Ch. 15
3BL data are not comparable across companies; an alternative is A. the Global Reporting Initiative (GRI). B. an FASB approach. C. a Greenpeace reporting matrix. D. the Environmental and Social Index (ESI).
A
A covered position occurs when A. you have hedged a transaction exposure. B. you can cover your short position with another currency. C. you are covered by insurance against loss in your short. D. you have recovered your basic investment.
A
A forward market hedge A. is accomplished by a contract in the foreign exchange market. B. involves credit. C. should be avoided. D. is rarely used.
A
A fronting loan can be used by the parent company when the A. host government restricts subsidiary remittances. B. local interest rates are higher than those in the home market. C. local banking environment operates on the basis of names rather than figures. D. local subsidiary needs operating capital and cannot obtain local loans.
A
ADRs function to A. eliminate a foreign firm's need for a broker in the U.S. and make currency exchanges. B. protect U.S. citizens from U.S. taxes. C. support international capital markets. D. separate the stock issuer from the stockholder.
A
According to the S. Gray, in the values related to accounting, A. transparency and optimism tend to occur together. B. transparency and conservatism tend to occur together. C. optimism and secrecy tend to occur together. D. honesty is found through the accounting systems of the most conservative countries.
A
Accounting data generated in foreign subsidiaries are used by A. managers, investors, governments, and suppliers. B. foreign governments. C. home-country tax authorities exclusively. D. local managers to make strategic decisions.
A
Accounting standards in the U.S. are allocated by Congress as the responsibility of A. the Security and Exchange Commission (SEC). B. the Secretary of the Treasury. C. a committee of accounting scholars. D. a committee of CFOs.
A
Among the results of convergence will be A. more integrated financial markets and cost savings related to harmonization. B. increases in the cost of listing for U.S. companies abroad. C. increased competition to list in U.S. stock markets. D. increased ambiguity about which standards are operating.
A
An additional source for debt financing is A. offshore financial markets. B. local lines of credit. C. other businesses. D. subsidiaries.
A
Another source of funding for the small firm is venture capital (VC), A. private funding in return for equity. B. although this may be risky due to control issues. C. a government-supported effort to stimulate small business. D. an approach that developed in the EU.
A
Consolidation is the process of A. translating results into one financial statement. B. combining debts for a lower interest rate. C. trading currencies so that a one-currency ledger can be produced. D. moving accounting convergence forward.
A
Countries that value privacy or secrecy over transparency include A. Japan and Germany. B. Spain and Portugal. C. Britain and China. D. the U.S. and Japan.
A
Criticism of 3BL suggests 3BL is comparable to A. a code of ethics hanging on the wall in every office: it does not lead to ethical behavior. B. a public confession. C. PR rather than organizational values. D. a marketing campaign rather than a product.
A
Critics of 3BL claim that A. measuring impacts on social and environmental contexts will not get us closer to the desired state. B. business has no business paying attention to social and environmental impacts; economic impact is what counts. C. measuring is a waste of time and has no impact on the bottom line. D. such concerns are beyond the competency of most managers and are best left to government.
A
Currency fluctuations create risks categorized as A. transaction, translation, and economic exposures. B. domestic and foreign. C. independent and dependent exposures. D. hedging exposures.
A
Currently most businesses measure A. the economic impact of their activities and ignore the social and environmental. B. their market share in economic terms but not social or environmental terms. C. economic and environmental impacts, but not their social impacts. D. none of their impacts, because economic measures are aggregated.
A
Decisions to be made before an IC raises new capital include A. what currency will be used and whether to use equity or debt. B. whether to sell parts of the company and reduce wages. C. what risk profile to assume and for what period. D. what accounting approach and what operating currency to use.
A
FASB 52 requires that companies record foreign currency transactions A. at the spot rate. B. within two days of the transaction. C. in the foreign currency only. D. unless the payment is made in cash.
A
Financial markets are A. not globally integrated. B. global. C. constrained by lack of liquidity. D. not open to foreign businesses.
A
Gains or losses from exchange rate changes in payables or receivables are A. posted in the income statement. B. set aside as tax account payments. C. posted in the payables or receivables as an entry correction. D. carried forward in the payables or receivables, as they tend to even out over time.
A
Gray's dimension of secrecy-transparency measures A. the degree to which companies disclose information to the public. B. the degree to which companies hide information from the public. C. how much of a company's disclosures are accurate. D. how public the company is on wage parity disclosure.
A
How do fronting loans work? A. The parent company deposits the loan amount in an international bank, and then the bank fronts for the parent. B. The parent company deposits the loan amount with the subsidiary, which then uses it to build a relationship with a local bank. C. The parent company signs a collateral note with an international bank, thus fronting for the subsidiary. D. Fronting loans are loans made to startups by the parent company, with no collateral.
A
How many accounting standards are there now in operation? A. Two B. Four C. Six D. Three
A
If a sale made in a foreign subsidiary is in the local currency, and there is a time lag on payment, A. there is likely to be exchange risk. B. interest may be due. C. there is no transaction risk because the currency is local. D. economic risk may be present.
A
In raising capital, an IC can look A. within the larger company and in home, host-country, and third-country capital markets. B. at IMF loans. C. at developing country markets. D. at checking account facilities and overdraft protection.
A
In the current rate, assets and liabilities translated A. at the rate in effect the day the balance sheet is produced. B. at the rate in effect the day the original transaction was posted. C. using an average of the rate of the preceding 10 days. D. at the LIBOR rate on the day before the translation is prepared.
A
Interest rate swaps A. hedge and permit transforming floating-rate debt to fixed-rate. B. provide hedging but not potential rate savings. C. may not be based on outstanding debt. D. allow the firm to delay interest payments.
A
Issuing stocks in foreign markets A. extends the firm's investor pool and often reduces cost of capital. B. supports international debt markets. C. influences local legal systems, in the case of prosecution. D. causes currency problems.
A
It is not uncommon for an international firm (General Electric or Nestlé) to operate in A. 25 local currencies. B. 5 local currencies. C. 3 hard currencies and 10 soft ones. D. both hard and soft currencies, totaling 20.
A
Many countries control foreign ownership of equity, usually in sensitive sectors. They include A. China, India, Mexico, the U.S. B. Germany, France, and Greece. C. the Scandinavian countries. D. the EU.
A
National policies such as these influence the capital structure of the firm— A. restriction on currency exchange, local reinvestment initiatives, and taxation. B. interest rates and nontariff barriers. C. national-level programs to stimulate foreign investment. D. transfer pricing policies.
A
Sanctions by the West on Russia may A. isolate Russian businesses and limit their access to international capital. B. support the international growth of Russian business. C. create positive PR about the safety of Russia for foreign operations. D. lead to collaborations between EU and Russian businesses, especially in the energy sector.
A
Swap contracts A. can be used to limit currency exposure. B. are a way to reward expatriate workers. C. can be exchanged internally among accounting operations. D. are illegal in the EU.
A
Swaps may be used to A. protect against transaction and translation risks and to raise or transfer capital. B. level out human resource issues. C. establish international experience in the finance function. D. acquire valuable local resources.
A
The International Accounting Standards Board (IASB) represents the standards of A. most of the world, except the U.S. B. the U.S. exclusively. C. Europe and parts of Africa. D. most globally minded managers.
A
The SEC allows A. foreign companies to list on U.S. exchanges using IASB standards. B. foreign companies to list shares in U.S. exchanges if they relist according to FASB. C. foreign companies to list only as ADRs. D. domestic companies to list on U.S. exchanges using IASB.
A
The SEC established the seven-member Financial Accounting Standards Board to oversee accounting standards. They are A. a private nonprofit organization. B. a committee of the Department of the Treasury. C. a committee of the Department of Commerce. D. a for-profit public company.
A
The adoption of the euro has affected transaction exposure by A. reducing it for some ICs, significantly for ICs that are euro-based. B. expanding it. C. increasing the number of currency options available for hedging. D. equating it to translation exposure.
A
The financial issues confronting IC management include A. fluctuating currency exchange rates, tariffs, taxes, and inflation. B. market size and capitalization. C. political issues impacting sales. D. competitive forces.
A
The functional currency is A. the primary currency of the business. B. the currency with the most advantageous interest rate. C. the currency of the home office. D. whatever currency the buyer would like to use for the transaction.
A
The inclination with debt financing is to A. tap local markets first. B. look globally for lowest rates. C. commit to the markets of major customers first. D. use as much debt as possible to maintain control.
A
The money market hedge A. is flexible and frequently used. B. offers little flexibility in currencies hedged, as well as in amounts and settlement dates. C. is of little use. D. is seldom used.
A
The process of accounting standards convergence is A. underway, but deadlines have been extended. B. not likely for at least 20 years, the process is so complex. C. just about complete. D. not likely due to the related political issues.
A
The purpose of accounting is A. influenced by a country's culture. B. to build an objective measure of a company's results. C. assumed around the world to be the same. D. about to be codified in the process of convergence.
A
The rule of thumb on capital structure choices is that A. debt financing is less expensive than equity financing. B. debt financing is more expensive than equity financing. C. debt financing is safer than equity financing. D. equity financing is cheaper than debt financing.
A
The triple concerns of triple bottom-line (3BL) accounting are A. economic, social, and environmental impacts of business. B. environmental, political, and economic impacts of business. C. systems, diversity, and equity in businesses addressing environmental issues. D. profits, PR, and competitive results of business.
A
The two methods of currency translation are A. temporal and current. B. interlinear and historical. C. functional and temporal. D. intermediary and vehicle.
A
There are two basic sources of capital for the firm— A. internal equity and external sources, either debt or equity. B. banks and sovereign wealth funds. C. capital markets and banks. D. domestic and international funders.
A
There are two points at which operating in foreign currencies raises accounting issues— A. transactions in foreign currencies and corporate consolidation. B. buying and selling in the host-country currency. C. bank loans and issuing foreign shares such as American depository receipts (ADRs). D. consolidation and bank loans.
A
Transfer pricing is a method of moving funds that represents intrafirm sales, which actually make up what percentage of world trade? A. 60 percent B. 12 percent C. 2 percent D. 20 percent
A
Transfer pricing is a way to move funds A. from high tax, weak currency environments, or ones where profit repatriation is controlled. B. between subsidiaries of alliances. C. from headquarters to subsidiaries without bank intermediaries. D. from stronger partners to weaker ones.
A
Transfer pricing may be used to A. decrease IC taxes. B. fund exports only. C. move goods within a region. D. support debt equity.
A
Translation risk A. is a currency exchange risk resulting from translating values in foreign currencies to the home- country currency. B. is a credit type risk. C. is a currency exchange risk that arises when future payment in a foreign currency is involved. D. cannot be protected against.
A
Using the current rate, equity accounts are translated A. using the historical rates of the transaction. B. using current rates, just as in assets and liabilities. C. using market rates (real estate market, stock market). D. only when they are liquidated, and then at current rates.
A
What is the major reason countries control foreign ownership of businesses? A. National security B. Nationalism C. Nontariff trade barriers D. Xenophobia
A
When external equity is used A. part of the firm's ownership is being sold. B. interest rates are a critical obligation. C. the firm is stronger because control is diffused. D. shareholders can add management strength to the firm.
A
When firms issue stock to raise capital, they A. may tap foreign as well as domestic markets. B. are limited to domestic markets, due to local legislation. C. are foregoing the use of domestic debt markets. D. are making a commitment to adopt 3BL.
A
Who developed ADRs and where? A. J. P. Morgan in the U.S. for a Selfridge's listing. B. LSE in the UK for Selfridges to list in the U.S. C. Donald Trump in the U.S. D. J. F. Kennedy for Cuban listings in the U.S.
A
A currency option hedge A. is of limited use. B. offers great flexibility in currencies hedged, as well as in amounts and settlement dates. C. offers options in currencies hedged, as well as in amounts and settlement dates. D. is seldom used.
B
Parallel loans are useful to A. save taxes. B. avoid foreign exchange risk. C. save tariffs. D. save interest costs.
B
Swap contracts are used to hedge A. derivatives. B. foreign currency exposure. C. covered positions. D. sales performance.
B
The currency option hedge A. offers little flexibility in currencies hedged, as well as in amounts and settlement dates. B. offers great flexibility in currencies hedged, as well as in amounts and settlement dates. C. is of little use. D. is seldom used.
B
The forward market hedge A. is of limited use. B. offers great flexibility in currencies hedged, as well as in amounts and settlement dates. C. offers limited flexibility in currencies hedged, as well as in amounts and settlement dates. D. is seldom used.
B
The impact of blocked funds includes A. being unable to continue business in the blocked currency. B. exploration of transfer pricing options. C. maximizing the holdings of blocked currencies. D. refusing to source in economies with blocked currencies.
B
Transaction exposure A. is a credit type risk. B. is a currency exchange risk that arises when future payment in a foreign currency is involved. C. is a currency exchange risk resulting from translating values in foreign currencies to the home-country currency. D. cannot be protected against.
B
Currency swaps A. never involve banks. B. are the same as synthetic swaps. C. might be used to enable a foreign borrower to get local currency at a lower interest rate. D. are rarely done.
C
For the parent company in an IC group, translation of assets and liabilities as well as payables and receivables of subsidiaries from the currencies of their host countries to the currency of the parent's home country A. is a waste of time. B. is prohibited by laws of most host countries. C. is necessary for parent company management to understand how well subsidiaries are doing and for companywide financial reports. D. is required by the laws of most home countries.
C
If a U.S. industrial subsidiary in France sells in dollars for European sales A. there will be no exchange risk. B. exchange risk will be encountered between the euro and the dollar. C. the subsidiary will not be able to use the local debt markets. D. their sales force will be challenged to meet local needs.
C
In their foreign operations, companies with foreign subsidiaries regularly follow A. their home-country accounting practices. B. their host-country accounting practices. C. both their home- and host-country accounting practices. D. their choice of accounting practices, being consistent.
C
Multilateral netting A. is more expensive than hedging. B. should be avoided. C. is using IC open positions in two currencies that are expected to balance each other. D. creates competition among subsidiaries.
C
Sovereign wealth funds are A. funds controlled by governments. B. politically volatile due to their size. C. funds that are owned by private investors. D. another form of central reserves.
C
Swaps A. are becoming less popular in international business. B. are always advantageous. C. can be used for either currency or interest rate holdings. D. are used only to change currency holdings.
C
The money market hedge A. is accomplished by one contract in the foreign exchange market. B. should be avoided. C. may involve borrowing money in a foreign currency and immediately converting it to dollars. D. is carefully controlled in the EU.
C
Leading or lagging payments A. are more useful between unrelated companies than within an IC. B. usually profit both parties. C. do not permit either party to gain. D. depend on an ability to predict currency movements.
D