Question 1

What are the tax advantages of fronting loans by a subsidiary located in a tax haven?

Accepted Answer

The answer of What are the tax advantages of fronting...

Question 2

Two friends consider opening a driving range for golfers.They estimate such a range could generate rentals of 20,000 buckets at $3 a bucket in the first year,and expect rentals to grow at 750 buckets a year thereafter.The equipment requirements include ball dispensing machines,the ball pick-up,and the vehicle tractor that will cost $8,000,$2,000,and $8,000 respectively.The net working capital is $3,000 to start with,and is expected to grow at 5% per year.The annual fixed operating cost for balls and baskets will initially be $3,000 and is expected to grow at 5% per year.The fixed costs of leasing the land and its upkeep will be $53,000 per year.The above is an example of:
A)debt financing.
B)capital budgeting.
C)equity financing.
D)trade credit.
E)multilateral netting.

Accepted Answer

The scenario describes the process of capital budgeting, which involves estimating the cash inflows and outflows of a potential project and determining its financial viability. The equipment and operating costs are considered investment or capital expenditures, while the expected rental revenues are cash inflows. The net working capital and fixed costs are also taken into account. The decision to open a driving range for golfers involves making a capital budgeting decision about whether the expected financial returns outweigh the costs of the project.

Question 3

An American aircraft manufacturer has a subsidiary in Indonesia.The subsidiary needs funding to expand its operations.The parent company deposits the required funds in a London based international bank.The money is then transferred to the subsidiary by the bank.The above serves as an example of:
A)debt financing.
B)transfer pricing.
C)equity financing.
D)trade credit.
E)fronting loan.

Accepted Answer

This scenario is an example of a fronting loan, where a parent company deposits funds in an international bank, which then lends the money to the subsidiary. This is often done to bypass restrictions on direct loans from parent companies to subsidiaries, especially in different countries.

Question 4

Why do multinational firms choose to raise money in foreign markets?

Accepted Answer

The answer of Why do multinational firms choose to raise...

Question 5

An ice cream vendor signs a franchising agreement with the distributor.Under the agreement the distributor agrees to provide ice cream stock with a 10% discount on payment within 30 days,and a 20% discount on payment within 10 days.The distributor allows the operator 90 days to pay for the ice cream stock in full.The above serves as an example of:
A)debt financing.
B)capital budgeting.
C)equity financing.
D)trade credit.
E)loan fronting.

Accepted Answer

The given scenario describes a trade credit agreement where the distributor is providing stock on credit to the operator. The different discounts offered on early payment are common trade credit terms. Therefore, the correct choice is D – trade credit.

Question 6

What facts must be considered by an organization when using centralized depositories?

Accepted Answer

The answer of What facts must be considered by an...

Question 7

What alternatives to interest and speculative investments are approved by Sharia?

Accepted Answer

The answer of What alternatives to interest and speculative investments...

Question 8

Sharia prohibits "gharar" which means "_____" and includes conventional practices like short selling.
A)interest rate
B)uncertainty
C)gambling
D)lease
E)partnership

Accepted Answer

Sharia prohibits "gharar" which means "uncertainty". This includes conventional practices like short selling, as the final outcome is unknown and uncertain.

Question 9

Which of the following statements holds true for "musharakah," an investment partnership approved by the Sharia?
A)It refers to a partnership in which the investor provides capital to another party or entrepreneur in order to undertake a business or investment activity.
B)It refers to a partnership which allows a special partner,whose name does not appear in that of the firm,to put in a limited amount of capital and to receive a corresponding share of the profits.
C)It refers to a partnership,wherein the profits are shared on an agreed-upon ratio but the loss of investment is borne only by the investor.
D)It refers to a partnership wherein the individuals agree to share the profits and losses together without fixing any limitations or conditions.
E)It refers to a partnership wherein profits are shared per an agreed-upon ratio and losses are shared in proportion to the capital or investment of each partner.

Accepted Answer

Musharakah is an investment partnership approved by the Sharia in which profits are shared according to an agreed-upon ratio and losses are shared in proportion to the capital or investment of each partner. This type of partnership is often used in Islamic finance. The other options provided do not accurately describe the characteristics of musharakah.

Question 10

_____ refers to the pricing that takes place between entities owned by the same parent firm where one subsidiary (or subunit of the company) charges another subsidiary (or subunit) for a product or service supplied to that subsidiary.
A)Competition-based pricing
B)Limit pricing
C)Penetration pricing
D)Premium pricing
E)Transfer pricing

Accepted Answer

Transfer pricing refers to the process of setting a price for goods or services transferred between different units or divisions within the same company. It is used to determine the cost of goods or services that are being transferred, which can affect the profitability of the different units involved. Transfer pricing is important for tax purposes, as it can impact the amount of taxes paid by the different units and the overall tax liability of the company.

Question 11

Which of the following statements is true about bilateral netting?
A)It refers to the process of financing long-term outlays for major projects such as plant expansion,entry into new markets,or research and development.
B)It refers to raising capital by borrowing the money and agreeing to repay the entire amount plus agreed-upon interest at a specific date in the future.
C)It refers to raising capital by selling shares of stock across many countries.
D)It refers to a set of procedures used to estimate the economic value of an owner's interest in a business.
E)It refers to a technique that companies use to reduce the costs of cross-border payments between two subsidiaries.

Accepted Answer

Bilateral netting is a technique used to reduce the costs of cross-border payments between two subsidiaries. It involves offsetting the amount owed to each other by each subsidiary, so that only the net amount is transferred between them. This can save on foreign currency transaction fees and reduce currency conversion costs.

Question 12

Which of the following statements holds true for a decentralized financial organization structure?
A)The government of the host country in which the subsidiary is located makes financing or investment decisions for the organization,taking advantage of local knowledge and moving quickly to respond to opportunities or uncertainties.
B)A decentralized financial organization structure enables the firm to gain economies of scale for investment and borrowing activities that can reduce transaction costs and provide the firm with the most competitive pricing.
C)Subsidiaries or regions make financing or investment decisions for their region,taking advantage of local knowledge and moving quickly to respond to opportunities or uncertainties.
D)The financial institutions which fund the organization set guidelines for the headquarters as well as the subsidiaries to follow,pool funds,leverage the benefits of scale for investment and borrowing,and hire knowledgeable staff to make the most effective,firm-wide decisions.
E)All finance decisions are performed at headquarters,which sets guidelines for subsidiaries to follow,pools funds,leverages the benefits of scale for investment and borrowing,and hires knowledgeable staff to make the most effective,firm-wide decisions.

Accepted Answer

A decentralized financial organization structure allows subsidiaries or regions to make financing or investment decisions for their region, taking advantage of local knowledge and moving quickly to respond to opportunities or uncertainties. This provides greater flexibility and responsiveness to local market conditions.

Question 13

What repercussions did the US CFOs anticipate when the Chinese government decided to allow the Yuan to float more freely in relation to other international currencies in 2010?

Accepted Answer

The answer of What repercussions did the US CFOs anticipate...

Question 14

What is the role of government in terms of international business and finance?

Accepted Answer

The answer of What is the role of government in...

Question 15

How is Indonesia making itself attractive to foreign investors?

Accepted Answer

The answer of How is Indonesia making itself attractive to...

Question 16

What are the reasons for adopting one global accounting standard across the financial world?

Accepted Answer

The answer of What are the reasons for adopting one...

Question 17

Why do some firms choose a decentralized financial organization structure?

Accepted Answer

The answer of Why do some firms choose a decentralized...

Question 18

What are the disadvantages of transfer pricing?

Accepted Answer

The answer of What are the disadvantages of transfer pricing?...

Question 19

Which of the following statements holds true for "mudarabah," an investment partnership approved by the Sharia?
A)It refers to a partnership in which one partner takes part in financial practices like charging interest on money,speculation,insurance,and derivatives.
B)It refers to a partnership that allows a special partner whose name does not appear in that of the firm,to invest a limited amount of capital and to receive a corresponding share of the profits and to bear any corresponding losses.
C)It refers to a partnership in which the profits are shared on an agreed-upon ratio but the loss of investment is borne only by the investor.
D)It refers to a partnership whereby the individuals agree to share the profits and losses together without fixing any limitations or conditions.
E)It refers to a partnership wherein profits are shared according to an agreed-upon ratio and losses are shared in proportion to the capital or investment of each partner.

Accepted Answer

Mudarabah is a form of investment partnership under Islamic finance where the profits are shared according to a pre-agreed ratio, while losses are borne solely by the provider of the capital, aligning with the principles of risk and reward in Islamic finance.

Question 20

What are the advantages of a centralized structure in an organization?

Accepted Answer

The answer of What are the advantages of a centralized...

Quiz 15: Understanding the Roles of Finance and Accounting in Global Competitive Advantage

What are the tax advantages of fronting loans by a subsidiary located in a tax haven?

An American aircraft manufacturer has a subsidiary in Indonesia.The subsidiary needs funding to expand its operations.The parent company deposits the required funds in a London based international bank.The money is then transferred to the subsidiary by the bank.The above serves as an example of:

Why do multinational firms choose to raise money in foreign markets?

What facts must be considered by an organization when using centralized depositories?

What alternatives to interest and speculative investments are approved by Sharia?

Sharia prohibits "gharar" which means "_____" and includes conventional practices like short selling.

Which of the following statements holds true for "musharakah," an investment partnership approved by the Sharia?

_____ refers to the pricing that takes place between entities owned by the same parent firm where one subsidiary (or subunit of the company) charges another subsidiary (or subunit) for a product or service supplied to that subsidiary.

Which of the following statements is true about bilateral netting?

Which of the following statements holds true for a decentralized financial organization structure?