Question 1

The first task in international financial management is to raise funds for the firm.

Accepted Answer

The first task in international financial management is to assess and manage the risks associated with international business operations. Raising funds is an important part of international financial management, but it is not the first task.

Question 2

When a Japanese firm sells yen-denominated bonds in the United States, it is issuing foreign bonds.

Accepted Answer

False

Question 3

The last task in international financial management is to manage the diversity of international accounting and tax practices.

Accepted Answer

Managing the diversity of international accounting and tax practices is indeed a crucial task in international financial management. Different countries have different accounting standards and tax regulations that companies need to comply with when operating internationally. Failure to comply with these standards can lead to legal and financial consequences, making it important for companies to have a clear understanding of the accounting and tax practices in each country they operate in and manage them accordingly.

Question 4

Countries such as Germany, Italy, and Japan view a high debt ratio as undesirable, and the leaders of these nations encourage firms to balance their capital structure with more equity financing, which is readily available.

Accepted Answer

The answer of Countries such as Germany, Italy, and Japan...

Question 5

Gains and losses do not directly affect cash flows in the case of translation exposure, but cash flows can be significantly affected by transaction exposure.

Accepted Answer

Translation exposure relates to the impact of currency fluctuations on the financial statements of a company's foreign subsidiaries, which does not directly affect cash flows. On the other hand, transaction exposure relates to the impact of currency fluctuations on future cash flows from contractual obligations in foreign currencies, which can significantly affect cash flows.

Question 6

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

This statement is true. A centralized depository allows managers to consolidate liquid accounts and invest the funds to earn higher interest rates, ultimately generating maximal returns.

Question 7

Firms obtain debt financing by selling stock shares to investors who then have an ownership interest in the firm.

Accepted Answer

Firms obtain equity financing by selling stock shares to investors, which gives the investors an ownership interest in the firm. Debt financing, on the other hand, involves borrowing money from lenders and repaying the principal plus interest over time.

Question 8

A project perspective approach in capital budgeting can be employed by managers interested in initially screening the appropriateness of an international capital investment project.

Accepted Answer

A project perspective approach in capital budgeting involves evaluating the potential return on investment of a specific project rather than looking at the overall financial performance of the company. This approach can be useful in screening the appropriateness of an international capital investment project before making a final decision.

Question 9

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

Accepted Answer

Intra-corporate fund transfers through royalty payments, transfer pricing, and multilateral netting allow MNEs to access cash from their subsidiaries.

Question 10

A firm in need of short-term financing will most likely turn to the global money market instead of the global capital market.

Accepted Answer

The global money market provides short-term financing options, while the global capital market provides long-term financing options. Therefore, a firm in need of short-term financing is more likely to turn to the global money market.

Question 11

Equity financing comes from either of two sources: (i) loans from banks and other financial intermediaries, or (ii) the sale of corporate bonds to individuals or institutions.

Accepted Answer

Equity financing does not involve loans or corporate bonds. It involves the sale of stocks or ownership in the company to investors in exchange for funding.

Question 12

The global capital market has grown rapidly due to government deregulation, which has made international movement of capital easier.

Accepted Answer

Government deregulation has led to a reduction in barriers for international movement of capital, making it easier for investors to participate in the global capital market. This has contributed to the rapid growth of the market.

Question 13

Euro bond is a bond sold outside the issuer's country and denominated in the currency of the country where issued.

Accepted Answer

The answer of Euro bond is a bond sold outside...

Question 14

Unlike exporters and licensors, who both face currency risk, managers of foreign investment portfolios are sheltered from the rise and fall of exchange rates.

Accepted Answer

Managers of foreign investment portfolios are not completely sheltered from the rise and fall of exchange rates, as changes in currency values can still affect the returns on their investments. However, they may have more flexibility in responding to currency fluctuations compared to exporters and licensors.

Question 15

The purpose of capital budgeting is to defer payment for goods and services received from the parent firm.

Accepted Answer

The purpose of capital budgeting is to determine which long-term investment projects the company should pursue in order to maximize shareholder wealth. It involves analyzing the cash flows of potential investments and assessing their risks and returns. It is not related to deferring payment for goods and services received from the parent firm.

Question 16

Capital budgeting in MNEs is protected from country risks or government intervention.

Accepted Answer

Capital budgeting in MNEs may not be protected from country risks or government intervention, as these factors can have significant impacts on the availability and cost of capital, as well as on the viability of investment projects. MNEs must carefully consider and assess these risks when making capital budgeting decisions in foreign markets.

Question 17

Estimating project cash flows is complex and requires forecasting a range of variables that contribute to anticipated revenues and costs over several years.

Accepted Answer

Estimating project cash flows involves forecasting variables such as sales, production costs, labor costs, marketing expenses, and capital expenditures over a period of several years. This requires a thorough analysis of market trends, competition, and other economic factors that can affect the project's financial performance. It also involves calculating net present value (NPV) and internal rate of return (IRR) to determine the project's profitability and feasibility. Therefore, it is a complex process that requires careful planning and accurate projections.

Question 18

Transaction exposure refers to the impact of exchange rate fluctuations on long-term profitability resulting from miscalculated expenses and revenues.

Accepted Answer

The answer of Transaction exposure refers to the impact of...

Question 19

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 20

The NYSE Euronext and the NASDAQ Stock Market are the largest in terms of volumes of shares traded.

Accepted Answer

The NYSE Euronext and the NASDAQ Stock Market are indeed the two largest stock exchanges in terms of shares traded globally.

Quiz 20: Financial Management and Accounting in the Global Firm