Question 1

Briefly differentiate accounting standards and auditing standards.

Accepted Answer

The answer of Briefly differentiate accounting standards and auditing standards....

Question 2

Which of the following is a disadvantage of pursuing a transfer pricing policy?

Accepted Answer

Another problem associated with transfer pricing is related to management incentives and performance evaluation. Transfer pricing is inconsistent with a policy of treating each subsidiary in the firm as a profit center.

Question 3

Critics of adjusting discount rates to reflect a location's riskiness argue that it:

Accepted Answer

Adjusting discount rates to reflect a location's riskiness seems to be fairly widely practiced. However, critics of this method argue that it penalizes early cash flows too heavily and does not penalize distant cash flows enough. They point out that if political or economic collapse were expected in the near future, the investment would not occur anyway. So for any investment decisions, the political and economic risk being assessed is not of immediate possibilities, but rather at some distance in the future.

Question 4

A tax haven is a country:

Accepted Answer

A tax haven is a country with an exceptionally low, or even no, income tax. International businesses avoid or defer income taxes by establishing a wholly owned, non-operating subsidiary in the tax haven.

Question 5

Most banks charge a(n) _____ for moving cash from one location to another.

Accepted Answer

Transaction costs are the cost of exchange. Every time a firm changes cash from one currency into another currency it must bear a transaction cost-the commission fee it pays to foreign exchange dealers for performing the transaction. Most banks also charge a transfer fee for moving cash from one location to another; this is another transaction cost. The commission and transfer fees arising from intra-firm transactions can be substantial.

Question 6

Which of the following is one of the gains derived by adjusting transfer prices?

Accepted Answer

At least four gains can be derived by adjusting transfer prices: 1. The firm can reduce its tax liabilities by using transfer prices to shift earnings from a high-tax country to a low-tax one. 2. The firm can use transfer prices to move funds out of a country where a significant currency devaluation is expected, thereby reducing its exposure to foreign exchange risk. 3. The firm can use transfer prices to move funds from a subsidiary to the parent company (or a tax haven) when financial transfers in the form of dividends are restricted or blocked by host-country government policies. 4. The firm can use transfer prices to reduce the import duties it must pay when an ad valorem tariff is in force-a tariff assessed as a percentage of value. In this case, low transfer prices on goods or services being imported into the country are required. Since this lowers the value of the goods or services, it lowers the tariff.

Question 7

Which of the following combinations of exchange rates was recommended for translating budget and performance by Lessard and Lorange?

Accepted Answer

Of the five combinations, Lessard and Lorange recommend that firms use the projected spot exchange rate to translate both the budget and performance figures into the corporate currency.

Question 8

Identify a key accounting problem that international businesses are confronted with but that does not confront purely domestic businesses. Substantiate with a suitable example.

Accepted Answer

The answer of Identify a key accounting problem that international...

Question 9

Three sets of related decisions are involved in financial management in an international business. Which of these involves making decisions about how to fund the chosen activities?

Accepted Answer

Financial management in an international business includes three sets of related decisions: (1) investment decisions: decisions about what activities to finance, (2) financing decisions: decisions about how to finance those activities, and (3) money management decisions: decisions about how to manage the firm's financial resources most efficiently.

Question 10

Which of the following was formed in March 2001 to replace the International Accounting Standards Committee (IASC)?

Accepted Answer

The International Accounting Standards Board (IASB) has emerged as a major proponent of standardization. The IASB was formed in March 2001 to replace the International Accounting Standards Committee (IASC), which had been established in 1973. The IASB has 15 members who are responsible for the formulation of new international financial reporting standards. To issue a new standard, 75 percent of the 15 members of the board must agree.

Question 11

What are the shortcomings of IASB?

Accepted Answer

The answer of What are the shortcomings of IASB?...

Question 12

Financial management in an international business includes three sets of related decisions. Which of these involves making decisions about how to manage the firm's financial resources most efficiently?

Accepted Answer

Financial management in an international business includes three sets of related decisions: (1) investment decisions: decisions about what activities to finance, (2) financing decisions: decisions about how to finance those activities, and (3) money management decisions: decisions about how to manage the firm's financial resources most efficiently.

Question 13

Describe importance of accounting information in business.

Accepted Answer

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Question 14

Financial management in an international business includes three sets of related decisions. Which of these involves making decisions about what activities to finance?

Accepted Answer

Financial management in an international business includes three sets of related decisions: (1) investment decisions: decisions about what activities to finance, (2) financing decisions: decisions about how to finance those activities, and (3) money management decisions: decisions about how to manage the firm's financial resources most efficiently.

Question 15

How is a country's accounting system affected by the providers of capital? Explain with the help of suitable examples.

Accepted Answer

The answer of How is a country's accounting system affected...

Question 16

Part of the benefit that a parent company receives by receiving payment through royalties can be lost if the subsidiary's:

Accepted Answer

When receiving money as royalties, the parent can often take a tax credit for the local withholding and income taxes it has paid, part of the benefit can be lost if the subsidiary's combined tax rate is higher than the parent's.

Question 17

Firms use fronting loans to:

Accepted Answer

Fronting loans can circumvent host-country restrictions on the remittance of funds from a foreign subsidiary to the parent company.

Question 18

_____ enables top managers to compare, in a reasonably objective fashion, different investment alternatives within and across countries so they can make informed choices about where the firm should invest its scarce financial resources.

Accepted Answer

Capital budgeting is the technique financial managers use to try to quantify the benefits, costs, and risks of an investment. This enables top managers to compare, in a reasonably objective fashion, different investment alternatives within and across countries so they can make informed choices about where the firm should invest its scarce financial resources.

Question 19

Funds can be moved out of a particular country in which a parent country has set up a subsidiary by:

Accepted Answer

Transfer prices can be used to position funds within an international business. For example, funds can be moved out of a particular country by setting high transfer prices for goods and services supplied to a subsidiary in that country and by setting low transfer prices for the goods and services sourced from that subsidiary.

Question 20

A(n) _____ is a loan between a parent and its subsidiary channeled through a financial intermediary, usually a large international bank.

Accepted Answer

A fronting loan is a loan between a parent and its subsidiary channeled through a financial intermediary, usually a large international bank.

Quiz 20: Accounting and Finance in the International Business

Briefly differentiate accounting standards and auditing standards.

Which of the following is a disadvantage of pursuing a transfer pricing policy?

Critics of adjusting discount rates to reflect a location's riskiness argue that it:

A tax haven is a country:

Most banks charge a(n) _____ for moving cash from one location to another.

Which of the following is one of the gains derived by adjusting transfer prices?

Which of the following combinations of exchange rates was recommended for translating budget and performance by Lessard and Lorange?

Identify a key accounting problem that international businesses are confronted with but that does not confront purely domestic businesses. Substantiate with a suitable example.

Three sets of related decisions are involved in financial management in an international business. Which of these involves making decisions about how to fund the chosen activities?

Which of the following was formed in March 2001 to replace the International Accounting Standards Committee (IASC) ?

What are the shortcomings of IASB?

Financial management in an international business includes three sets of related decisions. Which of these involves making decisions about how to manage the firm's financial resources most efficiently?

Describe importance of accounting information in business.

Financial management in an international business includes three sets of related decisions. Which of these involves making decisions about what activities to finance?

How is a country's accounting system affected by the providers of capital? Explain with the help of suitable examples.

Part of the benefit that a parent company receives by receiving payment through royalties can be lost if the subsidiary's:

Firms use fronting loans to:

_____ enables top managers to compare, in a reasonably objective fashion, different investment alternatives within and across countries so they can make informed choices about where the firm should invest its scarce financial resources.

Funds can be moved out of a particular country in which a parent country has set up a subsidiary by:

A(n) _____ is a loan between a parent and its subsidiary channeled through a financial intermediary, usually a large international bank.