Deck 6: Managing Working Capital and International Trade Management

Question 1

Argenteuil S.A. has been offered a one year loan of £100,000 at 14%, payable at maturity. What is the effective British pound interest rate on Argenteuil's loan?

A) 14.0%
B) 17.5%
C) 15.2%
D) 18.3%

Answer 1

14.0%

Question 2

Suppose that a firm located in Russia can borrow euros at 8% or rubbles at 14%. Which of the following is correct? If the rubble is expected to depreciate from R58 = €1 at the beginning of the year to R61 = €1 at the end of the year, then the expected euro cost of the Russian rubble loan is

A) 8.39%
B) 20.14%
C) 12.37%
D) 9.15%

Answer 2

8.39%

Question 3

Referring to the previous question, at what end-of-year exchange rate will the euro costs of borrowing Russian rubbles or euros be equal?

A) R63.1/€
B) R61.2/€
C) R56.3/€
D) R60.8/€

Answer 3

R61.2/€

Question 4

Suppose that A sells $1 million monthly to subsidiary B and $1.5 monthly to subsidiary C, B sells $2.2 million monthly to A and $100,000 monthly to C, and C sells $600,000 monthly to A and $500,000 to B. Which of the following is correct? Bilateral netting will reduce intercompany payment flows by ?????, whereas multilateral netting will reduce these flows by ?????.

A) $2.0 million, $1.7 million
B) $3.2 million, $5.2 million
C) $1.4 million, $3.3 million
D) 7 million, $2.7 million

Question 5

Which of the following is correct? In international trade, the role of the Organization for Economic Cooperation and Development is to

A) guarantee exports
B) set the interest rate on officially supported export credits
C) mediate in cross-border trade disputes
D) determine international trade tariffs

Question 6

The Organization for Economic Coordination and Development (OECD) has been instrumental in fighting perceived abuses by national export-credit agencies. Which of the following is correct? One area that the OECD has targeted is

A) maximum repayment terms
B) concessionary interest rates
C) minimum premium rates
D) all of a, b, and c

Question 7

Which of the following is correct? COFACE, the French official exports agency treats export credits

A) to all countries as the same
B) to member states of the OECD as higher quality than non-OECD countries
C) based on individual country risk ratings
D) uses private sector country risk insurance

Question 8

Which of the following is NOT an advantage to the importer of documentary credit financing?

A) any documents required are carefully inspected by clerks with years of experience
B) a documentary credit is about as good as cash in advance
C) the importer using a documentary credit can usually command better credit terms and/or prices
D) documentary credit financing may be cheaper than the alternatives
E) all of the above are advantages of the documentary credit to the importer

Question 9

Which of the following documentary credits is safest for the exporter?

A) revocable, confirmed documentary credit
B) irrevocable, unconfirmed documentary credit
C) irrevocable, confirmed documentary credit
D) revocable documentary credit

Question 10

Samsung sells electronics to a French firm. In return, the French firm's bank, Credit Agricole, acknowledges it will pay Samsung after the items are delivered to its client. Which of the following is correct? Samsung has most probably used

A) accounts receivable financing
B) factoring
C) forfaiting
D) documentary credit

Question 11

Which of the following is correct? Many multinationals are now making small investments in frontier markets. These investments

A) may be valued using conventional discounted cash-flow analysis
B) will be overvalued using conventional discounted cash-flow analysis because of their high risks
C) should be valued using an expanded internal rate of return value rule that considers the attendant options
D) are best valued by using the payback period method

Question 12

MetalWorks has to decide whether to reopen its Patagonian gold mine, which has 5000 ounces of gold that can be mined, which will take one year. The cost of reopening the mine is $2 million and the variable cost of extraction is $900/oz. The current gold price is $1,200/oz. but could be $1,600/oz. or $800/oz. in one year's time with equal probability. The company requires a return of 16% on its investment. Which of the following should MetalWorks do?

A) Not invest as the project has a negative NPV
B) Invest regardless of the future gold price as the project has a positive NPV
C) Only invest when the gold price is $1,600 in one year's time
D) MetalWorks needs more information to make the correct decision

Question 13

Which one of the following was NOT a long-term strategy used by Japanese television manufacturers when entering the U.S. market?

A) labor and scale advantages
B) quality and innovation
C) researching new designs and building reliability
D) building brands and distribution networks

Question 14

Assume the standard deviation of the U.S. market portfolio is 18.2%, the standard deviation of the non U.S. portion of the world portfolio is 17.1%, and the correlation between the U.S. and non U.S. market portfolios is .47. Suppose you invest 40% of your money in the U.S. stock market and the other 60% in the non U.S. portfolio. What is the standard deviation of your portfolio?

A) 17.7%
B) 9.4%
C) 15.1%
D) 18.3%

Question 15

Which of the following is correct? The existence of offshore finance subsidiaries can be attributed primarily to

A) the past practice of the tax authorities to impose withholding taxes on dividends and interest received by foreign investors
B) the desire by international firms to centralize their financial decision making
C) capital controls by various foreign countries
D) capital flight from the parent country