50) According to Lessard and Lorange, the ________ rate refers to the spot exchange rate when the
budget is adopted.
A) ending
B) initial
C) ideal
D) projected
51) According to Lessard and Lorange, the ________ rate is the spot exchange rate forecast for the
end of the budget period.
A) projected
B) initial
C) ideal
D) ending
52) According to Lessard and Lorange, the ending rate is the spot exchange rate
A) forecast for the end of the budget period.
B) when the budget is adopted.
C) when no formal exchange rate exists.
D) when the budget and performance are being compared.
53) Of the five combinations, Lessard and Lorange recommend that firms use the ________ spot
exchange rate to translate both the budget and performance figures into the corporate currency.
A) ending
B) initial
C) final
D) projected
54) When using the projected spot exchange rate to translate both the budget and performance
figures into the corporate currency, the projected rate in such cases will typically be the
A) forward exchange rate as determined by the foreign exchange market.
B) exchange rate that exists at the start of a project.
C) exchange rate when the budget was prepared.
D) transfer price that a firm will offer to one or more of its subsidiaries.
55) Lessard and Lorange refer to the company-generated forecast of future spot rates as the
________ rate.
A) forward exchange
B) internal forward
C) initial exchange
D) ending exchange
56) Transfer price refers to the
A) price at which goods and services are transferred to a subsidiary.
B) price at which the title of products is transferred to a customer.
C) price at which a supplier provides raw materials to a firm.
D) cost incurred when goods or services are transferred from one place to another.
57) Which of the following is a disadvantage of comparing managers in different countries only on
the basis of return on investment (ROI)?
A) The managers are not responsible for increasing the ROI of an organization.
B) Managerial actions do not have a significant impact on firms’ profitability.
C) Return on investment is not a valid indicator of organizational profitability.
D) Environmental factors also contribute to ROI of firms and these factors differ.
58) Capital budgeting for a foreign project
A) begins with an audit of the current cash flows.
B) is vastly different from domestic capital budgeting.
C) begins with converting all cash flow to Eurocurrency.
D) uses the same theoretical framework that domestic capital budgeting uses.
59) Political risk tends to be
A) greater in countries experiencing social unrest or disorder.
B) negligible for large multinational companies.
C) less in countries experiencing social unrest or disorder.
D) a consideration only for companies operating in third world countries.
60) Extensive empirical studies have shown that
A) there is only a short-run relationship between a country’s relative inflation rates and changes in
exchange rates; no long-run relationship exists.
B) there is a long-run relationship between a country’s relative inflation rates and changes in
exchange rates.
C) that there exists both short-run and long-run relationships between a country’s relative inflation
rates and changes in exchange rates.
D) a country’s relative inflation rates and changes in exchange rates are not related to each other.
61) ________ is the technique financial managers use to try to quantify the benefits, costs, and
risks of an investment.
A) Capital budgeting
B) External audit
C) Transfer pricing
D) Control system analysis
62) Which of the following statements is true of the capital budgeting used in international
businesses?
A) Capital budgeting does not provide a connection between cash flows to the parent and
subsidiaries.
B) Its basic framework is vastly different from the framework of domestic capital budgeting.
C) Capital budgeting does not consider the cash flows between subsidiaries of a firm.
D) It enables top managers to compare different investment alternatives in an objective fashion.
63) The problem of blocked earnings is not as serious now as it once was because
A) fixed exchange rates have become more common.
B) governmental intervention in earnings is more frequent.
C) there is greater acceptance of free market economics.
D) political risk within the economy is very low in modern times.
64) Critics of adjusting discount rates to reflect a location’s riskiness argue that it
A) does not penalize either distant or early cash flows enough.
B) penalizes distant cash flows too heavily.
C) does not penalize early cash flows enough.
D) penalizes early cash flows too heavily.
65) Which of the following is an observation about the cost of capital?
A) The cost of capital is typically higher in the global capital market.
B) Domestic capital markets have more liquidity than global markets.
C) Local debt financing raises the cost of capital if liquidity is limited.
D) A local sale of equity is preferred to global sale by international firms.
66) Money management decisions attempt to manage the firm’s ________ most efficiently.
A) cash flow
B) corporate expenses
C) working capital
D) corporate revenues
67) Pooling the cash of all the subsidiaries centrally
A) lowers the interest rate earned.
B) reduces the earning potential for firms.
C) increases the interest rate paid.
D) increases the earning potential for firms.
68) Every time a firm changes cash from one currency into another currency it must bear
A) a transaction cost.
B) a tax.
C) a transfer fee.
D) an audit.
69) A ________ allows an entity to reduce the taxes paid to the home government by the amount of
taxes paid to the foreign government.
A) tax amnesty
B) tax credit
C) waiver
D) tax treaty