Unit 5 - D080

International Financial Reporting Standards (IFRS)

A collection of accounting principles used through much of the world outside the United States.

GAAP

A collection of generally accepted accounting principles used in the United States

lean manufacturing principles

A collection of methods or theories for reducing waste in manufacturing

supply chain networks

A complex, evolved form of a supply chain that includes secondary support and multiple, interrelated supply and distribution lines

forward contract

A contract in which the firm agrees to pay a set rate at the beginning of a contract.

Currency swap contracts

A contract where 2 firms agree to swap currencies in the future at a previously agreed exchange rate.

tax haven

A country that has very low corporate taxes

fronting loan

A loan made between a parent company and its subsidiary through a financial intermediary such as a bank

Make-to-order

A manufacturing method that allows customers to customize the product

Mass customization

A manufacturing method that combines the flexibility of custom production with the scale of mass production by allowing the customer to dictate some of the design elements in products that will have a wide distribution

Mass production

A manufacturing method that creates large amounts of identical products

return volatility

A measure of the variation in returns on an investment

long position

A strategy used in investing of a trader who buys an asset with expectation that it will increase in value

short position

A strategy used in investing of a trader who sells someone else's asset with the expectation of buying it back later when it decreases in value

venture capital (VC)

A type of high-risk investing

Macro risk

A type of political risk in which political factors impact the overall stability of a country and can impact any industry regardless of industry type.

micro risk

A type of political risk that applies to a specific foreign company or a group of foreign companies in a country.

Assets

A useful or valuable thing; something you own such as building, inventory, or cash

production cycle

All the activities involved in creating a product

Debt

Amount owed to someone

Financial Accounting Standards Board

An independent group that oversees the development and revision of the GAAP

International Accounting Standards Board (IASB)

An independent group that oversees the development and revision of the IFRS

indirect channel

An indirect path between producer and consumer with intermediaries

foreign currency

Any form of money in circulation in a different country

Which advantage is an outcome of exporting products to a developed country?

Better established infrastructure Developed countries have better established infrastructures that make it easier to distribute products.

Which advantage do intermediaries offer when a manufacturer uses an indirect marketing channel to distribute its products?

Broader knowledge about the existing markets One of the main reasons to use an indirect channel is that the marketing intermediaries to which the producer sells may know more about the markets.

Which distribution system should be used by a company wanting to maximize its control over the distribution of its products when entering a new country?

Building its own A company that wants to control the distribution process should create its own system.

How does the Export-Import Bank of the United States (Ex-Im Bank) help exporters?

By offering financing support for a portion of the export value The Ex-Im Bank helps exporters by offering financing support for up to 85% of the export value if the export company has a buyer for product but is unable to secure financing in its home country.

A company in the United States has encountered a financial reporting situation that is not currently addressed by the accounting standards of the country. How should the U.S. company proceed?

Consult with the FASB The Financial Accounting Standards Board (FASB) is an independent group that developed and oversees revisions to the generally accepted and standardized methods of recording and reporting financial accounting information used exclusively in the United States.

Currency futures contracts

Contracts that require the exchange of a specific amount of currency at a specific future date and at a specific exchange rate

What is the purpose of the IASB?

Creating international standards of accounting The IASB is responsible for creating international standards of accounting.

Which source permits a high number of funders to each participate with a small amount of capital and cumulatively contribute to a new venture?

Crowdsourcing Crowdsourcing is a model in which finances are gathered from a large group of funders. It divides investments between participants to achieve a cumulative result.

Which source of funding uses technology platforms to invite consumers to invest small amounts in support of a business idea or venture?

Crowdsourcing Crowdsourcing uses technology platforms to invite consumers to invest small amounts in support of a business idea or venture. Supporters generally receive a product or other incentives.

Which globalization risk involves the societal expectations and standards of an organization operating in a foreign environment?

Cultural Cultural risk is related to companies' operating in a different sociocultural environment.

spot rate

Currency exchange rates that require immediate settlement with the delivery of the traded currency.

Which type of risk refers to the impact of random change in the value of one currency with respect to other currencies?

Currency risk The fluctuation in currency value that causes potential risk is referred to as currency risk.

A farmer sells sweet corn to customers at a local farmers market. Which marketing channel is being used by the farmer?

Direct channel When a producer sells to customers, it is a direct marketing channel.

Which distribution strategy has grown rapidly due to the increase in e-commerce?

Direct channel distribution Direct channel distribution has grown rapidly as a result of the popularity of e-commerce.

direct distribution strategy

Distribution strategy that reaches customer directly without any intermediaries; distribution channel and distribution strategy are often used interchangeably

indirect distribution strategy

Distribution strategy that uses intermediaries to reach customers; distribution channel and distribution strategy are often used interchangeably

Which globalization risk refers to the level of financial stability in a country?

Economic Economic risk involves the level of financial stability in a country.

Which company relationship is negatively affected if the company uses outsourcing to reduce costs?

Employee Outsourcing will cause some employees to lose their jobs. Fear can grip the company if outsourcing of production or another major element of the company is outsourced or moved offshore.

A company would like to obtain the benefits of outsourcing and focus solely on marketing activities and research and development. Which advantage is this company hoping to achieve?

Enhanced core business activities The ability to focus on core business activities is one advantage of outsourcing by minimizing distraction created by performing activities that are not core business activities.

crowdsourcing

Enlisting the help of a large number of people, often via the internet

Which self-governing group is supported by the U.S. government, various accounting establishments, and privately owned companies to establish accounting standards?

FASB The Financial Accounting Standards Board (FASB) is self-governing and supported by the U.S. government, various accounting establishments, and privately owned companies.

Which currency contract establishes a specific rate at the beginning of the contract for delivery at a future date?

Forward contract In the forward contract, a firm agrees to pay a specific rate at the beginning of the contract for delivery at a future date.

Which currency contract requires a specific exchange rate and quantity of money on a subsequent date?

Futures contracts Futures contracts oblige an exchange of a certain amount of currency on a defined date and rate.

Which U.S.-based set of accounting principles was created to establish rules and regulations for financial accounting?

GAAP Generally Accepted Accounting Principles (GAAP) were created in the United States to deliver financial accounting direction and regulation.

A government is managing a difficult economy that appears to be at a stand-still and a direct-tax rate that is rapidly decreasing. The government decides to use an indirect tax to improve the situation. Which tax did this government use?

Goods and services Goods and services are indirect taxes many governments worldwide introduce as direct-tax rates continue to decrease.

Which term defines using currency derivatives to reduce potential currency risks due to currency exchange rate movement that could lead to losses for a firm?

Hedging This is the definition of hedging.

outsourcing

Hiring staff or business outside the company to complete business activities

Which set of standards establish international accounting regulations and reporting expectations?

IFRS International Financial Reporting Standards (IFRS) is a set of standards by the International Accounting Standards Board (IASB) that establishes international accounting standards and reporting expectations.

A company wishes to make a foreign direct investment in a new country where it can make and test products more easily. While local suppliers would not normally meet the requirements for its products, this new plant will accept them. Which factor affected the company's production location?

Innovation The company is using the foreign direct investment to use local suppliers to make and test the new products. The company is using the location to promote innovation.

Which globalization risk refers to the adherence to laws of countries in which an organization may operate?

Legal Legal risk involves adherence to the laws of countries in which an organization may operate.

A German company is considering outsourcing the manufacturing process to Japan. Some of the executive board directors are concerned that the Japanese company may not follow the exact production processes the German company normally uses. Which risk represents this concern?

Loss of control The German company is concerned that the Japanese company will not follow its normal production process and might cause quality issues. This concern is related to loss of control of the production process due to outsourcing.

A company wants to move production offshore to a low-skilled labor company because the company's machines will make the product and it only needs these low-skilled operators to work the machines. Which advantage of outsourcing does the company seek to take?

Lower costs In this advantage, the company seeks another to produce the products in a place of lower labor cost. The company in the scenario is seeking these low-skilled operators to reduce costs.

Multinational production

Manufacturing process that spans multiple countries outside a firm's country of origin, usually in a coordinated multistage system

A global company that makes promotional products, like those for corporate gifts, allows customers to engrave their corporate name and logo onto finished products. The company then ships these products to the customers. Which production process is the company using?

Mass production Mass customization combines the advantages of customized products with those of mass production, where the already finished products are customized at the very end of the production process.

An aircraft manufacturer uses a supply chain management system in which parts of the aircraft are made in different countries and assembled at the company's headquarters. Which type of supply chain is the company using?

Multinational Multinational supply chains seek to use production strengths and low costs of different suppliers around the world. Using a multinational supply chain reduces the risk of a catastrophic event, reducing a company's ability to produce a product.

A car manufacturing company manufacturers tires in Countries A, B, and C. Country A has significant political turmoil that has resulted in a lengthy labor strike. Countries B and C have ramped up production resulting in sustained tire production for the company. Which practice has the company used to optimize its production efficiency?

Multinational production There are three countries producing the same tires. If something like a strike occurs in one, the others can ramp up their production.

Which currency contract allows for a trade of specific amount of money and exchange rate on a defined date to hedge risk in the global environment?

Options contract Option contracts offer the owner the right to a specified exchange rate for a particular quantity of money on a particular date but do not oblige the owner.

Which financing source provides funding for capital through private connections with help limited to monetary contributions?

Personal contacts Personal contacts can provide funding, which is usually only for capital, and do not include help beyond monetary contribution.

Which globalization risk involves governments and the relationships between countries?

Political Political risk involves governments and the relationships between countries.

A multinational company produces a product in a country where the leaders are known for occasional asset seizure. Which risk does the company need to mitigate?

Political risks Asset seizures are a type of political risk.

political risk

Possible political changes or instability in a country that could hurt a company's financial return on a foreign investment.

Which term refers to the price paid by the buyer to the seller in a currency option contract?

Premium This is the definition of premium for an option contract.

Which organization formed in 1970 supplements the funding available from commercial banks and other lenders to support U.S. exports?

Private Export Funding Corporation (PEFCO) This is a private-sector organization formed in 1970. It aims to support the funding of U.S. exports by supplementing the funding available from commercial banks and other lenders.

A company wishes to expand internationally in countries that have high tariffs on the product the company makes. The company decides to use foreign direct investment because the labor costs are low and the country is politically stable. Which type of production is the company using?

Production in the host country then local retailing In countries with high tariffs on a product, for example an automobile, a company will produce the vehicle in the host country and sell that automobile in the host country thus avoiding the tariffs.

Which model of supply chain management focuses on the product and its production?

Push n this model of supply chain management, all parts of the production process focus on how to produce the product and then move it through the distribution channel to the customer. The marketing process focuses on pushing the product on the consumer.

A company is considering using a direct distribution strategy. What is a disadvantage of this distribution strategy?

Required to arrange for transportation Arranging for transportation adds complexity to the company operations and is therefore a disadvantage of a direct distribution channel.

A global company has decided to adopt a pull business model when expanding to new markets around the globe. What is a distinguishing characteristic of this business model?

Shift in the balance of power from suppliers to customers A customer-driven pull business model is more directly focused on the individual consumer. As a result, there is a shift in the balance of power from suppliers to customers.

derivatives

Special types of financial instruments, the prices of which are ultimately derived from the price or performance of some underlying assets.

A company in the United States is considering a joint venture with a French supplier and needs to learn about the accounting standards used in France. How should the U.S. company approach this situation?

Study the International Financial Reporting Standards (IFRS) online The International Financial Reporting Standards (IFRS) provide globally accepted, authoritative, and standardized methods of recording and reporting financial accounting information used in over 110 countries. France uses IFRS for accounting.

Which currency contracts are two-way agreements to trade currency on different dates?

Swap contracts Swap contracts are two-way agreements to exchange currency on different dates.

A company has achieved a monetary advantage by using a fronting loan with a subsidiary in a country with a low corporate income tax rate. Which type of tax situation in this country allows the company to achieve this monetary advantage?

Tax haven A tax haven, a country with a low tax rate, would keep the subsidiary from paying taxes on the interest earned from the loan. This reduces the amount of taxes in comparison to a regular corporate tax situation.

currency translation

The act of translating currencies on a financial statement to another currency.

country-of-origin effect

The effect the consumer's perception or opinion of the country where a product is made has on the consumer's perception or opinion of the product itself

supply chain management

The management of the flow of goods or services through the process of moving from production to customer

foreign exchange market

The market in which people use one currency to buy another currency

fixed costs

The necessary expenses of the manufacturing process other than the cost of materials or labor used in production

Currency option contracts

The option or the right to exchange a specific amount of currency on a specific future date and at a specific agreed-on rate

transfer pricing

The practice of shifting assets to a subsidiary in a country with a better tax bracket

exchange rates

The price of one currency expressed in terms of units of another currency

value chain

The process by which a company adds value to product, such as production, marketing, and service

distribution

The process of supplying goods to customers

currency risk

The risk of a change in the exchange rate that will have an adverse effect.

Supply chain

The sequence of processes involved in the production and distribution of a commodity

direct channel

The shortest path between a producer and a consumer

value-to-weight ratio

The value of a product per pound or kilogram

marketing channel or distribution channel

The way a seller connects with a customer; sometimes called a distribution channel The way a seller makes a product available to a customer to buy; sometimes used interchangeably with marketing channel

pull model

Theory in supply chain management that bases decisions and activities on the needs of the customer

push model

Theory in supply chain management that focuses decisions on the needs of the product

Private Export Funding Corporation (PEFCO)

This is a private-sector organization formed in 1970. It aims to support the funding of U.S. exports by supplementing the funding available from commercial banks and other lenders.

Why should a company identify corporate tax rates in various countries to make a strategic business decision, such as expanding the company globally?

To determine most profitable location of plants and headquarters A company should identify corporate tax rates to determine the most profitable location of plants and headquarters, which are strategic decisions related to expanding globally. Corporate tax rates affect foreign direct investment and other strategic decisions.

A high-end global computer company concludes that it needs to concentrate on gaining production efficiencies with its manufacturing processes. The company decides to outsource the manufacturing of key strategic parts of its products to Vietnam. Why does this company decide to utilize outsourcing?

To reduce costs Cost savings is an advantage of outsourcing and may result from outsourcing the manufacturing process to Vietnam.

A multinational company moves key production assets to a country with lower tax rates to avoid paying more taxes in the home country. Which type of pricing should be used to reduce taxes during production?

Transfer Transfer price is the price charge between the transfer of completed or uncompleted goods between subsidiaries of the same company. When subsidiaries are in different countries, goods are often produced in the lowest tax rate country.

A multinational corporation would like to maximize profits by moving products to international subsidiaries to gain tax advantages. Which pricing strategy should this corporation use for this purpose?

Transfer pricing Transfer pricing involves conducting business among cross-border subsidiaries, often producing the product in the country with the lowest costs and tax rates.

hedging

Using financial instruments to reduce adverse price movements

insourcing

Using in-house staff to complete a business task

Equity

Value of the shares of a company

A multinational company that is considering making a foreign direct investment is concerned that the new country has an indirect tax in addition to corporate taxes. This would reduce the company's profit. Which type of tax is of concern to this company?

Value-added Consumption taxes, such as value-added taxes and goods and services taxes, are indirect taxes. They are paid based on the increase in value resulting from the production process.

Which type of investor secures funding from a number of speculative financiers and pursues strong global business opportunities still in the start-up phase?

Venture capitalists Venture capitalists provide high amount of capital to early-stage, emerging firms that are deemed to have high growth potential.

JETRO

offers subsidies to potential companies, makes offices available for up to four months while the foreign firm researches the Japanese market, and provides exhibition space when the company is ready to display its products to prospective Japanese importers.

Overseas Private Investment Corporation (OPIC)

stablished as an agency of the U.S. government in 1971. It helps U.S. businesses invest overseas, particularly in developing countries. It provides debt financing, political risk insurance, and support for private equity funds