A) Blocked funds can be used to purchase some local commodity which is then exported. With the concurrence of the host government, the money generated from selling the products abroad is placed in the central depository for use by the MNE.
B) Blocked funds can be used to purchase from local providers services needed by other affiliates such as information processing, call centers, product testing and research, and similar things.
C) Fronting loans can be used through which purchasing power can be transferred from the subsidiary to the parent when the subsidiary deposits money in the local branch of an international bank that, in turn, serves as collateral for a loan by another branch of the bank to the parent.
D) The MNE can develop holiday packages for tourists to the host country and use the blocked funds to pay for local services while retaining the customer payments in accounts outside the country where the funds are blocked.
E) None of the statements above; all are strategies for lessening the effects of blocked funds.
G) A) and D)
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The transactions motive suggests that si...View Answer
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A) 36.50%
B) 37.24%
C) 39.85%
D) 42.93%
E) 44.59%
G) B) and D)
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First, scale advantages exist that allow...View Answer
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A) When a company centralizes its cash management operations, money in the corporate system is concentrated rather than being dispersed. There are economies of scale in several dimensions when dealing with larger cash flows.
B) There are diversification advantages to centralization because lower precautionary cash balances can be carried at the central pool without increasing the risk of a cash shortage.
C) There can be tax advantages if the location of the centralized cash management operation is in a tax haven country that imposes low or no taxes on most transactions, has highly sophisticated financial services capabilities, and maintains strict secrecy.
D) None of the statements above; all are reasons for centralizing cash management activities.
F) All of the above
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A) Economic theory suggests that the correct transfer price is the amount an unrelated customer would have to pay in a free market.
B) The Organization for Economic Cooperation and Development (OECD) has suggested that when it is impossible to determine objectively an appropriate arms-length price, the companies should use two other methods to determine the proper transfer price: the resale price method and the cost-plus method.
C) Companies would prefer to use high transfer prices in low-tax countries and low transfer prices in high-tax countries.
D) One way to get agreement about the correct transfer price that should satisfy all parties is to negotiate an advance pricing agreement (APA) .
E) None of the statements above; all are correct.
G) A) and D)
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A) For countries in which blockages are a significant problem, an aggressive strategy can be used with the central pool providing short-term financing as needed. This strategy minimizes the need for much equity which will be blocked.
B) If a host-country government offers subsidized long-term loans at particularly good below-market rates and generous repayment terms, then a conservative strategy can be used effectively with excess cash sent to the central pool for reallocation.
C) For countries in which blockages are not an issue and that let the marketplace determine all interest rates, a moderate financing strategy makes sense with the central pool providing short-term funds for temporary working capital and receiving excess funds for reallocation or investment.
D) All of the statements above are correct
E) Only statements a and b are correct.
G) A) and B)
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Starting from the original figures, the ...View Answer
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A) The credit period needs to be matched against the cash cycle of customers and the availability of local credit sources, but these factors are more difficult to assess in unfamiliar markets.
B) Particularly in emerging markets, reliable data may not be available to assess the creditworthiness of customers, and cultural characteristics determine the willingness to pay when times are tough and money is needed for other expenses.
C) People in different countries react differently to various kinds of collection mechanisms because of their cultural characteristics, with aggressive collection efforts alienating people in some countries while being absolutely necessary in other countries to collect amounts owed.
D) All of the statements above are reasons credit policy is more of a challenge abroad than at home.
E) Only statements b and c are valid reasons.
G) C) and E)
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A reinvoicing center is a separate affil...View Answer
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