70) A ________ specifies that parent companies are not taxed on foreign source income until they
actually receive a dividend.
A) bilateral agreement
B) tax credit
C) deferral principle
D) tax treaty
71) Money management decisions attempt to manage a firm’s
A) equity capital.
B) fixed costs.
C) working capital.
D) equipment costs.
72) By pooling cash resources centrally, firms can
A) better handle short-term cash needs of subsidiaries.
B) increase liquidity of independent subsidiaries.
C) reduce the total size of the cash pool it must hold in liquid accounts.
D) avoid government-imposed restrictions on capital flows.
73) ________ costs are incurred every time a firm changes cash from one currency into another
currency.
A) Dividend
B) Capital
C) Fixed
D) Transaction
74) Multilateral netting is used primarily to
A) reduce transaction costs between subsidiaries.
B) avail tax credit from governments.
C) establish a tax treaty among multiple countries.
D) reduce the fixed costs of establishing a subsidiary.
75) ________ allows an entity to reduce the taxes paid to the home government by the amount of
taxes paid to the foreign government.
A) An indirect tax
B) A tax haven
C) A tax credit
D) An internal tax
76) A ________ between two countries is an agreement specifying which items of income will be
taxed by the authorities of the country where the income is earned.
A) tax deferral agreement
B) fixed-rate treaty
C) tax treaty
D) free trade agreement
77) A deferral principle specifies that parent companies are not taxed on foreign source income
until
A) the subsidiary providing income makes some profit.
B) they actually receive a dividend.
C) they acquire a majority stake in the subsidiary.
D) the subsidiary providing income is listed in the United States.
78) A tax haven is a country
A) where companies benefit from establishing fully operating subsidiaries.
B) that does not charge local companies for importing products from other countries.
C) that does not charge taxes on the purchase or sale of any items.
D) with an exceptionally low, or even no, income tax.
79) Which of the following statements is true of tax havens?
A) Firms that export to tax havens get special tax concessions from home governments.
B) Firms would require huge capital investments to start business in tax havens.
C) Nations such as the United States are widely regarded as tax havens.
D) Firms can save taxes by establishing a nonoperating subsidiary in the tax haven.
80) Most banks charge ________ for moving cash from one location to another.
A) a transfer fee
B) an internal forward rate
C) an accounting service fee
D) an audit fee
81) ________ is the most common method by which firms transfer funds from foreign subsidiaries
to the parent company.
A) Issuance of long-term loans
B) Payment of annual fee
C) Issuance of bonds
D) Payment of dividends
82) A ________ is compensation for professional services or expertise supplied to a foreign
subsidiary by the parent company or another subsidiary.
A) fronting loan
B) fee
C) royalty
D) transfer price
83) A ________ represents the remuneration paid to the owners of technology, patents, or trade
names for the use of that technology or the right to manufacture and/or sell products under those
patents or trade names.
A) fronting loan
B) fee
C) royalty
D) transfer price
84) Part of the tax credit benefit that a parent company receives can be lost if the subsidiary‘s
A) combined tax rate is higher than the parent’s.
B) local government views royalties as an expense.
C) local tax rates on profits are extremely high.
D) managers are controlled directly by the parent.
85) Funds can be moved out of a particular country in which a parent country has set up a
subsidiary by
A) setting high transfer prices for the goods supplied.
B) removing royalties imposed on the subsidiary.
C) charging a discounted fee on the subsidiary.
D) issuing loans to the subsidiary at discounted rates.
86) Which of the following is a disadvantage of pursuing a transfer pricing policy?
A) It is not useful in shifting earnings from a high-tax country to a low-tax one.
B) Transfer pricing does not treat each subsidiary as a profit center.
C) It is not effective when significant currency devaluation is expected.
D) A transfer price policy cannot be used to move funds when dividends are restricted.
87) ________ is a loan between a parent and its subsidiary channeled through a financial
intermediary, usually a large international bank.
A) A fronting loan
B) An equity loan
C) A direct loan
D) A security loan
88) Firms use fronting loans to
A) avoid host-country restrictions on the remittance of funds from a foreign subsidiary.
B) implement a cost-based and fair pricing policy across an international business.
C) increase the profit center revenue of a subsidiary functioning in another country.
D) implement a market-driven and fair pricing policy across an international business.
89) ________ is a term used to describe the mix of techniques used to transfer liquid funds from a
foreign subsidiary to the parent company.
A) Deferral principle
B) Bilateral netting
C) Unbundling
D) Multilateral netting