to currency risk management.

Answer 3

False

Question 4

An open account provides the seller with the greatest protection against nonpayment.

Question 5

A freight shipper is a shipping agent used to select the best mode of transportation and arrange for a carrier to handle the physical shipment of goods.

Question 6

Multinational netting identifies offsetting currency exposures within the corporation.

Question 7

Countertrade is defined as trade conducted "over-the-counter" rather than through a registered export agent.

Question 8

A site draft is an international method of payment that is payable at a particular site.

Question 9

A letter of credit is irrevocable if payment can be withheld at the discretion of the buyer.

Question 10

You have a contractual obligation denominated in a foreign currency and to be paid in six months. You can hedge this exposure by buying the foreign currency in the forward market.

Question 11

Risk exists whenever actual outcomes can deviate from expected outcomes.

Question 12

Forfaiting resembles factoring but involves medium- to long-term receivables and larger transactions.

Question 13

Factoring refers to the purchase of a firm's accounts receivable.

Question 14

An open account is most often used when the buyer has a poor credit history.

Question 15

The multinational corporation is exposed to currency risk when the value of its assets and liabilities changes with unexpected changes in currency values.

Question 16

An open account is most convenient for the buyer.

Question 17

You expect to receive a cash flow denominated in a foreign currency in six months. You can hedge this exposure by buying the foreign currency in the forward market.

Question 18

A banker's acceptance is a time draft drawn on and accepted by a commercial bank.

Question 19

Multinational netting is a process whereby expatriate managers are brought back to work at corporate headquarters.

Question 20

Factoring refers to the purchase of a firm's inventory at a discount to book value.

Question 21

Exposure to currency risk depends on exchange rate variability, but not on how much is at risk.

Question 22

A contract between an exporter and a commercial carrier that is issued by the carrier when it receives goods for shipment is called a ______.

A) bill of lading
B) certificate of origin
C) packing list
D) shipper's export declaration
E) warehouse receipt

Question 23

Economic exposure to currency risk refers to changes in the value of monetary assets and liabilities due to unexpected changes in foreign currency exchange rates.

Question 24

Translation exposure to currency risk necessarily reflects changes in the market value of the firm's assets and liabilities.

Question 25

Documentation for cross-border shipments includes each of the following EXCEPT

A) bill of lading
B) commercial invoice
C) dock receipt
D) documentary credits
E) packing list

Question 26

Monetary assets and liabilities denominated in a domestic currency are not exposed to purchasing power risk.

Question 27

Transaction exposure to currency risk refers to changes in the value of monetary assets and liabilities due to unexpected changes in foreign currency exchange rates.

Question 28

Real assets are only exposed to currency risk if they are located in a foreign country.

Question 29

The modern corporate treasury performs each of the following functions EXCEPT

A) arranging financing for domestic and international trade
B) consolidating and managing the financial flows of the firm
C) identifying, measuring, and managing the firm's risk exposures
D) managing the risks of domestic and international financial transactions
E) setting sales targets and monitoring progress toward these targets

Question 30

Monetary assets have contractual payoffs.

Question 31

Monetary contracts can be denominated either in the domestic or in a foreign currency.

Question 32

Operating exposure to currency risk includes transaction exposure and accounting exposure.

Question 33

Monetary contracts denominated in a foreign currency are fully exposed to changes in the value of that currency.

Question 34

A parent firm has translation exposure to the extent that unexpected changes in foreign currency values change the parent's financial accounting statements.

Question 35

Operating exposure refers to the exposure of the firm's real assets to currency risk.

Question 36

Surveys reveal that financial managers believe transaction exposure is the most important currency risk exposure.

Question 37

The process of creating a strategic business plan includes each of a) through d) EXCEPT

A) developing robust processes for implementing the strategic business plan
B) evaluating the business environment within which the firm operates
C) formulating a comprehensive strategic plan for turning the firm's core competencies into sustainable competitive advantages
D) identifying the firm's core competencies and potential growth opportunities
E) All of the above are elements of a strategic business plan

Question 38

Economic exposure refers to changes in contractual cash flows due to unexpected changes in foreign currency exchange rates.

Question 39

Translation exposure to currency risk is of direct concern to equity investors in the multinational corporation.

Question 40

If an investor's wealth is dependent on foreign currency movements, then the investor is exposed to foreign currency risk.

Question 41

Which of the following does not typically accompany an export shipment?

A) bill of lading
B) insurance certificate
C) invoice
D) letter of credit
E) packing list

Question 42

A time draft that is drawn on and accepted by the buyer is called a ______.

A) banker's acceptance
B) banker's bourse
C) bill of lading
D) certificate of deposit
E) trade acceptance

Question 43

Ways that an exporter can finance the sale of goods include ____:

A) borrow against an asset such as accounts receivable or inventory
B) sell a banker's acceptance at a discount to face value
C) sell accounts receivable to a factor or forfaiter such as a commercial bank
D) Three of the above
E) Two of the above

Question 44

A time draft that is drawn on and accepted by a commercial bank is called a ______.

A) banker's acceptance
B) banker's bourse
C) bill of lading
D) certificate of deposit
E) trade acceptance

Question 45

______ is a technique for exchanging goods or services without exchanging money.

A) Countertrade
B) International trade
C) Soft trade
D) Unconventional trade
E) None of the above

Question 46

Cash in advance is _____ for most exporters and _____ for most importers, all else constant.

A) attractive; attractive
B) attractive; unattractive
C) unattractive; attractive
D) unattractive; unattractive
E) None of the above

Question 47

Ways that exporters can arrange for payment include each of the following EXCEPT

A) cash in advance
B) documentary collections
C) documentary credits
D) open account
E) packing list

Question 48

Drafts used in international trade include each of a) through d) EXCEPT

A) sight drafts
B) time drafts
C) trade drafts
D) banker's acceptances
E) All of the above are types of drafts.

Question 49

The majority of international payments are accomplished by way of ______.

A) cash in advance
B) documentary collections
C) documentary credits
D) open account
E) the packing list

Question 50

Most of the nations in Western Europe and Latin America use a ______ law system in which laws are codified as a set of rules.

A) civil
B) common
C) laissez faire
D) Napoleonic
E) Teutonic

Question 51

All else constant, the multinational corporation has a tax incentive to shift ______ toward low-tax jurisdictions and shift ______ toward high-tax jurisdictions.

A) expenses; expenses
B) expenses; revenues
C) revenues; expenses
D) revenues; revenues
E) None of the above

Question 52

With payment through ______, the seller delivers goods directly to the buyer and then bills the buyer for the goods under agreed-upon payment terms.

A) a packing list
B) cash in advance
C) documentary collections
D) documentary credits
E) open account

Question 53

A cash management tool that minimizes intrafirm fund transfers is ______.

A) cash in advance
B) lockboxing
C) multinational netting
D) transfer pricing
E) None of the above

Question 54

Sales on open account are _____ for most exporters and ______ for most importers, all else constant.

A) attractive; attractive
B) attractive; unattractive
C) unattractive; attractive
D) unattractive; unattractive
E) None of the above

Question 55

Negotiable banker's acceptances conform to each of the following EXCEPT

A) they are either verbal or in writing
B) they are payable on demand or at a specified time
C) they are payable to order or to bearer
D) they are signed by the bank
E) they contain an unconditional payment guarantee upon receipt of the trade documents

Question 56

A pays B $140, A pays C $200, and B pays C $60. After netting, A will pay C ______.

A) $0
B) $200
C) $260
D) $340
E) None of the above

Question 57

______ is the instrument most frequently used as an international payment mechanism.

A) Cash in advance
B) Shipper's export declaration
C) The bill of lading
D) The draft
E) The packing list

Question 58

The United Kingdom and the United States use a _____ law system that relies heavily on the decisions of judges in previous court cases.

A) civil
B) common
C) laissez faire
D) Napoleonic
E) Teutonic

Question 59

The letter of credit substitutes the credit standing of the ______ for that of the buyer.

A) carrier
B) exporter
C) government
D) issuing bank
E) None of the above

Question 60

A payment method in which the buyer pays for goods prior to shipment is called ______.

A) a documentary collection
B) a documentary credit
C) a packing list
D) an open account
E) cash in advance

Question 61

Monetary liabilities include each of the following EXCEPT

A) accounts payable
B) common equity
C) domestic loans
D) Eurocurrency loans
E) taxes payable

Question 62

Management has an incentive to hedge which of the following exposures?

A) operating exposure
B) transaction exposure
C) translation (accounting) exposure
D) All of the above
E) None of the above

Question 63

The firm's monetary assets include each of the following EXCEPT

A) accounts receivable
B) cash and money market securities
C) domestic bank deposits
D) Eurocurrency deposits
E) plant and equipment

Question 64

Bodnar, Hayt and Marston ["1998 Wharton Survey of Financial Risk Management by U.S. Non-Financial Firms," Financial Management 1998] found that derivatives users tend to be ______.

A) large firms
B) medium-size firms
C) small firms
D) privately held firms
E) commercial and investment banks

Question 65

A forecasting approach that uses macroeconomic data (inflation, GNP growth, and the money supply) to forecast long-term exchange rates is called ______.

A) expert analysis
B) fundamental analysis
C) market-based analysis
D) spectral analysis
E) technical analysis

Question 66

Which of the following was most responsible for the collapse of Barings Bank?

A) bankruptcy proceedings
B) failure to monitor the activities of its traders
C) index arbitrage
D) index futures and options trading
E) the 1991 fall in share prices on the Tokyo stock exchange

Question 67

Real assets include each of a) through c) EXCEPT

A) inventory
B) the firm's employees
C) the firm's production technologies
D) real assets include all of the above
E) real assets include none of the above

Question 68

A forecasting approach that uses recent exchange rate movements to predict the direction of future exchange rate movements is called ______.

A) expert analysis
B) fundamental analysis
C) market-based analysis
D) technical analysis
E) temporal analysis

Question 69

Treasury management of currency risk exposure ideally entails each of the following EXCEPT

A) identify those currencies to which the firm is exposed
B) estimate the firm's sensitivity to changes in these currency values
C) decide whether to hedge currency exposures in accordance with the firm's overall risk management policy
D) select an appropriate hedging instrument or hedging strategy
E) lock in the hedge and then wait until expiration to evaluate performance