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Student name:__________
1) Describe the importance of accounting information in business.
2) Identify a key accounting problem that international businesses are confronted with but
that does not confront purely domestic businesses. Substantiate with a suitable example.
3) How is a country’s accounting system affected by the providers of capital? Explain with
the help of suitable examples.
4) Briefly differentiate accounting standards and auditing standards.
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5) What are the shortcomings of IASB?
6) What are the main steps in the control process of a typical firm?
7) Describe the three exchange rates that can be used to translate foreign currencies into the
corporate currency in setting budgets and in the subsequent tracking of performance that Lessard
and Lorange pointed out.
8) What are the nine possible combinations of the three exchange rates proposed by Lessard
and Lorange in the control process?
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9) Explain the concept of transfer pricing.
10) Explain why the evaluation of a subsidiary should be kept separate from the evaluation of
its manager.
11) Describe three factors that complicate the process of an international business.
12) Describe the problem of blocked earnings.
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13) What are the considerations when seeking external financing for international business?
14) Define tax credit and tax treaty.
15) What are the advantages of using royalties and fees to move money across borders?
16) _____ are the most important source of external capital for business enterprises in the
United States.
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A) Stocks or bonds
B) World Bank loans
C) Banks
D) Venture capitalists
17) 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
18) In countries such as the United States and Britain, firms typically raised capital by
A) obtaining funding from the government.
B) borrowing money from national banks.
C) issuing stock or bonds to investors.
D) borrowing money from international banks.
19) Historically, financial reports prepared by firms in Germany
A) reveal less information than reports of British or U.S. firms.
B) contain detailed information required by individual investors.
C) overvalued assets and undervalued liabilities.
D) made more public disclosures compared to firms in other countries.
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20) Which of the following is a country in which banks emerged as the main providers of
capital to enterprises?
A) the United States
B) Britain
C) the Philippines
D) Switzerland
21) Accounting standards are
A) rules for preparing financial statements.
B) the levels of tax payments needed.
C) the rules for performing an audit.
D) the technical process of balancing accounts.
22) The technical process by which an independent person gathers evidence for determining
if financial accounts conform to required accounting standards is known as
A) standardization.
B) an audit.
C) reporting.
D) a benchmark.
23) Transnational financing occurs when a firm based in one country enters another country
to raise capital
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A) by borrowing from financial institutions.
B) from the sale of stocks or bonds.
C) by borrowing from banks.
D) through exchange policies of governments.
24) Three sets of related decisions are involved in financial management in an international
business. Which of these involves making decisions about how to fund the chosen activities?
A) investment decisions
B) financing decisions
C) bilateral decisions
D) money management decisions
25) Financial management in an international business includes three sets of related
decisions. Which of these involves making decisions about how to manage the firm’s financial
resources most efficiently?
A) multilateraldecisions
B) financingdecisions
C) investmentdecisions
D) moneymanagement decisions
26) A German firm raising capital by selling stock through the London Stock Exchange is an
example of
A) transnational financing.
B) service exporting.
C) indirect financing.
D) transnational investment.
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27) Financial management in an international business includes three sets of related
decisions. Which of these involves making decisions about what activities to finance?
A) investmentdecisions
B) moneymanagement decisions
C) multilateraldecisions
D) financingdecisions
28) Which of the following was formed in March 2001 to replace the International
Accounting Standards Committee (IASC)?
A) U.S. Securities and Exchange Commission
B) International Accounting Standards Board
C) Office of Economic Analysis
D) Financial Accounting Standards Board
29) The _____ has 16 members who are responsible for the formulation of new international
financial reporting standards.
A) U.S. Securities and Exchange Commission
B) International Accounting Standards Board
C) Office of Economic Analysis
D) Financial Accounting Standards Board
30) Compliance to IASB standards is
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A) mandatory for countries that want to engage in international trade.
B) enforced through the World Trade Organization.
C) voluntary.
D) enforced through the United Nations.
31) The International Accounting Standards Board
A) can issue a new accounting standard if the majority of the board members agree.
B) was formed to replace the Financial Accounting Standards Board.
C) develops standards but has no power to enforce the standards.
D) was formed to supervise the accounting practices that U.S. firms follow.
32) The _____ writes the generally accepted accounting principles (GAAP) that govern the
preparation of U.S. firms’ financial statements.
A) U.S. Securities and Exchange Commission
B) Office of Economic Analysis
C) International Accounting Standards Board
D) Financial Accounting Standards Board
33) The _____ is the main instrument of financial control in an organization.
A) chief financial officer
B) corporate accounting
C) audit
D) budget
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34) A European subsidiary of a U.S. firm will usually prepare its budgets in
A) U.S. dollars.
B) euros.
C) a third-party currency.
D) Eurocurrency.
35) The projected rate will typically be the _____ as determined by the foreign exchange
market when firms use the projected spot exchange rate to translate both the budget and
performance figures into the corporate currency.
A) transfer price
B) forward exchange rate
C) carrying cost
D) foreign exchange rate
36) The price at which goods and services are transferred between subsidiary companies in a
multinational firm is referred to as
A) minimum retail price.
B) deferral price.
C) transfer price.
D) transaction price.
37) Most international businesses require all budgets and performance data within the firm to
be expressed in the “corporate currency,” which is normally
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A) a common currency such as the U.S. dollar.
B) the home currency.
C) a foreign currency.
D) the currency of the country where products are sold.
38) 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
39) 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
40) 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.
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41) 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
42) 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.
43) 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
44) Transfer price refers to the
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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.
45) 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.
46) 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.
47) 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.
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48) 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.
49) _____ 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
50) 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.
51) The problem of blocked earnings is not as serious now as it once was because
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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.
52) 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.
53) 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.
54) Money management decisions attempt to manage the firm’s _____ most efficiently.
A) cash flow
B) corporate expenses
C) working capital
D) corporate revenues
55) 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.
56) 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.
57) 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
58) 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