59.
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
The price at which such goods and services are transferred to a subsidiary
is referred to as the transfer price.
60.
Which of the following is a disadvantage of comparing managers in different
countries only on the basis of return on investment?
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.
Foreign subsidiaries do not operate in uniform environments; their
environments have widely different economic, political, and social
conditions, all of which influence the costs of doing business in a country.
Thus, the manager of a subsidiary in an adverse environment that has an
ROI of 5 percent may be doing a better job than the manager of a subsidiary
in a benign environment that has an ROI of 20 percent. Accordingly, it has
been suggested that the evaluation of a subsidiary should be kept separate
from the evaluation of its manager.
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
Capital budgeting is the technique financial managers use to try to quantify
the benefits, costs, and risks of an investment. This enables top managers
to compare investment alternatives in a reasonably objective fashion.
62.
Which of the following statements is true of the capital budgeting used in
international businesses?
A.
Capital budgeting does not provide 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.
Capital budgeting is the technique financial managers use to try to quantify
the benefits, costs, and risks of an investment. This enables top managers
to compare, in a reasonably objective fashion, different investment
alternatives within and across countries so they can make informed choices
63.
The problem of blocked earnings is not as serious now as it once was
because _____.
A.
fixed exchange rates have become more common now
B.
governmental intervention in earnings is more frequent now
C.
there is greater acceptance of free market economics now
D.
political risk within the economy is very low in modern times
The problem of blocked earnings is not as serious as it once was. The
worldwide move toward greater acceptance of free market economics has
reduced the number of countries in which governments are likely to prohibit
the affiliates of foreign multinationals from remitting cash flows to their
parent companies.
64.
Which of the following is a valid observation of 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.
The governments of some countries require, or at least prefer, foreign
multinationals to finance projects in their country by local debt financing or
local sales of equity. In countries where liquidity is limited, this raises the
cost of capital used to finance a project.
65.
Money management decisions attempt to manage a firm’s _____.
A.
equity capital
B.
fixed costs
C.
working capital
D.
equipment costs
Money management decisions attempt to manage the firm’s global cash
resources—its working capital—most efficiently.
66.
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
D.
avoid government-imposed restrictions on capital flows
By pooling its cash reserves, the firm can reduce the total size of the cash
pool it must hold in highly liquid accounts, which enables the firm to invest
a larger amount of cash reserves in longer-term, less liquid financial
instruments that earn a higher interest rate.
67.
_____ costs are incurred every time a firm changes cash from one currency
into another currency.
A.
Dividend
B.
Capital
C.
Fixed
D.
Transaction
Transaction costs are the cost of exchange. Every time a firm changes cash
from one currency into another currency it must bear a transaction cost—
the commission fee it pays to foreign exchange dealers for performing the
transaction.
68.
Multilateral netting is used majorly to _____.
A.
reduce the number of transactions between subsidiaries
B.
avail tax credit from governments
C.
establish a tax treaty amongst multiple countries
D.
to reduce the fixed costs of establishing a subsidiary
A firm’s subsidiaries trade with each other and at the end of each month a
large volume of cash transactions must be settled. Firm would incur huge
transaction costs if money is transferred for each transaction. Multilateral
netting reduces this cost by reducing the number of transactions.
69.
A(n) _____ allows an entity to reduce the taxes paid to the home
government by the amount of taxes paid to the foreign government.
A.
indirect tax
B.
tax haven
C.
tax credit
D.
internal tax
A tax credit allows an entity to reduce the taxes paid to the home
government by the amount of taxes paid to the foreign government.
70.
A _____ between two countries is an agreement specifying what 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
A tax treaty between two countries is an agreement specifying what items
of income will be taxed by the authorities of country where the income is
earned.
71.
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 majority stake in the subsidiary
D.
the subsidiary providing income is listed in the U.S.
A deferral principle specifies that parent companies are not taxed on foreign
source income until they actually receive a dividend.
72.
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 United States are widely regarded as tax havens.
D.
Firms can save tax by establishing a non-operating subsidiary in the tax
haven.
A tax haven is a country with an exceptionally low, or even no, income tax.
International businesses avoid or defer income taxes by establishing a
wholly owned, non-operating subsidiary in the tax haven. The tax haven
subsidiary owns the common stock of the operating foreign subsidiaries.
This allows all transfers of funds from foreign operating subsidiaries to the
parent company to be funneled through the tax haven subsidiary.
73.
_____ is the most common method by which firms transfer funds from
foreign subsidiaries to the parent company.
A.
Issue of long-term loans
B.
Payment of annual fee
C.
Issue of bonds
D.
Payment of dividends
Payment of dividends is the most common method by which firms transfer
funds from foreign subsidiaries to the parent company. The dividend policy
typically varies with each subsidiary depending on such factors as tax
regulations, foreign exchange risk, the age of the subsidiary, and the extent
of local equity participation.
74.
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
A fee is compensation for professional services or expertise supplied to a
foreign subsidiary by the parent company or another subsidiary.
75.
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
Royalties represent 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.
76.
Part of the benefit that a parent company receives by receiving payment
through royalties 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
When receiving money as royalties, the parent can often take a tax credit
for the local withholding and income taxes it has paid, part of the benefit
can be lost if the subsidiary’s combined tax rate is higher than the parent’s.
77.
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 subsidies
C.
charging a discounted fee on the subsidiary
D.
issuing loans to the subsidiary at discounted rate
Transfer prices can be used to position funds within an international
business. For example, funds can be moved out of a particular country by
setting high transfer prices for goods and services supplied to a subsidiary
in that country and by setting low transfer prices for the goods and services
sourced from that subsidiary.