managing working capital

Assume that Subsidiaries X and Y of the same MNC often trade with each other. Assume that Subsidiary X has excess cash while Subsidiary Y is short on cash. How can Subsidiary X help Subsidiary Y?

• X should lag its payments sent to Y to pay for imports from Y.
• X should request that Y lead its payments to be sent for goods that Y sent to X.
• X should lag its payments sent to Y to pay for imports from Y AND X should request that Y lead its payments to be sent for goods that Y sent to X.
• None of these are correct.

Which of the following cannot be achieved by netting?

• reduction of cross-border transactions
• reduction of transaction costs
• reduction of currency conversion costs
• elimination of transaction exposure

Which of the following is a strategy than an MNC might use when the host country where a subsidiary is located imposes restrictions blocking the transfer of funds from the country?

• Instruct the subsidiary to set up a research and development division to use funds within the host country.
• Use transfer pricing in a manner that will increase the expenses incurred by the subsidiary.
• Instruct the subsidiary to obtain financing from a local bank in the host country.
• All of these are strategies that an MNC might use when the host country where a subsidiary is located imposes restrictions blocking the transfer of funds from the country.

The most useful measure of an MNCs liquidity is its:

• cash balance.
• amount of securities held as investments.
• political risk rating.
• potential access to funds.

If a foreign currency consistently depreciated against the dollar over several periods and had lower interest rates at the beginning of those periods than the U.S. interest rates, then:

• U.S. firms could have achieved a higher effective yield on foreign deposits than on U.S. deposits during those periods.
• the international Fisher effect is supported by the results.
• U.S. firms could have achieved a higher effective yield on foreign deposits than on U.S. deposits during those periods AND the international Fisher effect is supported by the results.
• None of these are correct.

A common purpose of intersubsidiary leading or lagging strategies is to:

• allow subsidiaries with excess funds to provide financing to subsidiaries with deficient funds.
• assure that the inventory levels at subsidiaries are maintained within tolerable ranges.
• change the prices a high-tax-rate subsidiary charges a low-tax-rate subsidiary.
• measure the performance of subsidiaries according to how quickly subsidiaries remit dividend payments to the parent.

Which of the following is not a technique to optimize cash flows?

• Accelerate cash inflows.
• Minimize currency conversion costs.
• Manage blocked funds.
• All of these are techniques to optimize cash flows.

To ____, MNCs can use preauthorized payments.

• accelerate cash inflows
• minimize currency conversion costs
• manage blocked funds
• manage intersubsidiary cash transfers

The effective yield of investing in a foreign currency depends on both the ____ and the ____ of the foreign currency.

• inflation rate; exchange rate movements
• income level; interest rates
• interest rate; exchange rate movements
• interest rate; amount invested