Question 1

________ is the strategic reduction of cash transfers within the MNE family through the elimination of offsetting cash flows.

Accepted Answer

Multilateral netting is the process of consolidating all transfer payments between subsidiaries of a multinational enterprise (MNE) into a single payment, thereby reducing the number of transactions and associated costs.

Question 2

Net present value is defined as the ________.

Accepted Answer

Net present value (NPV) is calculated as the difference between the present value of a project's future cash flows and the initial investment. It is a measure used to evaluate the profitability of an investment or project.

Question 3

Net working capital is ________.

Accepted Answer

Net working capital is defined as the difference between a firm's current assets and current liabilities. This metric is used to assess a company's short-term financial health and its ability to cover its short-term obligations with its short-term assets.

Question 4

Intracorporate fund transfers enable MNEs to access cash from subsidiaries through royalty payments, transfer pricing, and multilateral netting.

Accepted Answer

Intracorporate fund transfers, such as royalty payments, transfer pricing, and multilateral netting, are mechanisms that multinational enterprises (MNEs) use to move funds across borders within the corporation, allowing them to access cash from their subsidiaries. These methods help MNEs manage their global cash flow more efficiently.

Question 5

A centralized depository lets managers reduce the size of highly liquid accounts and invest the funds, generally at the higher interest rates offered for large deposits, to generate maximal returns.

Accepted Answer

A centralized depository allows for the pooling of funds, which enables managers to reduce the amount of cash held in highly liquid, low-interest accounts. By consolidating these funds, they can make larger deposits that often qualify for higher interest rates, thereby maximizing returns on available cash.

Question 6

Through a ________ the parent company deposits a large sum in a foreign bank, which transfers it to a subsidiary as a loan.

Accepted Answer

A fronting loan is a financial arrangement where a parent company deposits a large sum in a foreign bank, which then transfers it to a subsidiary as a loan. This method is often used to bypass restrictions on direct loans from parent to subsidiary.

Question 7

The volume and complexity of a firm's intracorporate transfers depends on ________.

Accepted Answer

The volume and complexity of a firm's intracorporate transfers largely depend on the number of subsidiaries and alliances it maintains worldwide. More subsidiaries and alliances mean more internal transactions and thus greater volume and complexity in managing those transfers.

Question 8

Multilateral netting would enable an MNE with numerous subsidiaries to ________.

Accepted Answer

Multilateral netting allows a multinational enterprise (MNE) to consolidate cash transfers among its subsidiaries into a single payment, thereby reducing the number of transactions and associated fees.

Question 9

Multilateral netting is the means by which subsidiaries and affiliates charge each other as they exchange goods and services.

Accepted Answer

Multilateral netting refers to a process used by multinational corporations to consolidate and net out payments between their subsidiaries and affiliates, reducing the number and volume of cross-border transactions and thus minimizing transaction costs and foreign exchange exposure. It is more about managing inter-company payments efficiently rather than how they charge each other for goods and services.

Question 10

Which of the following terms is used to refer to compensation paid to the owner of intellectual property?

Accepted Answer

Royalty payment is the term used to refer to compensation paid to the owner of intellectual property, such as copyrights, patents, or trademarks, for the right to use that intellectual property.

Question 11

Which of the following is characteristic of the parent's perspective in capital budgeting?

Accepted Answer

The parent's perspective in capital budgeting typically involves estimating future cash flows from the project in the functional currency, which is often the parent company's home currency. This approach helps in assessing the project's impact on the parent company's financials directly.

Question 12

Why have global capital markets grown so rapidly in the past decade? Why has the growth of international business pressured multinational firms and international organizations to harmonize world accounting systems?

Accepted Answer

The answer of Why have global capital markets grown so...

Question 13

Describe three methods used to transfer funds within an MNE.

Accepted Answer

The answer of Describe three methods used to transfer funds...

Question 14

All of the following are characteristic of the parent's perspective approach in capital budgeting EXCEPT that it ________.

Accepted Answer

The parent's perspective approach in capital budgeting typically uses the functional currency of the parent, not the subsidiary's local currency. This is because the parent company is interested in understanding how the project impacts its own financial statements and cash flows.

Question 15

Transfer pricing is defined as ________.

Accepted Answer

Transfer pricing refers to the pricing of transactions between associated enterprises (such as subsidiaries and affiliates) within the same corporate group, particularly for the exchange of goods and services. This practice is crucial for financial and tax reporting purposes.

Question 16

What are four advantages to large firms lending funds to their foreign subsidiaries?

Accepted Answer

The answer of What are four advantages to large firms...

Question 17

________ estimates future cash flows from the project in the functional currency of the parent-that is, the currency of the primary economic environment in which it operates.

Accepted Answer

From the parent's perspective, estimating future cash flows from a project involves converting those cash flows into the functional currency of the parent. This is because the parent company needs to assess the project's impact on its overall financial position, which is reported in its functional currency.

Question 18

Capital budgeting is intended to ________.

Accepted Answer

Capital budgeting is a process that helps managers evaluate and decide on the investments and projects that are likely to yield the best financial returns. In an international context, this involves choosing among various international projects.

Question 19

Through ________, a subsidiary can defer payment for goods and services received from its parent firm.

Accepted Answer

Trade credits allow a subsidiary to defer payment for goods and services received from its parent firm, acting as a form of short-term financing.

Question 20

Explain the difference between working capital and net working capital, and discuss why managers employ net present value (NPV) analysis to evaluate domestic and international capital investment projects.

Accepted Answer

The answer of Explain the difference between working capital and...

Quiz 10: Financial Management and Accounting in the Global Firm