International Business Management test bank Chapter 18

International Business Management (0501210)

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International Business, 7e (Griffin/Pustay) Chapter 18 International Financial Management

1. Which task listed below is primarily handled by Singapore Airlines' financial managers? A) maintaining local currency cash balances in each country B) contacting other carriers for potential joint ventures C) monitoring group dynamics among team members D) conducting regular performance assessments Answer: A Diff: 2 Skill: Concept Objective: 3
2. When a transaction involves a buyer and a seller from two countries, what issue is LEAST likely to arise? A) which currency to use for the transaction B) when and how to check credit C) which form of payment to use D) how to assess the market Answer: D Diff: 2 Skill: Concept Objective: 1 Learning Outcome: Discuss the factors influencing financial management decisions in international business
3. Which currency do exporters typically prefer to use in transactions? A) U. dollars B) Japanese yen C) home country currency D) host country currency Answer: C Diff: 2 Skill: Concept Objective: 1
4. Which currency do importers typically prefer to use in transactions? A) U. dollars B) Japanese yen C) home country currency D) host country currency Answer: C Diff: 2 Skill: Concept Objective: 1

1. More than 70 percent of developing country exports are invoiced in ________. A) U. dollars B) euros C) Japanese yen D) Swiss francs Answer: A Diff: 1 Skill: Concept Objective: 1
2. Which currency is used most often for transactions involving commercial aircraft? A) U. dollars B) euros C) Japanese yen D) Swiss francs Answer: A Diff: 1 Skill: Concept Objective: 1
3. Major exporting countries typically invoice foreign customers in ________. A) U. dollars B) Japanese yen C) their home currency D) the foreign customer's currency Answer: C Diff: 1 Skill: Concept Objective: 1
4. Thompson Exporters, a new exporting firm, provides a 5% discount to customers who use the safest method of payment. Which method of payment most likely receives this discount? A) payment in advance B) open account C) letter of credit D) countertrade Answer: A Diff: 2 Skill: Application Objective: 1 Learning Outcome: Discuss the factors influencing financial management decisions in international business

1. Why would an exporter most likely consider an open account undesirable? A) high fees from host country governments B) heavy reliance on financial institutions C) significant paperwork required D) working capital tied up Answer: D Diff: 3 Skill: Concept Objective: 1 Learning Outcome: Discuss the factors influencing financial management decisions in international business
2. In specialized international lending activity, firms may engage in ________, where they buy foreign accounts receivable at a discount from face value. A) factoring B) lading C) documentary collecting D) financial drafting Answer: A Diff: 2 Skill: Concept Objective: 1
3. Janson Enterprises, a U. firm, is exporting medical equipment to an Indonesian firm that has poor credit. Which method of payment would Janson most likely prefer? A) payment in advance B) open account C) letter of credit D) credit card Answer: A Diff: 2 Skill: Application Objective: 1 Learning Outcome: Discuss the factors influencing financial management decisions in international business
4. What document serves as a title to the goods in question under the document collection payment method? A) sight draft B) bill of lading C) bill of exchange D) trade acceptance Answer: B Diff: 2 Skill: Concept Objective: 1

1. FedEx provided Lewis Exporters with a document that serves as a contract for transporting twenty boxes from Boston to Paris. Which term best describes this document? A) sight draft B) bill of lading C) bill of exchange D) trade acceptance Answer: B Diff: 2 Skill: Application Objective: 1
2. A ________ requires payment upon the transfer of title to the goods from the exporter to the importer. A) sight draft B) time draft C) bill of lading D) bill of exchange Answer: A Diff: 2 Skill: Concept Objective: 1
3. A ________ extends credit to the importer by requiring payment at some specified time after the importer receives the goods. A) sight draft B) time draft C) bill of lading D) bill of exchange Answer: B Diff: 2 Skill: Concept Objective: 1
4. An accepted time draft is called a ________. A) sight draft B) bill of lading C) bill of exchange D) trade acceptance Answer: D Diff: 1 Skill: Concept Objective: 1

1. Which document is issued by a bank and contains its promise to pay the exporter on receiving proof that the exporter has fulfilled all requirements specified in the document? A) bill of lading B) bill of exchange C) letter of credit D) trade acceptance Answer: C Diff: 2 Skill: Concept Objective: 1
2. A(n) ________ confirms that the goods being shipped were produced in the exporting country. A) export license B) certificate of product origin C) inspection certificate D) bill of lading Answer: B Diff: 1 Skill: Concept Objective: 1
3. A(n) ________ provides assurance that the products have been checked by authorities and that they conform to relevant standards. A) certificate of product origin B) inspection certificate C) trade acceptance D) bill of lading Answer: B Diff: 1 Skill: Concept Objective: 1
4. Which of the following is not a type of letter of credit? A) advised letter of credit B) confirmed letter of credit C) irrevocable letter of credit D) unconfirmed letter of credit Answer: D Diff: 1 Skill: Concept Objective: 1

1. After issuing the letter of credit, the importer's bank sends it and the accompanying documents to the exporter's bank, which advises the exporter of the terms of the instrument, thereby creating a(n) ________. A) advised letter of credit B) confirmed letter of credit C) irrevocable letter of credit D) revocable letter of credit Answer: A Diff: 2 Skill: Application Objective: 1
2. Martin Exporting requests ABC Bank to add its own guarantee of payment to a letter of credit, which creates a(n) ________. A) advised letter of credit B) confirmed letter of credit C) irrevocable letter of credit D) unconfirmed letter of credit Answer: B Diff: 2 Skill: Application Objective: 1
3. The ________ is a letter of credit that cannot be altered without the written consent of both the importer and the exporter. A) advised letter of credit B) confirmed letter of credit C) irrevocable letter of credit D) revocable letter of credit Answer: C Diff: 1 Skill: Concept Objective: 1
4. The ________ is a letter of credit that the bank may alter at any time and for any reason. A) advised letter of credit B) confirmed letter of credit C) irrevocable letter of credit D) revocable letter of credit Answer: D Diff: 1 Skill: Concept Objective: 1

1. What is the most common form of countertrade? A) barter B) offset purchase C) counterpurchase D) clearinghouse accounts Answer: C Diff: 2 Skill: Concept Objective: 1
2. Which form of countertrade is used when each party simultaneously swaps its products for the products of the other? A) barter B) parallel barter C) offset purchase D) clearinghouse accounts Answer: A Diff: 2 Skill: Concept Objective: 1
3. Japan's Fukusuke Corporation sold 10 knitting machines and raw materials to Chinatex, a Shanghai- based clothing manufacturer in exchange for one million pairs of underwear to be produced on the knitting machines. What form of countertrade is this? A) buy-back B) parallel barter C) offset purchase D) clearinghouse accounts Answer: A Diff: 2 Skill: Application Objective: 1
4. Company X sold its products to Company Z in September. Company X will be compnsated with Company Z's products in December. Which term best describes this transaction? A) offset purchase B) parallel switch C) counterpurchase D) clearinghouse accounts Answer: C Diff: 2 Skill: Application Objective: 1

1. A sogo sosha might assist in the sale of Mitsubishi trucks in Ghana, taking payment in cocoa, which then can be sold to keiretsu-linked food processors back in Japan or to independent candy makers anywhere. This is an example of ________. A) counterpurchase B) switching arrangements C) offset purchase D) clearinghouse accounts Answer: B Diff: 2 Skill: Application Objective: 1
2. Which form of countertrade involves compensation arrangements whereby one firm sells capital goods to a second firm and is compensated in the form of output generated as a result of their use? A) buy-back B) parallel barter C) offset purchase D) clearinghouse accounts Answer: A Diff: 2 Skill: Concept Objective: 1
3. Which form of countertrade is used when part of an exported good is produced in the importing country? A) barter B) counterpurchase C) offset purchase D) clearinghouse accounts Answer: C Diff: 2 Skill: Concept Objective: 1
4. Which term refers to an accounting system used to facilitate international countertrade that requires a firm to balance its overall countertrade transactions but not any single countertrade transaction? A) open accounts B) parallel barters C) offset purchases D) clearinghouse accounts Answer: D Diff: 1 Skill: Concept Objective: 1

1. Which payment method is appropriate when the exporter has complete trust in the importer? A) payment in advance B) open account C) letter of credit D) countertrade Answer: B Diff: 2 Skill: Concept Objective: 1 Learning Outcome: Discuss the factors influencing financial management decisions in international business
2. Which payment method does not time the payment of goods when the goods arrive in the importer's country? A) countertrade B) credit card C) letter of credit D) open account Answer: C Diff: 2 Skill: Concept Objective: 1
3. Which of the following is not a type of foreign-exchange exposure? A) transaction exposure B) currency conversion C) translation exposure D) economic exposure Answer: B Diff: 2 Skill: Concept Objective: 2 Learning Outcome: Discuss the factors influencing financial management decisions in international business
4. ________ occurs when exchange rate movements that occur after the firm is legally obligated to complete the transaction can affect the financial benefits and costs of an international transaction. A) Exchange rate risk B) Transaction exposure C) Translation exposure D) Currency conversion risk Answer: B Diff: 2 Skill: Concept Objective: 2 Learning Outcome: Discuss the factors influencing financial management decisions in international business

1. The purchase of goods, services, or assets denominated in a foreign currency most likely leads to ________. A) exchange rate risk B) translation exposure C) transaction exposure D) currency conversion risk Answer: C Diff: 1 Skill: Concept Objective: 2 Learning Outcome: Discuss the factors influencing financial management decisions in international business
2. Which of the following is not a strategy for managing transaction exposure? A) use a natural hedge B) buy currency options C) buy forward currency D) acquire an offsetting asset Answer: A Diff: 2 Skill: Concept Objective: 2 Learning Outcome: Discuss the factors influencing financial management decisions in international business
3. Which of the following is not a type of transaction that could lead to transaction exposure? A) the sale of goods, services, or assets B) extension of credit C) a balance sheet hedge D) borrowing of money Answer: C Diff: 2 Skill: Concept Objective: 2
4. Which of the following strategies offers firms the potential for capital gain if the home currency rises in value? A) buying a forward currency B) buying a currency option C) acquiring offsetting assets D) going naked Answer: D Diff: 2 Skill: Concept Objective: 2 Learning Outcome: Discuss the factors influencing financial management decisions in international business

1. Megan, a financial manager at Price Manufacturing, an MNE, strives to minimize the firm's working capital balances. Why would this most likely be important for Price Manufacturing? A) Subsidiaries need working capital in host-country currencies. B) Working capital has an increased foreign-exchange risk. C) Working capital earns a very low rate of return. D) Working capital is highly taxed overseas. Answer: C Diff: 3 Skill: Application Objective: 3 Learning Outcome: Discuss the factors influencing financial management decisions in international business
2. Phil works as a centralized cash manager at Lawson Enterprises, an MNC. All of the following tasks are most likely aspects of Phil's job EXCEPT ________. A) pooling Lawson's cash reserves B) conducting Lawson's countertrade C) planning Lawson's short-term investments D) coordinating Lawson's worldwide cash flows Answer: B Diff: 2 Skill: Application Objective: 3 Learning Outcome: Discuss the factors influencing financial management decisions in international business
3. A leads and lags strategy is typically implemented by financial managers to minimize ________. A) macropolitical risks B) foreign-exchange risks C) working capital balances D) currency conversion costs Answer: B Diff: 2 Skill: Concept Objective: 3 Learning Outcome: Discuss the factors influencing financial management decisions in international business
4. Which of the following is not one of the commonly used methods for evaluating investment projects among international financial officers? A) net present value B) internal rate of return C) payback period D) return on equity Answer: D Diff: 2 Skill: Concept Objective: 4

1. KLM Royal Dutch Airlines is considering an investment in new routes that should bring in significant revenues in the future. Which of the following will KLM most likely evaluate to determine the value of the investment? A) external rate of return B) net present value C) foreign exchange D) natural hedge Answer: B Diff: 2 Skill: Application Objective: 4 Learning Outcome: Discuss the factors influencing financial management decisions in international business
2. Karcher Enterprises, an MNE, is considering building a new factory overseas but has not determined the best location. Which of the following potential locations would require Karcher Enterprises to make the largest risk adjustment? A) Syria B) India C) Japan D) Mexico Answer: A Diff: 2 Skill: Application Objective: 4
3. Ford Motor Company is considering a cash investment in a joint venture with Hyundai in South Korea. Ford considers the number of years it will take the firm to recover the original cash investment from the project's earnings, which is called the ________. A) internal rate of return B) net present value C) payback period D) return on equity Answer: C Diff: 2 Skill: Application Objective: 4
4. The ________ is the number of years it will take the firm to recover the original cash investment from the project's earnings. A) internal rate of return B) net present value C) payback period D) return on equity Answer: C Diff: 1 Skill: Concept Objective: 4

1. All of the following are internal sources of investment capital for international businesses EXCEPT ________. A) adjusted transfer prices B) operation profits C) subsidiary loans D) managed floats Answer: D Diff: 2 Skill: Concept Objective: 5 Learning Outcome: Discuss the factors influencing financial management decisions in international business
2. Financial managers at Parker Computers, an MNC, want to decrease the tariffs paid on components imported from Parker's subsidiaries. Which of the following would most likely accomplish this goal? A) increasing the internal rate of return offered by the subsidiaries B) lowering the transfer price charged by the subsidiaries C) engaging in currency swaps with the subsidiaries D) raising the transfer prices paid by the subsidiaries Answer: B Diff: 3 AACSB: Reflective thinking skills Skill: Critical Thinking Objective: 5 Learning Outcome: Discuss the factors influencing financial management decisions in international business
3. Which of the following is a common characteristic of a tax haven? A) sophisticated banking system B) stringent judicial oversight C) flexible transit tariff system D) moderate income tax rates Answer: A Diff: 2 Skill: Concept Objective: 5
4. International commercial transactions are so common now that credit checks are unnecessary. Answer: FALSE Diff: 1 Skill: Concept Objective: 1
5. Exporters usually prefer their payment in the host currency. Answer: FALSE Diff: 1 Skill: Concept Objective: 1

1. More than 70 percent of the exports of less developed countries are invoiced using the euro. Answer: FALSE Diff: 2 Skill: Concept Objective: 1
2. Payment in advance is the riskiest method from the exporter's perspective. Answer: FALSE Diff: 1 Skill: Concept Objective: 1 Learning Outcome: Discuss the factors influencing financial management decisions in international business
3. Exporters prefer that payments in advance be made by check. Answer: FALSE Diff: 2 Skill: Concept Objective: 1
4. Open account is the safest form of payment from the importer's perspective. Answer: TRUE Diff: 2 Skill: Concept Objective: 1 Learning Outcome: Discuss the factors influencing financial management decisions in international business
5. Both payment in advance and open account share the characteristic of shifting the cash flow burden and risk of default to one party in a transaction. Answer: TRUE Diff: 2 Skill: Concept Objective: 1 Learning Outcome: Discuss the factors influencing financial management decisions in international business
6. Open accounts are best suited for well-established, long-term customers or larger firms with impeccable credit ratings. Answer: TRUE Diff: 2 Skill: Concept Objective: 1 Learning Outcome: Discuss the factors influencing financial management decisions in international business