GEB Final Ch10
Assume that U.S. MNE A earns $100,000 of foreign source income, that the tax rate in the foreign country is 40 percent, and that the tax rate in the United States is 35 percent. How much total (both domestic and foreign) tax would the company pay on that foreign source income, assuming that the tax credit principle applies?
$40,000
According to 2010 data, which of the following statements about the mix of debt and equity to fund operations is true?
A growing number of Russian firms are relying more on debt.
Which of the following is NOT an advantage of ADRs to U.S. shareholders?
All of the above are advantages of ADRs.
Tax-haven subsidiaries categorically referred to as International Offshore Financial Centers, have the following characteristics EXCEPT ________.
All of the above are tax-haven subsidiary characteristics.
A negotiable certificate issued by a U.S. bank to represent the underlying shares of a foreign corporation's stock is called a(n) ________.
American Depositary Receipt
The best way for a Euroequity to get a listing in the United States is to issue a(n) ________.
American Depositary Receipt
Which of the following countries is an important offshore financial center?
Bermuda
Acquiring and allocating financial resources among the company's activities and projects is the responsibility of the ________.
CFO
Vale, the large Brazilian mining company, is trying to decide if it wants to invest in a Canadian nickel mine. Which of the following questions is LEAST relevant to Vale's capital budgeting decision?
Does Brazil or Canada have the absolute advantage in exporting?
A bond issue floated by a U.S. company in dollars in London, Luxembourg, and Switzerland by a syndication of bonds is an example of a ________.
Eurobond
What term refers to a currency on deposit outside its country of issue?
Eurocurrency
The market for shares sold outside the boundaries of the issuing company's home country is the ________.
Euroequity market
A tax credit is a credit on goods and services paid by one member of a corporate family to another.
FALSE
ADRs cannot be exchanged for the underlying shares of the foreign stock, therefore, arbitrage cannot keep the prices in line with the foreign price of the stock.
FALSE
Acquiring and allocating financial resources among the company's activities and projects is the responsibility of the financial marketing manager.
FALSE
Another source of financing, in which an investor takes an ownership position in return for shares of stock in the company and the promises of capital gains, is called debt financing.
FALSE
Equity financing is the degree to which a firm funds the growth of a business by debt.
FALSE
Taxation is an important cash flow issue, but it typically does not have a strong impact on the choice of organizational form (such as branch or subsidiary) or the location of an investment.
FALSE
The Eurocurrency market is a retail, rather than wholesale, market.
FALSE
The Eurocurrency market is limited to exchanges that include the euro.
FALSE
The Japanese yen makes up the largest portion of the international bond market.
FALSE
The OECD has set transfer pricing guidelines to enhance the manipulation of prices and therefore taxes for MNEs and the countries where they operate.
FALSE
The best way for a Euroequity to get a listing in the United States is to issue a Global Depositary Receipt.
FALSE
The international bond market is much larger and more lucrative than the domestic bond market.
FALSE
A major challenge to Global Positioning Systems in providing foreign-exchange services to its clients is that ________.
GPS has to constantly upgrade the quality of the services it offers
Depositary receipts traded outside the United States are called ________ depositary receipts.
Global
When Sistema, a Russian company, issued a U.S. dollar stock offering in London, its shares were classified as a(n) ________.
Global Depositary Receipt
Which of the following is a true statement about the Euroloan market?
It is extremely competitive and lenders operate on razor-thin margins.
Which of the following is unique to foreign project assessment in the capital budgeting decision?
Local tax issues affect the determination of free cash flows and the remittance of earnings.
On the basis of which interest rate are Euroloans often quoted?
London Interbank Offer Rate
________ focus on offering banking and other financial services to nonresident customers.
Offshore financial centers
A Eurocurrency is any currency that is banked outside its country of origin.
TRUE
A French company floating a bond issued in Swiss francs in Switzerland would be selling a foreign bond.
TRUE
A major problem with MNEs using offshore financial centers is that they may give unfair tax advantages to companies.
TRUE
A transfer price is a price on goods and services sold by one member of a corporate family to another.
TRUE
An ADR is a negotiable certificate issued by a U.S. bank in the United States to represent the underlying shares of a foreign corporation's stock held at a custodian bank in the foreign country.
TRUE
Capital budgeting requires companies to determine free cash flows, which are affected by factors such as local tax rates.
TRUE
For U.S. MNEs, the tax-deferral privilege operating through a foreign subsidiary was not originally a tax loophole. On the contrary, it was granted by the U.S. government to allow U.S. firms to expand overseas and place them on a par with foreign competitors, which also enjoy similar types of tax deferral and export subsidies of one type or another.
TRUE
Low-cost Eurocurrency loans can be obtained in offshore financial centers.
TRUE
MNCs can cross-list their common stocks on multiple stock exchanges.
TRUE
Subpart F income is passive and usually derived from operations in a tax-haven country.
TRUE
Tax law variations around the world affect an MNE's capital budgeting, financing, and method of setting transfer prices.
TRUE
The dominant currencies in the international bond market are the euro and the U.S. dollar.
TRUE
The long-term financing dimension of cash management deals with the selection, issuance, and management of long-term debt and equity.
TRUE
The primary objective of multinational tax planning is to minimize the firm's worldwide tax burden.
TRUE
The principle by which the tax authorities allow firms to reduce their tax liability by the amount of income taxes paid to a foreign government is known as a tax credit.
TRUE
The typical tax-haven subsidiary owns the common stock of its related operating foreign subsidiaries.
TRUE
Two forms of equity financing are private placement with a venture capital firm and the equity capital market, otherwise known as the stock market.
TRUE
Which of the following is a characteristic of the Eurocurrency market?
The Eurocurrency market is both short and medium term.
________ is the pricing of goods, services, and technology between related companies.
Transfer pricing
All of the following are part of the global financial system except the ________.
World Trade Organization
What is a Eurodollar?
a U.S. dollar deposited in a European bank
Each ADR represents ________ of the shares of the underlying foreign stock.
a multiple
The principle by which the tax authorities allow firms to reduce their tax liability by the amount of income taxes paid to foreign governments is known as ________.
a tax credit
The CFO's function in a company focuses on ________.
acquiring financial resources
Foreign source income that is derived from the active conduct of a trade or business and therefore subject to U.S. taxation is known as ________.
active income
According to U.S. tax law, if a foreign subsidiary earns income, ________.
active income is taxable to the parent when it is remitted as a dividend
One way to account for the challenge of the variability of future cash flows is to ________.
adjust the hurdle rate for the project
Transfer pricing is a strategy that may be used by MNEs to
all of the above.
Global Positioning Solutions Inc. is a Utah-based company that ________.
assists firms that have foreign-exchange needs but that lack in-house foreign-exchange teams
The financial management activity that determines the proper mix of debt and equity is ________.
capital structure
The OECD is concerned about transfer pricing practices because ________.
companies use transfer prices to manipulate prices and therefore taxes
What is the main challenge companies' face in listing ADRs in the United States?
complying with SEC reporting requirements
The long-term financing dimension of cash management ________.
deals with the selection, issuance, and management of long-term debt and equity
Foreign branch income is ________.
directly included in the parent's taxable income in the year in which it is earned
Firms most likely borrow money in the international bond market to ________.
enable diversification of funding sources
What is the primary concern about offshore financial centers?
enabling firms to avoid taxation
Brooke buys shares of stock in a small bakery in a foreign country in return for an ownership position and promised capital gains. This is an example of ________.
equity securities
The stock market is also known as the ________.
equity-capital market
A bond issued by a Brazilian company in British pounds in London is a ________.
foreign bond
A bond that is issued by Nestle, a Swiss company, which is denominated in yen and sold to residents of Japan is most likely a ________.
foreign bond
A(n) ________ is a large, liquid financial asset that can be traded anywhere at any time.
global bond
If a foreign subsidiary is located in a low tax country, the parent company would probably use a ________.
high transfer price on goods sold by the subsidiary to the parent
Which of the following financing tactics would most likely help an MNE avoid bankruptcy?
keeping the percentage of debt in the capital structure to a level that can be managed even during difficult business conditions
Which of the following is a characteristic of most offshore financial centers?
large foreign currency markets
Which of the following is most likely a benefit for firms that participate in the global capital market?
large pool of financing sources
The degree to which a firm funds the growth of a business by debt is known as ________.
leveraging
When using equity financing, firms run the risk of ________.
losing a controlling interest to shareholders
A city or country that provides large amounts of funds in currencies other than its own is a(n) ________.
offshore financial center
Which of the following has extensive banking activities involving short-term financial transactions?
operational center
Which of the following is a primary task of international financial managers?
oversee cash-flow of the firm's value-adding activities
A financial manager in an international company would most likely be responsible for all of the following activities except.
overseeing employee repatriation
Subpart F income is ________.
passive and usually derived from operations in a tax-haven country
Which of the following is a characteristic of most offshore financial centers?
political stability
Capital budgeting is best described as the ________.
process that determines which countries will receive capital investment funds
The global capital market offers all of the following advantages to firms except ________.
short-term financing options
LIBOR is best defined as the ________.
short-term interest rate for dollars held in the Eurodollar market
ADRs that are created at the request of a foreign firm wanting its shares traded in the United States are ________.
sponsored
A situation in which several banks pool resources in the Eurocurrency market to extend credit to a borrower and spread the risk is known as ________.
syndication
Which of the following countries has the largest market for domestic bonds?
the U.S.
The concept of leveraging in finance refers to ________.
the degree to which a firm funds the growth of a business by debt
Which of the following is NOT an advantage associated with Eurocurrencies?
tighter U.S. regulation
MNEs most likely use offshore debt markets ________.
to take advantage of their ability to access capital in different countries
A price on goods and services sold by one member of a corporate family to another is known as a(n) ________.
transfer price
The international bond market is a major source of debt financing for which of the following?
world governments
