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
When a multinational company uses 'netting' to manage intercompany cash flows, the primary benefit is:
Answer: Reducing the total volume of cross-border transfers and associated transaction costs
Multilateral netting consolidates intercompany payables and receivables so only net amounts are transferred, reducing the number and cost of foreign exchange transactions.
The concept of 'economic exposure' in foreign exchange risk management refers to:
Answer: The impact of unexpected exchange rate changes on a firm's future operating cash flows and competitive position
Economic exposure captures the long-term effect of exchange rate changes on a firm's competitive position, revenues, and operating costs — beyond what is captured in accounting statements.
Country risk analysis for foreign direct investment typically includes which of the following components?
Answer: Political risk, economic risk, financial risk, and sovereign risk assessed together
Comprehensive country risk analysis combines political stability, macroeconomic conditions, financial system soundness, and sovereign creditworthiness.
A US firm has both a £1 million receivable and a £1 million payable due in 90 days. The most efficient hedge strategy is to:
Answer: Leave both positions unhedged since they naturally offset each other
When a firm has offsetting payables and receivables in the same currency and maturity, they naturally net to zero, eliminating the need for external hedging.
The World Bank's Multilateral Investment Guarantee Agency (MIGA) primarily provides:
Answer: Political risk insurance to foreign investors making investments in developing countries
MIGA offers guarantees (insurance) against non-commercial risks such as expropriation, currency inconvertibility, war, and breach of contract for investors in developing countries.
Under the 'foreign currency approach' to international capital budgeting, the discount rate applied to foreign cash flows should be:
Answer: A risk-adjusted cost of capital reflecting the foreign project's risk in the foreign currency
The foreign currency approach discounts projected foreign-currency cash flows using a cost of capital denominated in and appropriate for the foreign currency and risk environment.
A country adopts a currency board arrangement. This means:
Answer: The domestic currency is fully backed by foreign reserves and the exchange rate is irrevocably fixed
A currency board commits to exchange the domestic currency for a reserve currency at a fixed rate, requiring 100% foreign reserve backing and eliminating independent monetary policy.