International Financial Management Flashcards
7 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 International Financial Management flashcards as text
Under the temporal method of foreign currency translation, monetary assets are translated at:
Answer: The current (closing) exchange rate at the balance sheet date
Under the temporal method, monetary assets (cash, receivables, debt) are translated at the current rate, while non-monetary assets use historical rates.
A European company wants to borrow in US dollars but prefers euro-denominated debt. A US company faces the opposite preference. They agree to a currency swap. What does this arrangement allow each company to achieve?
Answer: Both companies borrow in their preferred currency while effectively accessing the other currency's market rates
A currency swap enables each party to borrow in the market where it has a comparative advantage, then swap the proceeds, achieving preferred-currency financing at potentially better rates.
The 'J-curve effect' in international economics describes:
Answer: The tendency for trade deficits to worsen initially before improving after a currency depreciation
After depreciation, trade volumes are slow to adjust due to existing contracts, so the trade balance worsens initially before improving as exports rise and imports fall.
Which transfer pricing method uses gross profit margins of comparable uncontrolled transactions to set intercompany prices?
Answer: Resale Price method
The Resale Price method applies the gross profit margin earned by comparable independent distributors to set the intercompany transfer price.
A foreign subsidiary's functional currency is the same as the parent's reporting currency. Under ASC 830, which translation method applies?
Answer: Temporal method
When a foreign entity's functional currency is the same as the parent's reporting currency, the temporal method (remeasurement) is used under ASC 830.
The Mundell-Fleming model predicts that under a fixed exchange rate regime with perfect capital mobility, fiscal policy is:
Answer: Highly effective because the money supply adjusts to maintain the fixed rate
With a fixed exchange rate and perfect capital mobility, fiscal expansion raises demand without crowding out investment, as the central bank expands money supply to hold the exchange rate.
An options-based hedge using a put option on a foreign currency provides protection when the foreign currency:
Answer: Depreciates, reducing the home-currency value of the receivable
A put option gives the right to sell the foreign currency at the strike price, protecting a foreign currency receivable if the foreign currency depreciates below the strike.