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International Business, 12e (Hill)
1) Accounting information is the means by which firms communicate their financial position to the
providers of capital.
2) Accounting is shaped by the environment in which it operates.
3) Accounting standards are rules for preparing financial statements.
4) Auditing standards are rules that define the accounting principles and monetary policy of a
nation.
5) The standards of U.S. Financial Accounting Standards Board and IASB are vastly different.
6) The IASB is made up of 24 members, and to issue a new standard, 51 percent of them must
agree.
7) The IASB has the power to enforce its standards, so it has considerable power in the industry.
8) Most international businesses require all budgets and performance data within the firm to be
expressed in the currencies of the countries where its subunits are located.
9) The initial rate, in the Lessard-Lorange model, refers to the spot exchange rate when the budget
is adopted.
10) The ending rate, in the Lessard-Lorange model, refers to the spot exchange rate forecast for the
end of the budget period.
11) Using the ending rate to translate the budget is a valid practice according to the
Lessard-Lorange model.
12) Lessard and Lorange recommend that firms use the projected spot exchange rate to translate
both the budget and performance figures into the corporate currency, combination PP.
13) Performance of international subsidiaries depends on the transfer price set up by the
corporation.
14) Most subsidiaries of an international business operate in uniform environments.
15) Evaluation of a subsidiary should be separate from the evaluation of its manager.
16) Capital budgeting is the technique financial managers use to try to quantify the benefits, costs,
and risks of an investment.
17) The connection between cash flows to the parent and the source of financing must be
recognized when performing capital budgeting for an international business.
18) The governments of some countries require or prefer foreign multinationals to finance projects
in their country by local debt financing or local sales of equity.
19) By pooling its cash reserves, the firm can increase the total size of the cash pool it must hold in
highly liquid accounts.
20) A firm's ability to establish a centralized depository that can serve short-term cash needs might
be limited by government-imposed restrictions on capital flows across borders.
21) The principles of multilateral netting and bilateral netting are different.
22) A tax treaty between two countries is formed to fix the exchange rates between the two
countries.
23) A tax haven is a country that gives income tax exemptions to firms that export all or part of its
products.
24) Payment of dividends is an uncommon method of transferring funds from foreign subsidiaries
to the parent company.
25) A fee is compensation for professional services or expertise supplied to a foreign subsidiary by
the parent company or another subsidiary.
26) Firms cannot use transfer prices to move funds from a subsidiary to the parent company when
financial transfers in the form of dividends are blocked by host-country government policies.
27) A fronting loan is a loan between a parent and its subsidiary channeled through a financial
intermediary.
28) ________ are the most important source of external capital for business enterprises in the
United States.
A) Stocks or bonds
B) World Bank loans
C) Banks
D) Venture capitalists
29) What is an accounting problem that only international businesses face?
A) lack of consistency in the accounting standards
B) inaccurate filing of profit-and-loss statements
C) false reporting of income to the government
D) lack of a dedicated accounting function within the firm
