Question 1

Which one of the following cash flow mechanisms arouses the least suspicion from a host government concerning multinationals attempts to avoid additional taxes?

Accepted Answer

A)   transfer pricing
B)   reinvoicing centers
C)   royalties
D)   leading and laggingE) C) and D)
F) A) and B)

Question 2

Subsidiaries A and B buy from and sell to each other. Suppose that A has excess cash, whereas B is short of cash. How can A funnel money to B?

Accepted Answer

A)   A can lead payments owed to B
B)   B can lag payments owed to A
C)   A can raise transfer prices on goods sold to B
D)   a and b onlyE) A) and C)
F) B) and C)

Question 3

Suppose a firm earns $million before-tax in Spain. It pays Spanish tax of $million and remits the remaining $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

Accepted Answer

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.E) A) and B)
F) A) and D)

Question 4

French subsidiary that earns $1 million before-tax pays French tax of $.5 million and remits the remaining $.5 million as a dividend to its U.S. parent. It pays a 10% dividend withholding tax on its remittance. Under current tax law, the parent will owe U.S. tax on this dividend equal to

Accepted Answer

A)   $40,000
B)   $460,000
C)   $207,000
D)   nothing. It will also receive a foreign tax credit of $210,000.E) B) and C)
F) B) and D)

Question 5

disadvantage of a reinvoicing center is _______.

Accepted Answer

A)   less chance of local government suspicion
B)   less communication costs
C)   more communications costs
D)   more exchange rate riskE) A) and B)
F) A) and C) C

Question 6

Leading and lagging is primarily of value because of

Accepted Answer

A)   tax regulations
B)   foreign exchange risk
C)   expropriation risk
D)   exchange and capital controlsE) A) and B)
F) B) and C)

Question 7

may use _______ arbitrage to resist government price controls or union wage pressures.

Accepted Answer

A)   tax
B)   financial system
C)   regulatory
D)   triangularE) None of the above
F) C) and D)

Question 8

best way(s)  to increase the present value of after-tax remittances from overseas is (are)  to

Accepted Answer

A)   invest parent funds as debt rather than equity
B)   borrow in the local currency
C)   hedge exchange risk
D)   speed up the payment of dividendsE) None of the above
F) B) and D) A

Question 9

extensive system of foreign tax credits allows

Accepted Answer

A)   U.S. MNCs to lower their effective tax rate on foreign-source income to below the U.S. corporate tax rate
B)   governments to collect more taxes from MNCs
C)   reduce the amount of taxes they owe the host country
D)   MNCs to avoid double taxation on foreign-source incomeE) None of the above
F) All of the above

Question 10

Which one of the following is an example of a market imperfection in the domestic capital market?

Accepted Answer

A)   transactions costs
B)   costs of obtaining information
C)   ceilings on interest rates
D)   restrictions by nationality of investorE) All of the above
F) B) and D)

Question 11

arbitrage

Accepted Answer

A)   arises when subsidiary profits vary due to local regulations
B)   occurs when firms move funds to lower tax jurisdictions
C)   arises when barriers to trade exist
D)   occurs due to the incidence of capital flightE) B) and C)
F) All of the above

Question 12

Reinvoicing centers are usually set up in _______ jurisdictions.

Accepted Answer

A)   economically secure
B)   politically stable
C)   high-tax
D)   low-taxE) A) and D)
F) A) and C)

Question 13

Suppose affiliate A sells 10,000 chips monthly to affiliate B at a unit price of $1A'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?

Accepted Answer

A)   $3,000
B)   $4,000
C)   $1,840
D)   $1,380E) C) and D)
F) None of the above

Question 14

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 one-time shift in cash of

Accepted Answer

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 B to AE) All of the above
F) None of the above

Question 15

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

Accepted Answer

A)   Parallel loans
B)   Leading and lagging
C)   Dividends
D)   Credit rationingE) None of the above
F) A) and B)

Question 16

Suppose a foreign subsidiary earns $1 million after paying foreign income taxes of $800,000. If the subsidiary pays a dividend of $600,000, what is the amount of the indirect foreign tax credit that its parent will receive?

Accepted Answer

A)   $480,000
B)   $800,000
C)   $400,000
D)   it receives no foreign tax creditE) A) and B)
F) A) and C)

Question 17

Which one of the following is a real rather than a financial flow?

Accepted Answer

A)   capital goods
B)   dividends
C)   equity investment
D)   credit on goods and servicesE) A) and B)
F) A) and C)

Question 18

Which of the following is NOT characteristic of a back-to-back loan?

Accepted Answer

A)   it is a method to reduce exchange rate risk
B)   it is know as a fronting loan
C)   it is a loan channeled through a bank
D)   it is collateralized by the parent's depositE) None of the above
F) All of the above

Question 19

Leading and lagging strategies have several advantages EXCEPT

Accepted Answer

A)   no formal note of indebtedness is needed
B)   governments are less like to interfere with payments on intercompany accounts
C)   interest must be charged on all intercompany accounts
D)   intercompany accounts up to six months are interest freeE) None of the above
F) A) and C) C

Question 20

Which one of the following is NOT a factor in developing a global remittance policy?

Accepted Answer

A)   number of financial links
B)   global investment yields
C)   ownership patterns
D)   volume of transactionsE) None of the above
F) A) and D)

Exam 20: Managing the Multinational Financial System

Which one of the following cash flow mechanisms arouses the least suspicion from a host government concerning multinationals attempts to avoid additional taxes?

Correct Answer
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Subsidiaries A and B buy from and sell to each other. Suppose that A has excess cash, whereas B is short of cash. How can A funnel money to B?

Correct Answer
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Suppose a firm earns $million before-tax in Spain. It pays Spanish tax of $million and remits the remaining $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

Correct Answer
verified

French subsidiary that earns $1 million before-tax pays French tax of $.5 million and remits the remaining $.5 million as a dividend to its U.S. parent. It pays a 10% dividend withholding tax on its remittance. Under current tax law, the parent will owe U.S. tax on this dividend equal to

Correct Answer
verified

disadvantage of a reinvoicing center is _______.

Correct Answer
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C

Leading and lagging is primarily of value because of

Correct Answer
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may use _______ arbitrage to resist government price controls or union wage pressures.

Correct Answer
verified

best way(s) to increase the present value of after-tax remittances from overseas is (are) to

Correct Answer
verified
A

extensive system of foreign tax credits allows

Correct Answer
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Which one of the following is an example of a market imperfection in the domestic capital market?

Correct Answer
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arbitrage

Correct Answer
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Reinvoicing centers are usually set up in _______ jurisdictions.

Correct Answer
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Correct Answer
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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 one-time shift in cash of

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

Correct Answer
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Suppose a foreign subsidiary earns $1 million after paying foreign income taxes of $800,000. If the subsidiary pays a dividend of $600,000, what is the amount of the indirect foreign tax credit that its parent will receive?

Correct Answer
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Which one of the following is a real rather than a financial flow?

Correct Answer
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Which of the following is NOT characteristic of a back-to-back loan?

Correct Answer
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Leading and lagging strategies have several advantages EXCEPT

Correct Answer
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C

Which one of the following is NOT a factor in developing a global remittance policy?

Correct Answer
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Exam 20: Managing the Multinational Financial System

Which one of the following cash flow mechanisms arouses the least suspicion from a host government concerning multinationals attempts to avoid additional taxes?

Correct AnswerverifiedShow Answer

Subsidiaries A and B buy from and sell to each other. Suppose that A has excess cash, whereas B is short of cash. How can A funnel money to B?

Correct AnswerverifiedShow Answer

Suppose a firm earns $million before-tax in Spain. It pays Spanish tax of $million and remits the remaining $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

Correct AnswerverifiedShow Answer

French subsidiary that earns $1 million before-tax pays French tax of $.5 million and remits the remaining $.5 million as a dividend to its U.S. parent. It pays a 10% dividend withholding tax on its remittance. Under current tax law, the parent will owe U.S. tax on this dividend equal to

Correct AnswerverifiedShow Answer

disadvantage of a reinvoicing center is _______.

Correct AnswerverifiedC

Leading and lagging is primarily of value because of

Correct AnswerverifiedShow Answer

may use _______ arbitrage to resist government price controls or union wage pressures.

Correct AnswerverifiedShow Answer

best way(s) to increase the present value of after-tax remittances from overseas is (are) to

Correct AnswerverifiedA

extensive system of foreign tax credits allows

Correct AnswerverifiedShow Answer

Which one of the following is an example of a market imperfection in the domestic capital market?

Correct AnswerverifiedShow Answer

arbitrage

Correct AnswerverifiedShow Answer

Reinvoicing centers are usually set up in _______ jurisdictions.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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 one-time shift in cash of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose a foreign subsidiary earns $1 million after paying foreign income taxes of $800,000. If the subsidiary pays a dividend of $600,000, what is the amount of the indirect foreign tax credit that its parent will receive?

Correct AnswerverifiedShow Answer

Which one of the following is a real rather than a financial flow?

Correct AnswerverifiedShow Answer

Which of the following is NOT characteristic of a back-to-back loan?

Correct AnswerverifiedShow Answer

Leading and lagging strategies have several advantages EXCEPT

Correct AnswerverifiedC

Which one of the following is NOT a factor in developing a global remittance policy?

Correct AnswerverifiedShow Answer

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C

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A

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C

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