1) An exporter manufacturing a specialized piece of equipment can hedge the risk that its customer will cancel the contract before shipment by obtaining a

A. consignment contract

B. open account

C. bill of lading

D. letter of credit

2) Which of the following functions does a draft NOT perform?

A. to provide written evidence, in clear and simple terms, of a financial obligation

B. to enable both parties to potentially reduce their costs of financing

C. to provide a negotiable and unconditional instrument

D. to offer the exporter greater safeguards than a letter of credit in securing repayment from the importe

3) Which of the following is NOT an advantage to the exporter of L/C financing?

A. an L/C eliminates credit risk if the bank that opens it is of undoubted standing

B. an L/C reduces the danger that payment will be delayed or withheld due to exchange controls or other political acts

C. payment is only in compliance with the L/C's stipulated conditions

D. an L/C guards against pre-shipment risks

4) Microsoft sells software to a French firm. In return, the French firm's bank, Credit Agricole, acknowledges it will pay Microsoft after the software is delivered to its client. Microsoft has most probably used

A. accounts receivable financing

B. factoring

C. forfeiting

D. letter of credit

5) Which one of the following is NOT true when shipping goods under documentary time drafts for acceptance?

A. the exporter is extending credit to the importer

B. the exporter is relinquishing control of the goods in return for a signature on the acceptance to assure it of payment

C. the importer is no longer bound to pay the draft to the exporter

D. a bill of lading will be the most important document of the transaction

6) Precor sells exercise equipment to thousands of health clubs and sporting goods stores around the world. Its average order size is about $3,500. Which of the following techniques would you recommend to Precor to deal with its credit risk?

A. insure the receivables through the FCIA, which will charge a 1.2% fee to cover 90% of the receivables

B. use a factor, who will charge a 1.3% export factoring fee

C. request letters of credit from customers. The customers will have to pay $75 plus 0.5% for each letter of credit. To remain competitive, Precor will have to reduce its prices to reimburse customers for their L/C costs

D. all are about equally acceptable

7) Pre-authorized payment can do all of the following for customers except

A. increase disbursement float

B. reduce processing costs

C. eliminate mail costs

D. eliminate the possibility of skipping a payment

8) Suppose it is May 1985 and the current value of the Greek drachma is Dr 1 = $0.006369, but the expected spot rate 90 days hence is Dr 1 = $0.005980. What is the value of a sales order of Dr 50 million sold on 90-day terms?

A. $318,450

B. $562,491

C. $299,000

D. 5,430

9) Why has the commercial paper market been dominated by the largest and most creditworthy firms?

A. commercial paper bears only the name of the issuer and is unsecured

B. the largest companies can afford the flotation costs

C. credit reporting agencies screen out smaller firms

D. commercial paper is issued at a discount

10) All of the following are major forms of bank financing EXCEPT

A. overdrafts

B. factoring

C. discounting

D. term loans

11) One advantage of the use of fees or royalties to manage the MNC's cash flow is _______.

A. less communications costs

B. less exchange rate risk

C. more favorable tax treatment by the parent country's government

D. less suspicion by the host government

12) _______ from the subsidiary to the parent is still the MOST important method of transferring funds in the MNC.

A. Parallel loans

B. Leading and lagging

C. Dividends

D. Credit rationing

13) Which one of the following would government taxing authorities NOT use to establish arm's length pricing?

A. comparable uncontrolled price method

B. resale price method

C. cost-plus method

D. the law of one price

14) Leading and lagging is primarily of value because of

A. tax regulations

B. foreign exchange risk

C. expropriation risk

D. exchange and capital controls

15)  Suppose a firm earns $2.5 million before tax in Spain. It pays Spanish tax of $1.3 million and remits the remaining $1.2 million as a dividend to its U.S. parent. The Spanish dividend withholding tax is 5%. Under current U.S. tax law, the parent will owe U.S. tax on this dividend equal to

A. $1.15 million

B. $552,000

C. nothing. It will also receive a foreign tax credit equal to $1.3 million.

D. nothing. It will also receive a foreign tax credit equal to $510,000.

16) Suppose affiliate A sells goods worth $1 million monthly to affiliate B on 30 day credit terms. A switch in credit terms to 120 days will involve a onetime shift in cash of

A. $3 million from A to B

B. $3 million from B to A

C. $4 million from A to B

D. $4 million from A to B

17) Suppose affiliate A sells 10,000 chips monthly to affiliate B at a unit price of $15. A's tax rate is 45% and B's tax rate is 55%. In addition, B must pay an ad valorem tariff of 12% on its imports. If the transfer price on chips can be set anywhere between $11 and $18, how much can the total monthly cash flow of A and B be increased by switching to the optimal transfer price?

A. $3,000

B. $4,000

C. $1,840

D. $1,380

18) The Apex Supplies Corporation needs to acquire 100 million in funds to expand their facilities. The bank has offered them a discounted loan at 10% and a compensating balance of 6%. What is the effective interest rate on this loan?

A. 5.5%

B. 7.8%

C. 11.9%

D. 14.5%