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Student name:__________
TRUE/FALSE – Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1) The practice of accounting provides investors and lenders with the quantitative
information they rely on to make business decisions.
⊚ true
⊚ false
2) Temporal method of translation would recognize market value of real estate assets.
⊚ true
⊚ false
3) When discussing foreign currency, consolidation refers to ensuring that all monies are
traded in the same currency, such as the dollar or the euro.
⊚ true
⊚ false
4) The process companies go through to aggregate various results from foreign subsidiaries
into one financial report is known as collective bargaining.
⊚ true
⊚ false
5) Typically, the functional currency is the local currency.
⊚ true
⊚ false
6) American depository receipts represent the total dollar value of a company’s worth on the
stock market.
⊚ true
⊚ false
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7) Trying to protect against losses due to currency exchange rate fluctuations is called
hedging.
⊚ true
⊚ false
8) Companies use a fronting loan to set the price of transactions between members of the
same business enterprise.
⊚ true
⊚ false
9) An importer accelerates payment of the necessary currency exchange (leads) when it is
thought that the currency will devalue in terms of the foreign payment currency.
⊚ true
⊚ false
10) When independent, unrelated companies use acceleration or delay of payment to each
other, such leading and lagging is generally a win–win situation.
⊚ true
⊚ false
11) Objectives of multilateral netting include keeping as much money as is reasonably
possible in countries with high interest rates or where credit is difficult to obtain.
⊚ true
⊚ false
12) Transfer pricing is a term for the pricing involved when one unit of an IC buys from
another.
⊚ true
⊚ false
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13) A swap contract is a way to hedge foreign currency exposure.
⊚ true
⊚ false
14) When using a money market hedge, the hedger will convert the currency borrowed into
his or her own currency.
⊚ true
⊚ false
15) Translation exposure refers to the risks associated with language barriers between home
and host countries.
⊚ true
⊚ false
16) Exposure netting is the acceptance of closed positions in two or more currencies that are
considered to balance one another.
⊚ true
⊚ false
17) Swap contracts can be used to hedge foreign currency exposure. They may be undertaken
for long periods of time.
⊚ true
⊚ false
18) Hedging for currency risk is only for large businesses with established international
operations.
⊚ true
⊚ false
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19) Translation risks involve shorter time periods than do transaction risks.
⊚ true
⊚ false
20) Economic exposure is the potential for unanticipated exchange rate movements to affect
future cash flows.
⊚ true
⊚ false
MULTIPLE CHOICE – Choose the one alternative that best completes the statement or
answers the question.
21) The financial issues confronting IC management include
A) currency values, taxes, and inflation.
B) market size and capitalization.
C) political issues impacting sales.
D) competitive forces.
22) In their foreign operations, U.S. companies with foreign subsidiaries regularly follow
A) their home-country accounting practices.
B) their host-country accounting practices.
C) both their home- and host-country accounting practices.
D) their choice of accounting practices, being consistent.
23) The process of accounting standards convergence is
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A) underway, but deadlines have been extended.
B) not likely, the process is so complex.
C) just about complete.
D) not likely due to the related political issues.
24) Lady Sara Tea Company is based in England but chooses to use the U.S. dollar for all
pricing, expenses, and finance matters. In this case, the U.S. dollar is an example of
A) the gold standard.
B) a forward exchange.
C) a functional currency.
D) a spot exchange.
25) There are two points at which operating in foreign currencies raises accounting issues—
A) consolidation and bank loans.
B) buying and selling in the host-country currency.
C) bank loans and issuing foreign shares such as American depository receipts (ADRs).
D) transactions in foreign currencies and corporate consolidation.
26) An international company would refer to GAAP when
A) applying accounting principles.
B) applying the best methods for firing employees.
C) assessing tariff barriers for exports.
D) making strategic transportation decisions.
27) Compliance to the International Financial Reporting Standards is
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A) a legal requirement in the U.S.
B) based on social obligation.
C) mandatory for all companies.
D) a way to avoid transaction exposure.
28) In Sidney Gray’s study, the dimension known as secrecy-transparency measures
A) the level of communication between various levels of a company.
B) the amount of government interaction a company faces.
C) the degree to which companies disclose information to the public.
D) public awareness of foreign exchange rates.
29) FASB 52 requires that companies record foreign currency transactions
A) unless the payment is made in cash.
B) within two days of the transaction.
C) in the foreign currency only.
D) at the spot rate.
30) Consolidation is the process of
A) translating results into one financial statement.
B) combining debts for a lower interest rate.
C) trading currencies so that a one-currency ledger can be produced.
D) moving accounting convergence forward.
31) The two methods of currency translation are
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A) functional and temporal.
B) interlinear and historical.
C) temporal and current.
D) intermediary and vehicle.
32) In the current rate method, assets and liabilities are translated
A) at the rate in effect the day the balance sheet is produced.
B) at the rate in effect the day the original transaction was posted.
C) using an average of the rate of the preceding 10 days.
D) at the LIBOR rate on the day before the translation is prepared.
33) The functional currency is
A) the currency with the most advantageous interest rate.
B) the primary currency of the business.
C) the currency of the home office.
D) whatever currency the buyer would like to use for the transaction.
34) Accounting standards in the United States are allocated by Congress as the responsibility
of
A) a committee of CFOs.
B) the Secretary of the Treasury.
C) a committee of accounting scholars.
D) the Securities and Exchange Commission (SEC).
35) The SEC established the seven-member Financial Accounting Standards Board to
oversee accounting standards. The FASB is
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A) a private nonprofit organization.
B) a committee of the Department of the Treasury.
C) a committee of the Department of Commerce.
D) a for-profit public company.
36) How many accounting standards are there now in operation?
A) two
B) four
C) six
D) three
37) The International Accounting Standards Board (IASB) represents the standards of
A) Europe and parts of Africa.
B) the United States exclusively.
C) most of the world, except the United States.
D) most globally-minded managers.
38) Researcher Sidney Gray’s optimism–conservatism measure indicates the degree to which
a company
A) exercises caution in valuing of assets and measuring income.
B) is willing to embrace translation exposure.
C) loans money to subsidiaries.
D) interacts with foreign governments to obtain tariff relief measures.
39) According to the Sidney Gray study, in the values related to accounting,
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A) transparency and optimism tend to occur together.
B) transparency and conservatism tend to occur together.
C) optimism and secrecy tend to occur together.
D) honesty is found through the accounting systems of the most conservative countries.
40) When taking into account cultural differences, Sidney Gray used the ________
dimension to measure the degree to which companies disclose information to the public.
A) masculinity-femininity
B) mission-vision
C) optimism-conservatism
D) secrecy-transparency
41) Countries that value privacy or secrecy over transparency in regard to disclosing
information to the public include
A) Britain and China.
B) Spain and the United Kingdom.
C) Japan and Germany.
D) the United States and Japan.
42) The triple concerns of triple bottom-line (3BL) accounting are
A) economic, social, and environmental impacts of business.
B) environmental, political, and economic impacts of business.
C) systems, diversity, and equity in businesses addressing environmental issues.
D) profits, PR, and competitive results of business.
43) When considering triple-bottom-line accounting, currently most businesses measure
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A) the economic impact of their activities and ignore the social and environmental.
B) their market share in economic terms but not social or environmental terms.
C) economic and environmental impacts, but not their social impacts.
D) none of their impacts, because economic measures are aggregated.
44) Critics of 3BL claim that
A) measuring impacts on social and environmental contexts will not get us closer to the
desired state.
B) business has no business paying attention to social and environmental impacts;
economic impact is what counts.
C) measuring is a waste of time and has no impact on the bottom line.
D) such concerns are beyond the competency of most managers and are best left to
government.
45) Criticism of 3BL suggests 3BL is comparable to
A) a public confession.
B) a code of ethics hanging on the wall in every office: it does not lead to ethical
behavior.
C) PR rather than organizational values.
D) a marketing campaign rather than a product.
46) 3BL data are not comparable across companies; an alternative is
A) a Greenpeace reporting matrix.
B) an FASB approach.
C) the Global Reporting Initiative (GRI).
D) the Environmental and Social Index (ESI).
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47) The three components of triple-bottom-line accounting are environmental results,
financial results, and
A) liability results.
B) physical results.
C) foreign results.
D) social results.
48) Offshore financial centers are also known as
A) tax havens.
B) money market hedges.
C) currency swaps.
D) fronting loans.
49) What decisions will a financial manager make in the process of raising capital?
A) what risk profile to assume and for what period.
B) whether to sell parts of the company and reduce wages.
C) what currency will be used and how it should be structured between equity and debt.
D) what accounting approach and what operating currency to use.
50) A company that raises capital through retained earnings is relying on what kind of source
for the capital?
A) internal
B) external
C) developed
D) developing
51) American depository receipts are denominated in
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A) dollars.
B) euros.
C) the currency of the host country.
D) the currency of the home country.
52) Tax havens are financial centers in which
A) banking regulations are strict.
B) tax levels are comparable to the U.S. market.
C) banking regulations are loose.
D) tax levels are high.
53) There are two basic sources of capital for the firm—
A) banks and sovereign wealth funds.
B) internal equity and external sources, either debt or equity.
C) capital markets and banks.
D) domestic and international funders.
54) What occurs when a company relies on external equity to raise capital?
A) the firm is stronger because control is diffused
B) interest rates are a critical obligation
C) part of the firm’s ownership is being sold
D) shareholders can add management strength to the firm
55) When firms issue stock to raise capital, they
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A) may tap foreign as well as domestic markets.
B) are limited to domestic markets, due to local legislation.
C) are foregoing the use of domestic debt markets.
D) are making a commitment to adopt 3BL.
56) How does issuing stocks in foreign markets affect firms?
A) extends the firm’s investor pool and often reduces cost of capital
B) supports international debt markets
C) influences local legal systems
D) causes currency problems
57) American depository receipts (ADRs) function to
A) eliminate a foreign firm’s need to have a broker in the United States and to make
currency exchanges.
B) protect U.S. citizens from U.S. taxes.
C) support international capital markets.
D) separate the stock issuer from the stockholder.
58) Who developed ADRs and where?
A) LSE in the United Kingdom for Selfridges to list in the United States.
B) J. P. Morgan in the United States for a Selfridge’s listing.
C) Donald Trump in the United States.
D) J. F. Kennedy for Cuban listings in the United States.
59) When assessing debt markets as a source of capital, there is an increasing tendency
among companies to
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A) tap local markets first.
B) look globally for lowest rates.
C) commit to the markets of major customers first.
D) use as much debt as possible to maintain control.
60) What is a source for debt financing used by some companies?
A) subsidiaries
B) local lines of credit
C) other businesses
D) offshore financial markets
61) Many companies take advantage of banking opportunities in the Cayman Islands where
there are low taxes and less strict banking regulations. The banking centers in the Cayman
Islands are an example of
A) ADRs
B) tax havens.
C) fronting loans.
D) 3BL.
62) A loan that is made through an intermediary like a bank from a parent company to a
subsidiary is called a
A) transfer price.
B) personal loan.
C) fronting loan.
D) tariff barrier.
63) With regard to currency, it is not uncommon for an international firm such as Nestlé to
operate in
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A) more than 20 local currencies.
B) only U.S. dollars.
C) a combination of hard and soft currencies.
D) less than 5 local currencies.
64) Transfer pricing is a method of moving funds that represents intrafirm sales, which
actually make up what percentage of world trade?
A) 60 percent
B) 12 percent
C) 2 percent
D) 20 percent
65) A fronting loan would typically be made by
A) the host country government.
B) the home country government.
C) the parent company.
D) a bank.
66) Multilateral netting is best represented by a
A) straight line.
B) graduated pyramid.
C) wheel-and-spoke model.
D) continuous circle.
67) Transfer pricing may be used to
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A) decrease IC taxes.
B) fund exports only.
C) move goods within a region.
D) support debt equity.
68) Tartan Publishing is concerned about changing currency values. To minimize risk, the
company policy is to collect payments from foreign vendors as early as possible. What is this an
example of?
A) exposing
B) lagging
C) swapping
D) leading
69) Rather than loan funds directly to its subsidiary, Heritage Mfg. deposited the funds in an
international bank and the bank then loaned that money to the subsidiary. What is this an
example of?
A) transfer pricing
B) fronting loan
C) money market hedge
D) currency swap
70) Multilateral netting is used to
A) loan money to foreign subsidiaries.
B) administer human resource benefits.
C) optimize cash flow.
D) capture spot exchange rates.
71) Currency fluctuations create risks categorized as
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A) transaction, translation, and economic exposures.
B) domestic and foreign.
C) independent and dependent exposures.
D) hedging exposures.
72) Transaction exposure is a foreign exchange risk that
A) occurs when subsidiary financial statements are consolidated at the corporate level.
B) arises when future payment in a foreign currency is involved.
C) results from translating values in foreign currencies to the home-country currency.
D) cannot be protected against.
73) A forward market hedge can be described as
A) a simple transaction.
B) a way to translate foreign currency to parent company currency.
C) a situation that should be avoided.
D) a response to risk that is rarely used.
74) Keller Beef Products Inc. hopes to limit transaction exposure by contracting today to
deliver currency at a specified rate on a specified future date. What type of strategy is the
company using?
A) money market hedge
B) forward market hedge
C) swap contract
D) currency option hedge
75) One characteristic of a currency option hedge is that it
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A) is of limited use.
B) uses specific amounts and settlement dates.
C) offers options in currencies hedged.
D) is seldom used.
76) Swap contracts are used to hedge
A) derivatives.
B) foreign currency exposure.
C) covered positions.
D) sales performance.
77) A covered position occurs when
A) you have hedged a transaction exposure.
B) you can cover your short position with another currency.
C) you are covered by insurance against loss in your short.
D) you have recovered your basic investment.
78) Westward Wood Products Inc. borrowed euros in the European market in the amount of
receivables the company has from a sale in France. The period of the loan matches the due date
of the receivables. Westward converts the euros to dollars at the spot rate and invests them. The
company uses the euros it receives from the French company to pay off the euro loan. Then the
invested dollars plus their earned interest provide Westward a dollar amount for the French sale.
Which type of hedge is the company using?
A) currency option
B) swap contract
C) money market
D) forward market
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79) Companies pursue swap contracts in order to
A) limit currency exposure.
B) reward expatriate workers.
C) validate accounting operations.
D) eliminate unwanted suppliers.
80) In a currency option hedge, “puts” are
A) contracts with an option to buy foreign currency payables.
B) contracts to sell foreign currency receivables.
C) also known as spot exchange rates.
D) used to replace the hedge with a swap contract.
81) Carlson Industries has subsidiaries in 12 countries. Each of these subsidiaries prepares its
financial reports in its particular currency, and the company’s bottom line is affected when these
currencies are exchanged into U.S. dollars. What type of exposure does this reflect?
A) translation
B) economic
C) transaction
D) political
82) For the parent company in an IC group, translation of assets and liabilities as well as
payables and receivables of subsidiaries from the currencies of their host countries to the
currency of the parent’s home country is
A) not a common practice for industrial groups.
B) prohibited by laws of most host countries.
C) necessary to understand how well subsidiaries are doing and for companywide
financial reports.
D) required by the laws of most home countries.
83) Swaps may be used to
A) hedge foreign currency exposure.
B) level out human resource issues.
C) establish international experience in the finance function.
D) acquire valuable local resources.
84) Workers in the United States have a direct tax levied on their earnings. What is this tax
called?
A) pension
B) income tax
C) dividend
D) withholding tax
85) Taxes that are levied on royalties and dividends are called
A) withholding taxes.
B) income taxes.
C) personal property taxes.
D) value-added taxes.
86) An international business would use inversion as a way to
A) avoid taxes.
B) create economies of scale.
C) duplicate competitor products.
D) promote products.