BT thanh toan quoc te multinational financial management dap an

1. Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One
year later, the stock rises to £60. You are happy with your 20 percent return on the stock, but
when you sell the stock and exchange your £60 for dollars, you only get $45 since the pound has
fallen to £1 = $0.75. This loss of value is an example of
a. Exchange Rate Risk
b. Political Risk
c. Market imperfections
d. Weakness in the dollar
2. The fundamental goal of sound business management is
a. Shareholder wealth maximization
b. Market share maximization
c. Globalization
d. Increasing the size of the firm

3. With regard to the financial structure of foreign subsidiaries
a. It may be best to conform to the parent firm’s debt-to-equity ratio
b. It may be best to conform to the local norm of the country where the subsidiary operates.
c. It may be advantageous to vary judiciously to capitalize on opportunities to lower taxes,
reduce financing costs and risk, and take advantage fo various market imperfections
d. All of the above may be correct.
4. When a parent company is willing to let its subsidiary default,
a. Creditors and potential creditors will examine the subsidiary’s financial structure
closely to assess default risk.
b. Potential creditors will still look to the parent company’s capital structure as it is
still legally and morally responsible for its subsidiary’s debts.
c. It is incumbent upon the subsidiary to take on as much debt as possible, pay a
dividend to the parent and then default.
d. None of the above.
5. The cost of capital

a. Is defined as K = (1 – λ)Kl + λ(1 – t)i
b. Is the minimum rate of return an investment project must generate in order to pay
its financing costs.
c. Is an accounting number reflecting historical costs.
d. Is an accounting number reflecting historical costs. None of the above
6. Companies can benefit from cross-border listing of stocks in what ways?
a. The company can expand its potential investor base, which will lead to a higher
stock price and a lower cost of capital.
b. Cross-listing can enhance the liquidity of the company’s stock.
c. Cross listing may improve the company’s corporate governance and transparency.
d. All of the above
7. A firm that can reduce its cost of capital
a. Has an arbitrage opportunity.
b. Can identify more projects that generate returns exceeding the cost of capital and
thereby increase the firm’s value.
c. Will lower its overall risk.
d. None of the above
8. If international financial markets are fully integrated rather than segmented
a. Investors would require, on average, lower expected returns on securities.
b. Investors would require, on average, higher expected returns on securities.
c. Investors would require, the same expected returns on securities.
d. None of the above.
9. If international financial markets are less than fully integrated, then
a. Any differences in the cost of capital across countries can be diversified away.
b. Systematic differences in the cost of capital may exist across different countries.
c. Any difference in the cost of capital that may exist across different countries is
due to differences in unsystematic risk.


d. None of the above.

10. A consideration of political risk
a. Generally favors local financing over the parent’s direct financing.
b. Generally favors external debt over equity financing.
c. a) and b) are both true
d. None of the above
11. When Nestlé announced that it would lift restrictions on foreign ownership of its registered
shares
a. The price of registered shares rose.
b. The price of registered shares fell.
c. The two classes of shares began a pricing to market phenomenon after the
announcement.
d. Both a) and c) are correct.
12. When Nestlé announced that it would lift restrictions on foreign ownership of its registered
shares
a. While the price of registered shares rose, the price of bearer shares fell. As a
result, the total market value of the company remained unchanged.
b. The total market value of the firm increased.
c. Nestlé’s cost of capital increased.
d. None of the above.
13. If a country were to offer your firm a concessionary loan
a. The value of this loan could be estimated explicitly as a component of the APV.
b. The firm would simply adjust the discount rate downward.
c. The firm would ignore the cash flow implications of this since it is a financing
decision.
d. All of the above may be correct.


14. Suppose that domestic inflation is 3%; inflation in € is 6% and the spot exchange rate is €1 =
$2. What is your estimate of the exchange rate expected to prevail in 3 years?
a. €1 = $2.1855

b. €1 = $2.00
c. €1 = $1.8349
d. €1 = $1.9434
e. None of the above
15. Your firm has a project that will produce cash flows of CDATA[€>500,000 per year for five
years. The foreign government will only allow repatriation of €>250,000 per year. Which cash
flow should you use in estimating the APV?
a. €>500,000
b. €>250,000
c. Both
d. None of the above
16. Your U.S.-based firm is considering a capital budgeting project in Japan. Suppose that the
spot exchange rate for Japanese yen is ¥122/$ and that the one year forward exchange rate for
Japanese yen is ¥130/$. The discount rate is 5% in the U.S. What's the discount rate that should
be used in Japan on yen-denominated cash flows?
a. 11.89%
b. 6.56%
c. 3.28%
d. 1.67%
e. None of the above
17. If a project has a timing option associated with it
a. This should add value to the project.
b. This can add value but only if the option is exercised.
c. The option could subtract value from the project in the right circumstances.


d. None of the above.
18. In the APV model,
a. Each cash flow is discounted at the discount rate appropriate with the risk
associated with that cash flow.

b. Cash flows are calculated with that cash flow.
c. The cash flow from operations is used, not the amount that is available for
remittance.
d. All of the above
19. When thinking about a project,
a. If it is possible to finance the project entirely with debt, the project will have a
higher APV than if all equity financed, since the return on debt is lower than the
return on equity.
b. It is never appropriate to think of the project as being financed separately from the
way the firm is financed.
c. Depreciation should always be ignored since it is a non cash item.
d. None of the above
20. Consider a project to invest abroad, the size and timing of the after-tax incremental cash
flows are shown in the following table:
Year
Cash Flow

0
-€500,000

1
€100,000

2
€100,000

3
€500,000

Estimate the NPV of the project to the shareholders of a U.S. firm. The inflation rate in dollars is

two percent per year, the inflation rate in euros is three percent. The spot exchange rate is $1.08
= €1.00 and the discount rate appropriate for projects of this risk (denominated in dollars) is 10
percent.
a. $38,767.63
b. €49,211.12
c. $35,895.95
d. None of the above.


21. In a sensitivity analysis
a. Different scenarios are used to estimate the value of any imbedded options that
the project carries with it.
b. Different scenarios are examined by using different exchange rate estimates,
inflation rate estimates, and cost and pricing estimates in the calculation of APV.
c. APV estimated are hardened by using the expected value of the exchange rate and
inflation rate to arrive at one expected value of the APV.
d. None of the above.
22. The Schadenfreude Corporation has an optimal debt ratio of 50 percent. Its cost of equity
capital is 12 percent and its pre-tax borrowing rate is 8 percent. Given a marginal tax rate of 34
percent, calculate the weighted average cost of capital.
a. 10 percent
b. 6.6 percent
c. 8.64 percent
d. None of the above
23. Not all countries allow MNCs the freedom to net payments,
a. The U.S., Canada, and Great Britain allow only netting between each other.
b. Some countries require the MNC to ask permission, and some countries limit
netting.
c. But that is fine, since netting typically has costs that outweigh the benefits for a
MNC.

d. All of the above may be correct.
24. The higher the transfer price
a. The higher the net profit reported by the MNC
b. The higher the gross profit of the receiving division relative to the transferring
division.
c. The higher the gross profit of the transferring division relative to the receiving
division.


d. None of the above
25. Your firm has a subsidiary in a foreign country which has placed restrictions on its own
currency, limiting its conversion into other currencies. What is up with that?
a. The MNC should shut down operations in protest.
b. This is known as blocked funds.
c. This will not affect the MNC since the accounting numbers in the consolidated
financial statements will not change.
d. None of the above
26. Affiliate A sells 1,000 units to Affiliate B per year. The marginal income tax rate for Affiliate
A is 20 percent and the marginal income tax rate for Affiliate B is 50 percent. The transfer price
can be set at any level between $100 and $200. Which transfer price between A and B should the
parent select.
a. $200
b. $100
c. $150
d. It does not matter.
27. Which will reduce the number of foreign exchange transaction the most for a MNC?
a. Multilateral netting
b. Bilateral netting
c. Fish netting
d. None of the above.

28. Under multilateral netting
a. Each affiliate nets all its inter-affiliate receipts against all its disbursements. It
then transfers or receives the balance, respectively, if it is the net payer or
receiver.
b. Each pair of affiliates determines the net amount due between them, and only the
net amount is transferred.


c. No inter-affiliate payments are made or even computed, since no real cash flows
are involved.
d. All of the above
29. Multinational cash management
a. Is really no different for a MNC than for a purely domestic firm in a closed
economy.
b. Concerns itself with the size of cash balances, their currency denominations, and
where these cash balances are located among the MNC's affiliates.
c. Concerns itself with the size of cash balances and their currency denominations,
but not where these cash balances are located among the MNC's affiliates, since
intra-affiliate default risk is not an issue.
d. None of the above
30. One benefit of a centralized cash depository is
a. The MNC's investment in precautionary cash balances can be substantially
reduced without a reduction in its ability to cover unforeseen expenses.
b. Each affiliate will have greater autonomy in managing its own cash balances.
c. Exchange rate restrictions can be easily circumvented.
d. None of the above.
31. To establish an arms length price of a tangible good,
a. Use the resale price approach, where the price at which the good is resold by the
distribution affiliate is reduced by an amount sufficient to cover overhead costs
and a reasonable profit.

b. Use a comparable uncontrolled price between an unrelated buyer and seller.
c. Use the cost plus approach, where an appropriate profit is added to the cost of the
manufacturing affiliate.
d. All of the above.
32. If French-based Affiliate A owes U.S.-based affiliate B $1,000 and Affiliate B owes Affiliate
A €2,000 when the exchange rate is $1.10 = €1.00. The net payment between A and B should be
a. €1,091 from B to A


b. €1,091 from A to B
c. $1,200 from B to A
d. None of the above
33. The underlying principal of tax equity
a. Is that similarly situated taxpayers should participate in the cost of operating the
government according to the same rules.
b. Has been adopted worldwide, under U.N. charter.
c. Means that taxes should be fair, a consistent percentage of income regardless of
where it is earned.
d. All of the above may be correct.
34. Tax neutrality is determined by which of the following criteria?
a. National neutrality
b. Capital import neutrality
c. Capital export neutrality
d. All of the above
35. A value added tax
a. Is preferred in place of a personal income tax by many economists because
income taxes are a disincentive to work, whereas a VAT discourages unnecessary
consumption.
b. Is also known as a ad valorem tax
c. In an indirect national tax levied on the value added in the production of a good

(or service) as it moves through the various stages of production.
d. All of the above

36. When the income tax rate in the host country is greater than the tax rate in the parent country,
a. It is beneficial to follow a high markup policy on transferred goods and services
from the parent to a foreign affiliate.


b. It is beneficial to follow a low markup policy on transferred goods and services
from the parent to a foreign affiliate.
c. Transfer pricing will not affect the total tax liability, net of foreign tax credit
offsets.
d. None of the above
37. A tax haven is
a. Is a country that has a low corporate income tax rate and low withholding tax
rates on passive income.
b. A country with no taxes and no enforcement of foreign tax laws within its
borders.
c. Any country with a higher tax rate that available domestically.
d. None of the above.
38. There are three production stages required before a bicycle produced by Masi Bicicletia S.A.
can be sold at retail for €3,500. The VAT rate is 15%. Find the total tax liability due.
Production stage

Production stage

1

€1,000

2

€1,750

3

€3,500

Value Added Incremental VAT

________________
Total VAT

a. €525
b. €150
c. €3,500
d. None of the above

39. If U.S. taxing authorities did not limit the amount of the foreign tax credit to the equivalent
amount of the U.S. tax


a. U.S. taxpayers would end up subsidizing part of the tax liabilities of U.S. MNC's
foreign earned income.
b. National neutrality would suffer.
c. U.S. MNCs would all depart our shores.
d. all of the above

40. Active income
a. Income that results from production by the firm or individual (of goods or

services).
b. Is income earned by athletes.
c. Includes dividend and interest income, since the tax court has ruled that taking
risk is a form of work.
d. None of the above.
41. The current U.S. marginal tax rate for domestic nonfinancial corporations is 35 percent.
a. This is positioned pretty well in the middle of the rates assessed by the majority of
countries, as reported in the PriceWaterhousCoopers annual Corporate Taxes:
Worldwide summaries.
b. This is considerably higher than that of most of our trading partners.
c. But this is reduced on a dollar-for-dollar basis for any and all taxes paid to foreign
governments, so this is an upper limit for the tax rate faced by U.S. MNCs.
d. All of the above.
42. A withholding tax is
a. An indirect tax, that is, a tax that is borne by a taxpayer who did not directly
generate the income that serves as the source of the passive income.
b. A direct tax, that is, a tax that is borne by a taxpayer who generated the income
that serves as the source of the active income.
c. Is a form of double taxation.
d. None of the above


43. Cash flow analysis, as part of the capital budgeting process, requires:
a. A firm to conceptualize a project and forecast future cash flow from the project.
b. Areview of the firm's recent cash flow to determine if it will support projects
under consideration.
c. Analysis of cash flow in the industry to determine if a firm is competitive.
d. That foreign cash flow be converted into the home currency of the firm.
44. In the capital budgeting process in many MNCs, importance is place on making decisions on
project proposals:

a. By outside consultants who have special expertise in the particular project under
consideration.
b. At upper levels of management since upper management is ultimately responsible
for the profitability of the firm.
c. At lower levels within the organization so that more costly upper level managerial
time will not be expended.
d. By involving the entire organization so that all levels of the organization will
claim ownership of a project.
45. MNCs may elect to pursue a project that uses foreign labor on the basis that the foreign labor
costs less than domestic labor, but another reason for using foreign labor is that it:
a. Offers technical capabilities that cannot be found domestically.
b. Is more productive.
c. Is not subject to the same restrictions as is domestic labor.
d. Is more plentiful.
46. What is a political hedge?
a. Foreign firms doing business in a country are sometimes subject to regulations that
do not apply to domestic firms, so foreign firms can employee government officials
in countries to see that the firm is exempted from such regulations on foreign firms.
b. Foreign firms doing business in a country are well-advised to employ locals to lobby
the government of the country where the firm is doing business to provide local
subsidies for the foreign firm so that the foreign firm will invest in that country.


c. Since countries can impose regulations on foreign firms doing business in the
country, a firm can actually invest in a country so that it is not simply a foreign firm
selling in the country and potential avoid many of those regulations that apply to
foreign firms.
d. Political hedge is a politically correct way of referring to bribery of local officials.
47. How does off shoring differ from a firm producing in another country?
a. Off shoring and foreign production are essentially the same.

b. Off shoring is a more comprehensive activity than foreign production.
c. If a firm produces in another country, it owns production assets in that country to
some degree, but off shoring indicates that the firm contracts with a firm in
another country for certain production.
d. Foreign production means producing something ion a foreign country for sale in
that country, while off shoring means that a product is being produced in a foreign
country and will be shipped back to the home country of the firm responsible for
the off shoring.
48. The easiest way for a firm to sell internationally is to:
a. Produce its product in another country.
b. Form a joint venture with another firm in the country where it wants to sell its
products.
c. Export its products to another country.
d. Establish sales offices in countries where it wants to sell its products.
49. In forecasting sales revenue, a firm must determine:
a. Production capacity and the ability to expand production capacity to meet
increased demand.
b. Demand for the product and the price that it will charge for the product.
c. Existing supply of the product and expanded changes in supply of the product.
d. Impact of government regulations on the production of the product.
50. In a NPV calculation, the initial cash flow is:


a. The capital investment that is necessary for the project and represents a positive
cash flow.
b. The salvage value of the project and represents a negative cash flow.
c. The initial return from the project and represents a positive cash flow.
d. The capital investment that is necessary for the project and represents a negative
cash flow.
51. Since firms seek to increase shareholder wealth, which projects should firms accept?

a. Firms should accept all projects without regard to their NPV.
b. Firms should accept projects with NPV>0.
c. Firms should accept projects with NPV<0.
d. Forms should accept projects with NPV>1.
52. What is the difference between a foreign branch of an MNC and a foreign subsidiary of an
MNC?
a. A foreign branch of an MNC is an office of the MNC which is not a separate
organization from the MNC, but a foreign subsidiary is a separate organization in
a foreign country that is owned by the MNC.
b. A foreign branch of an MNC is a separate entity in a foreign country which the
MNC owns, while a foreign subsidiary is an office of the MNC but not a separate
entity from the MNC.
c. A foreign branch of an MNC and a foreign subsidiary of an MNC are essentially
the same.
d. A foreign branch of an MNC is an office of the MNC which is not a separate
organization from the MNC, and a foreign subsidiary is an organization in a
foreign country in which the MNC owns only a partial interest.
53. What is parent-subsidiary asymmetry in the context of capital budgeting?
a. When the profits of the subsidiary are not fully paid to the parent, there is parentsubsidiary asymmetry.
b. When the analysis of a project at the parent and at the subsidiary level yields
dissimilar estimates of NPV, there is parent-subsidiary asymmetry.


c. When a parent and a subsidiary cannot agree on whether to pursue a specific
project, there is parent-subsidiary asymmetry.
d. When a parent wants the profits of a subsidiary repatriated to the parent but the
subsidiary resists paying its profits to the parent, there is parent-subsidiary
asymmetry.
54. MNCs may be subject to as many as three taxes on the income of their subsidiaries,
including:

a. Host-country income taxes on the subsidiary's income, host-country withholding
taxes on dividends paid to the MNC, and home-country taxes on the dividends
received by the MNC.
b. Host-country income sales taxes on the subsidiary's sales, host-country income
taxes on the subsidiary's income, and home-country income taxes on the MNC's
income.
c. Host-country income taxes on the subsidiary's income, host-country withholding
taxes on dividends paid to the MNC, and home-country income taxes on the
subsidiary's income.
d. Host-country sales taxes on the subsidiary's sales, host-country withholding taxes
on dividends paid to the MNC, and home-country taxes on the dividends received
by the MNC.
55. The effect of remittance restrictions on a parent's cash flow is that:
a. The total cash flow of the parent will remain unchanged, but the value of that cash
flow will decrease because the receipt of the funds by the parent will be delayed.
b. The total cash flow of the parent will be reduced, and the value of that cash flow
will be further decreased because the receipt of the funds by the parent will be
delayed.
c. The parent's cash flow will not be affected because the cash flow will only be
delayed, not reduced.
d. The total cash flow of the parent will be reduced, but the delay in the receipt of
the funds by the parent will not affect the value of those funds to the parent.
56. The issues involved in parent-subsidiary asymmetry can usually be resolved by:
a. Calculating cash flow from the perspective of the subsidiary.


b. Averaging the cash flow calculation of the subsidiary and the cash flow
calculations of the parent.
c. Being conservative and using the cash flow calculation which provides the lowest
amount of cash flow.

d. Calculating cash flow from the perspective of the parent.
57. When a subsidiary is restricted from remitting its profits to the parent, the restricted cash
flow is usually:
a. Invested in Eurobonds to increase yields while the funds are restricted.
b. Deposited in local banks at local interest rates.
c. Spent locally by the subsidiary.
d. Lost to the parent permanently.
58. If there are efficient markets and no cross-border constraints on the flow of capital, project
financing:
a. Will be difficult because the lack of restrictions makes lending risky.
b. Will not be affected by where that financing is obtained.
c. Can only be obtained by the parent and not by the subsidiary.
d. Can only be obtained by the subsidiary and not by the parent.
59. In evaluating the values associated with cash flow of the parent and the subsidiary, what are
financial "side effects"?
a. Side effects are the components of cash value that may differ between the parent
and the subsidiary such as blocked currency, additional taxes and local financing
subsidies.
b. Side effects are the additional factors, beyond cash flow, that must be considered
in determining the value of a project.
c. Side effects are the effects that are felt by a parent when its subsidiary earns more
income than the parent.
d. Side effects are effects of the non-financial issues that exist between parent and
subsidiary that must be resolved before a project can proceed.
60. In considering the value of a project, the NPV estimate for the parent equals the:


a. Foreign cash flow from the project discounted at the parent's discount rate.
b. Foreign cash flow from the project discounted at the appropriate foreign discount
rate.

c. Domestic cash flow discounted at the foreign discount rate.
d. Domestic cash flow discounted at the domestic discount rate.
61. Even if estimated NPV for a proposed project for the parent is different from estimated NPV
for the subsidiary, a project that shows ____________________________ should probably be
pursued.
a. NPV<0 for the parent and NPV<0 for the subsidiary
b. NPV>0 for the parent and NPV<0 for the subsidiary
c. NPV<0 for the parent and NPV>0 for the subsidiary.
d. NPV>0 for the parent and NPV>0 for the subsidiary
62. __________________ mean that a project's parameters can be changed after the decision to
pursue the project has been made.
a. Flexible parameters
b. Indefinite goals
c. Real options
d. Delayed decisions
63. Working capital management is essentially concerned with:
a. Short-and long-term financing.
b. Managing receivables.
c. Current assets and current liabilities.
d. Managing payables.
64. Traditional cash management analysis considers:
a. The cost of short-term financing and the interest rate on investments.
b. The benefit of having cash versus the opportunity cost of holding cash.
c. Currency risk and interest rate risk.


d. The inflation rate and the opportunity cost of holding cash.
65. Improved financial system communications abilities have:
a. Increased the amount that firms pay to transfer funds between accounts because
improved communications has increased the number of transfers that mncs make.

b. Not affected MNC bank transactions.
c. Reduced the importance of considering transaction costs when determining the
cash balance that an MNC should have.
d. Encouraged mncs to depend more on short-term financing and less on holding
cash balances.
66. How does currency risk arise with respect to cash balances that an MNC holds in foreign
funds in a bank in a developing nation?
a. Cash balances held by an MNC in a bank in a developing nation may be subject to
expropriation by the government of that developing nation, so that the MNC is
deprived of those funds.
b. When an MNC deposits funds in a foreign bank account, it transfers those funds
from a bank account in another country, and, since the funds must be converted
into the currency of the country where the bank is located, the MNC risks
incurring a loss on that conversion.
c. Withdrawal of funds in foreign banks accounts and conversion of those funds into
the home currency of the MNC may be restricted in developing nations, so that
the MNC may not have immediate access to those funds and the value of those
funds may decline before the MNC can recover the funds.
d. Typically, the interest rate paid on funds deposited in foreign bank accounts is
below the market rate, so the funds deposited in foreign bank accounts earn
below-market returns.
67. In most short-term investments, there is a trade-off between:
a. Rate of return and liquidity.
b. Risk and opportunity cost.
c. Liquidity and flexibility.
d. Rate of return and opportunity cost.


68. What are the benefits of commercial paper to investors?
a. Commercial paper is as safe as T-bills and offers long maturities.

b. Commercial paper is issued by firms with a wide range of credit ratings, so a wide
range of interest rates are available.
c. Commercial paper is underwritten by investment banks, so there is an active
secondary market in commercial paper.
d. Commercial paper is riskier than T-bills so they pay a higher interest rate, and
they offer liquidity.
69. When assets are securitized, what is done with the cash flow that results from those assets?
a. Cash flow from securitized assets is used to pay the original owner of those assets
for the sale of the assets.
b. There is no cash flow from securitized assets.
c. Cash flow from securitized assets is used to pay the commissions of the financial
institution that arranged for the securitization.
d. Cash flow from securitized assets is used to pay principle and interest payments to
the investors who have invested in the securitized assets.
70. U.S. commercial paper is issued on an uncommitted basis. What potential problem does that
present to MNCs issuing U.S. commercial paper?
a. U.S. commercial paper is debt instruments issued by an MNC with no guarantee
that the funds borrowed through the issue will be repaid.
b. U.S. commercial paper is debt instruments issued by an MNC without any
guarantee that all of the debt instruments will be purchased, so the issuing MNC
does not know before the issue if the full amount of the money it needs will be
raised.
c. U.S. commercial paper is debt instruments issued in a variety of currencies, so the
purchaser of the commercial paper does not know the currency risk that will be
involved in the investment.
d. U.S. commercial paper is debt instruments issued with floating interest rates, so
the purchaser of the commercial paper does not know the interest rate at which
their investment will be repaid.

71. What does it mean that firms should match maturities of their financing with the maturities of
the assets acquired with the funds from financing?
a. A firm should only borrow money to acquire assets that will be used by the firm
for years after the loan for the assets is repaid.
b. A firm should not borrow money to acquire assets that will be used by a
subsidiary of the firm that borrows the money.
c. A firm should arrange financing that allows the firm to repay the amount financed
at about the same time that the assets acquired through that financing are retired.
d. A firm should only borrow money to acquire assets which will produce income
that can specifically be used to repay the loan.
72. Which is more important in financial planning for an MNC, ex ante financing cost or ex post
financing cost?
a. Ex ante financing cost is more important since it is the projection of the financing
cost.
b. Ex post financing cost is more important because it is the actual cost of financing.
c. Both are important in financial planning because they measure different costs.
d. Neither is important in financial planning because neither provide guidance in
determining which financing is best for an MNC.
73. If a country taxes the income of MNCs that is derived from activities within that country's
territories, that country takes a _____________________ approach to taxation.
a. Nationalistic
b. Territorial
c. Parochial
d. Cross-border
74. What approach to taxation has the United States adopted?
a. The cross-border approach
b. The modified multi-national approach
c. The world-wide approach

d. The territorial approach
75. MNCs can expect to pay two categories of income taxes:
a. Income taxes in any country where they receive income and income taxes in any
country. Where they purchase materials.
b. Income taxes on present income and income taxes on expected income.
c. Domestic income taxes in the country where they are organized and foreign
income taxes in other countries where they conduct business operations.
d. Income taxes in countries where income is earned and income taxes in countries
from which they withdraw funds.
76. What is the effect on an MNC of withholding taxes imposed on a foreign subsidiary?
a. The withholding tax reduces the after-tax amount received by the MNC.
b. The withholding tax does not affect the MNC since it is the obligation of the
subsidiary.
c. The withholding tax always increases the overall tax burden on the combined
MNC-subsidiary enterprise.
d. The withholding tax always decreases the overall tax burden on the MNCsubsidiary enterprise because of tax credits that are allowed for the withholding
tax paid.
77. Identification of __________________________ for each step in the value chain is key to
the VAT calculation.
a. Beginning and ending values
b. The costs incurred
c. The cost of labor incurred
d. The cost of materials incurred
78. If an MNC has foreign tax credits, how is its domestic income tax determined?
a. Foreign tax credits only affect the MNC's foreign income tax, so the MNC's
domestic income tax is not affected.


b. Foreign tax credits are deducted from the foreign income tax owed, and then the
reduced foreign income tax is combined with the MNC's domestic income tax,

and that amount is paid by the MNC.
c. The MNC determines its tentative domestic income tax and then deducts its
allowable foreign tax credits.
d. The MNC's domestic income tax is reduced by the applicable percentage of
foreign income tax paid.
79.In what situation might an MNC have an excess amount of foreign tax credits?
a. If the income tax rate in a foreign country is higher than the tax rate in the home
country of the MNC, the MNC would pay more foreign income tax than it would
domestic income tax, in which case, the foreign tax credit would exceed the
domestic tax due.
b. If the income tax rate in a foreign country is lower than the tax rate in the home
country, the MNC would pay more domestic income tax than it would foreign
income tax, so that the MNC would have domestic income tax in excess of the
foreign income tax.
c. If the foreign subsidiary of an MNC pays income taxes in more than one foreign
country, the MNC will have excess foreign tax credits because the taxes paid in
more than one foreign country cannot be used as credits against domestic income
taxes.
d. If the foreign subsidiary of an MNC pays income taxes in the country where it
operates and then remits some or all of its profits to the MNC, the withholding
taxes on that remittance will not be included in the foreign tax credit that the
MNC is entitled to claim.
80. _____________________ are the prices at which transactions between MNCs and their
subsidiaries and affiliates take place.
a. Exchange prices
b. Intercompany trade prices
c. Catalogue prices
d. Transfer prices
81. Firms can use transfer pricing to address important issue other than taxation, including:
a. Diverting money to projects in new markets.

b. Providing money for the repayment of investments.
c. Allowing foreign subsidiaries to shoe false profits.
d. Shifting money away from countries where political or economic risk is high.
82. The royalties and fees that a subsidiary pays to its parent MNC are often:
a. Excluded from the parent MNC's taxable income.
b. Disallowed by the IRS under Section 482 of the Internal Revenue Code.
c. Deductible expenses for the subsidiary and lower the subsidiary's taxable income.
d. Minimized so that the subsidiary can earn a profit and remit more profits to the
MNC.
83. In the Sharpe Index, the numerator represents the ________________ and the denominator
represents the ______________________.
a. Risk; return.
b. Investment; return.
c. Return; risk.
d. Return; investment.
84. If capital in a particular market is scarce:
a. The forces of supply and demand will bring the cost of capital down.
b. High returns are possible because businesses will have to pay more for capital.
c. The risk associated with any investment increases.
d. High returns are possible only if domestic banks do not provide capital to the
market.
85. The key determinative of portfolio risk is:
a. The correlation between assets.
b. The amount invested in long-term investments.
c. The maturity date of the investments.
d. The interest rates at which investments are earning returns.

86. What effect should an investor's nationality have on investment decisions?
a. None.
b. Since an investor should know more about the investment climate in his or her
home country, investment decisions should favor investments in the home
country.
c. Investors should avoid investing in home-country assets to broaden their
investment opportunities.
d. Investors should weight their investments to those that can take place in their
home-country currency.
87. The total risk in an investment is composed of:
a. Currency risk, political risk, and economic risk.
b. Political risk, transaction risk, and translation risk.
c. Currency risk, asset risk, and covariance risk.
d. Covariance risk, default risk, and economic risk.
88. What reasons may lead a country to prohibit foreign ownership of local assets?
a. National pride and limiting foreign interests from acquiring domestic economic
power
b. Fear that investment losses will discourage further investment and national pride
c. Desire to protect domestic industries from competition and desire to protect
domestic technological superiority
d. Desire to protect local citizens from foreign competition for investment
opportunities and desire to protect domestic currency value from foreign
interference
89. Lack of knowledge about foreign firms in which investments might be made leads to:
a. Investments that will probably yield less return than expected.
b. A perceived lower level of risk because lack of knowledge of risks leads to the
assumption that the risks do not exist.
c. A perceived higher level of risk because lack of information creates uncertainty.

d. Larger investments based on the presumption that returns will be higher than the
facts indicate.
90. One of the key factors in corporate governance is the:
a. Power of the board of directors of the corporation to make all decisions for the
corporation without input or review from any other group.
b. Right of stockholders in the corporation to elect directors and vote on key issues
affecting the corporation.
c. Power of government to regulate the activities of the corporation.
d. Obligation of the corporation to act ethically and to act as a good corporate
citizen.
91. A financial crisis that is global is scope suggests:
a. A positive correlation between national stock markets world-wide.
b. That government regulation has failed on a broad basis.
c. That stock markets around the world are not coordinated.
d. That as many investors have suffered an increase in the value of their investments
as have suffered a decline in the value of their investments.
92. A document issued by a financial institution and back by a specified shares of stock in a
foreign firm that has essentially the same value as the shares of stock it represents is called a:
a. Mutual fund.
b. Stock proxy.
c. Certificate of deposit.
d. Depository receipt.
93. The major criteria used by managers for capital budgeting decisions are
a. NPV
b. IRR
c. Payback period
d. Return measures such as ROIC, ROOPA or RONABIT