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
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
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