INTERNATIONAL FINANCIAL MANAGEMENT
13TH EDITION EXAMS SET COMPLETE
QUESTIONS AND ANSWERS EXPERT
VERIFIED
◉ Benefits of a multilateral netting system include
- the decrease in the expense associated with funds transfer, which
in some cases can be over $1,000 for a large international transfer of
foreign exchange.
- the benefits that accrue from the establishment of a formal
information system, which serves as the foundation for centrally
managing transaction exposure and the investment of excess funds.
- all of the options
- the reduction in intra-company float, which is frequently as high as
five days even for wire transfers.
- the reduction in the number of foreign exchange transactions and
the associated cost of making fewer but larger transactions.
Answer: all of the options
,◉ Which one of the following is a false statement when engaged in
bilateral netting?
Answer: Total interaffiliate receipts need not always equal total
interaffiliate disbursements.
◉ True or False: A netting center necessarily implies that the MNC
has a central cash manager.
Answer: false
◉ Which of the following statements about multilateral netting
system are correct?
(i) Each affiliate nets all its interaffiliate receipts against all its
disbursements.
(ii) Each affiliate transfers or receives a balance, depending on
whether it is a net payer or receiver.
(iii) The net funds to be received by the affiliates will equal the net
disbursements to be made by the affiliates.
(iv) Only two foreign exchange transactions are necessary since the
affiliates' net receipts will always be equal to zero.
(v) Only two foreign exchange transactions are necessary since the
affiliates' net disbursements will always be equal to zero.
Answer: I, II, and III
,◉ True or False: A central cash manager has a global view of the
most favorable borrowing rates and most advantageous investment
rates.
Answer: True
◉ Good cash management encompasses
Answer: investing excess funds at the most favorable interest rate
and borrowing at the lowest rate when there is a temporary cash
shortage.
◉ Your firm's interaffiliate cash receipts and disbursements matrix
is shown here ($000):
Disbursements ReceiptsU.S.CanadaGermanyU.K.Total ReceiptsU.S.
10151540Canada10 101030Germany55 515U.K.202020 60Total
Disbursements35354530
Find the net cash flow in (out of) the U.S. affiliate.
Answer: $5,000 in
◉ A firm keeps a precautionary cash balance to cover unexpected
transactions during the budget period. The size of this balance
depends on how safe the firm desires to be in its ability to meet
unexpected transactions.
, Answer: The larger the precautionary cash balance, the greater the
potential opportunity cost.
The larger the precautionary cash balance, the less is the risk of
financial embarrassment and loss of credit standing.
The larger the precautionary cash balance, the greater is the firm's
ability to meet unexpected expenses.
◉ As of today, the spot exchange rate is €1.00 = $1.25 and the rates
of inflation expected to prevail for the next year in the U.S. is 2
percent and 3 percent in the euro zone. What is the one-year
forward rate that should prevail?
Answer: €1.00 = $1.2379
◉ The firm's tax rate is 34 percent. The firm's pre-tax cost of debt is
8 percent; the firm's debt-to-equity ratio is 3; the risk-free rate is 3
percent; the beta of the firm's common stock is 1.5; the market risk
premium is 9 percent. Calculate the weighted average cost of capital.
Answer: 8.09 percent
◉ In the context of the capital budgeting analysis of an MNC that has
strong foreign competitors, "lost sales" refers to
Answer: the entire sales revenue of a new foreign manufacturing
facility representing the incremental sales revenue of the new
project, the cannibalization of existing projects by new projects.
13TH EDITION EXAMS SET COMPLETE
QUESTIONS AND ANSWERS EXPERT
VERIFIED
◉ Benefits of a multilateral netting system include
- the decrease in the expense associated with funds transfer, which
in some cases can be over $1,000 for a large international transfer of
foreign exchange.
- the benefits that accrue from the establishment of a formal
information system, which serves as the foundation for centrally
managing transaction exposure and the investment of excess funds.
- all of the options
- the reduction in intra-company float, which is frequently as high as
five days even for wire transfers.
- the reduction in the number of foreign exchange transactions and
the associated cost of making fewer but larger transactions.
Answer: all of the options
,◉ Which one of the following is a false statement when engaged in
bilateral netting?
Answer: Total interaffiliate receipts need not always equal total
interaffiliate disbursements.
◉ True or False: A netting center necessarily implies that the MNC
has a central cash manager.
Answer: false
◉ Which of the following statements about multilateral netting
system are correct?
(i) Each affiliate nets all its interaffiliate receipts against all its
disbursements.
(ii) Each affiliate transfers or receives a balance, depending on
whether it is a net payer or receiver.
(iii) The net funds to be received by the affiliates will equal the net
disbursements to be made by the affiliates.
(iv) Only two foreign exchange transactions are necessary since the
affiliates' net receipts will always be equal to zero.
(v) Only two foreign exchange transactions are necessary since the
affiliates' net disbursements will always be equal to zero.
Answer: I, II, and III
,◉ True or False: A central cash manager has a global view of the
most favorable borrowing rates and most advantageous investment
rates.
Answer: True
◉ Good cash management encompasses
Answer: investing excess funds at the most favorable interest rate
and borrowing at the lowest rate when there is a temporary cash
shortage.
◉ Your firm's interaffiliate cash receipts and disbursements matrix
is shown here ($000):
Disbursements ReceiptsU.S.CanadaGermanyU.K.Total ReceiptsU.S.
10151540Canada10 101030Germany55 515U.K.202020 60Total
Disbursements35354530
Find the net cash flow in (out of) the U.S. affiliate.
Answer: $5,000 in
◉ A firm keeps a precautionary cash balance to cover unexpected
transactions during the budget period. The size of this balance
depends on how safe the firm desires to be in its ability to meet
unexpected transactions.
, Answer: The larger the precautionary cash balance, the greater the
potential opportunity cost.
The larger the precautionary cash balance, the less is the risk of
financial embarrassment and loss of credit standing.
The larger the precautionary cash balance, the greater is the firm's
ability to meet unexpected expenses.
◉ As of today, the spot exchange rate is €1.00 = $1.25 and the rates
of inflation expected to prevail for the next year in the U.S. is 2
percent and 3 percent in the euro zone. What is the one-year
forward rate that should prevail?
Answer: €1.00 = $1.2379
◉ The firm's tax rate is 34 percent. The firm's pre-tax cost of debt is
8 percent; the firm's debt-to-equity ratio is 3; the risk-free rate is 3
percent; the beta of the firm's common stock is 1.5; the market risk
premium is 9 percent. Calculate the weighted average cost of capital.
Answer: 8.09 percent
◉ In the context of the capital budgeting analysis of an MNC that has
strong foreign competitors, "lost sales" refers to
Answer: the entire sales revenue of a new foreign manufacturing
facility representing the incremental sales revenue of the new
project, the cannibalization of existing projects by new projects.
