True or False

1. ____ Variation and complexity in global tax systems create opportunities for many MNCs to increase corporate value through effective tax planning.

2. ____ Asset expropriation and breach of contract are poor examples of political risk.

3. ____ Acquisitions of companies in emerging markets can be riskier because of difficulty (or expense) in conducting adequate due diligence.

4. ____ The reduction of US corporate income tax to 21% from 35% has not affected flows of international capital investments.

5. ____ Capital budgeting analysis for foreign projects is exactly the same as the analysis of domestic projects.

6. ____ Corporate Governance is integrally connected with Financial Risk Management.

7. ____ Value Added Taxes (VAT) and tariffs operating cash flows, while income taxes primarily impact cost of capital for multinational corporations.

8. ____ Segmentation of Global Financial Markets and disequilibria in pricing of currency forwards always increase the cost of capital for MNCs.

9. ____ Corporate governance deals only with change of control issues.

10. ____ Multinational corporations should attempt to forecast currency exchange rates in making currency hedging decisions

Multiple Choice

1. The currency exchange risk attached to import activity is best described as a) transactional risk, b) payments risk, c) translational risk, or d) investment risk.

2. Which of the following is not true of the currency exchange pricing mechanism? a) Purchasing power and interest rate parity conditions are always met. b) a fair forward price can be calculated using the spot rate for the two currencies in question and a corporations cost of short term borrowing and short term investment returns. c) The fair value referred to in b is the benchmark for evaluating arbitrage opportunities. d) Forward pricing drives the value of currency derivative instruments.

3. Aggressive use of tax havens by MNCs a) is rarely questioned by tax authorities. b) significantly impacts an MNCs global tax liability, c) is almost always a criminal activity. d) never exposes MNCs to reputational risk.

4. Which of the following is not true of the modern multinational treasury function? A) Funds positioning is still a critical function. B) Foreign exchange risk is managed more centrally than was the case several decades ago. C) Movement of money globally is cheaper and faster than was the case 40 years ago. D) ERP systems, electronic payments and electronic accounted systems have had a dramatic effect on the organization of treasury departments.

Which of the following is not true of Transfer pricing? a) it is almost never controversial inside a multinational corporation, b) is a part of the foundation of cost/profit center accounting, c) transfer prices are scrutinized closely by tax authorities, d) Transfer pricing refers to the price schedule used by multinational corporations for transactions with affiliated parties.