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Chapter 18 - International Accounting and Financial Management
Answers
Questions
1. The cultural analysis of accounting Gray presents suggests that transparency is the result of a
cultural characteristic of some countries and secrecy of others. Could the same attributes be
explained by the hypothesis that transparent cultures are less trusting and need the transparency
to satisfy their cultural distrust? What do you think?
2. How might Sarbanes-Oxley influence the progress of the convergence of international
accounting standards?
SOX has presented a hurdle to foreign firms wishing to list in the U.S. This has slowed
3. How might triple-bottom-line accounting improve the social and environmental behavior of
companies?
Triple Bottom Line Accounting creates a forum in which companies are held responsible for the
4. What is your assessment of the movement pushing for 3BL? Explain your thinking.
5. You are establishing your first overseas subsidiary. As you consider how to capitalize your
business, what are your concerns about using the local and home country debt and equity
markets?
Among general concerns at the very beginning of the decision process probably would be
6. A local exporter has signed a sales contract that specifies payment of $3 million in Saudi riyals
in six months. Discuss the hedge options you would advise the exporter to consider.
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Chapter 18 - International Accounting and Financial Management
7. One of the characteristics of centralized structures is that they are slow and reduce innovation.
Why would an MNC set up a centralized cash management operation?
8. What aspect of how foreign operations of a company are organized is key to its U.S. tax
liability?
If the operation is a branch, that is, an extension of the parent company, not a separate legal
entity incorporated in the foreign country, its losses may be deducted by the parent company
from its U.S. taxable income. If the foreign entity is a subsidiary, that is, a separate legal
9. What are the differences between transaction and translation exposure?
Transaction exposure results from the risk of short term currency movements, whereas
translation exposure is a longer term exposure that is a result of consolidation. To hedge the
10. Describe how mircolending has developed as a result of its success.
Microfinance began as a not-for-profit operation, and has been remarkable successful in helping
Minicase
Dealing with Transaction Risk in a Renminbi Contract
To cover the transaction exposure, you could use one of at least six
strategies: leading and lagging, exposure netting, forward market hedge, currency option
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Chapter 18 - International Accounting and Financial Management
part of the company has payables in China, denominated in renminbi.
1 globalEDGE
Exercise One
Deloitte Touche Tohmatsu hosts an International Accounting Standards (IAS) webpage that
provides information and guidelines regarding accounting guidelines approved by IASC. Locate
the website, go to the section on standards, and prepare a short description of the international
accounting standards for recording intangible assets.
Answer
http://globaledge.msu.edu
Go to Resource Desk: http://globaledge.msu.edu/ResourceDesk/
Exercise Two
The top management of your company has requested information on the tax policies of
Denmark. Using the Denmark business guide on Deloitte International Tax and Business Guides,
a resource that provides information on the investment climate, operating conditions, and tax
system of the major trading countries, prepare a short report summarizing your findings on
Denmark’s business taxation.
Answer
http://globaledge.msu.edu
Go to Resource Desk: http://globaledge.msu.edu/ResourceDesk/
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Chapter 18 - International Accounting and Financial Management
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