Chapter 19
Multinational Cash Management
True / False Questions
1. Many of the skills necessary for effective cash management are the same regardless of whether
the firm has only domestic operations or if it operates internationally.
True False
2. The cash manager of a domestic firm should source funds internationally to obtain the lowest
borrowing cost and to place excess funds wherever the greatest return can be earned regardless of currency.
True False
3. A netting center necessarily implies that the MNC has a central cash manager.
True False
4. A multilateral netting system is beneficial in reducing the number of and the expense associated
with interaffiliate foreign exchange transactions.
True False
19-1
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McGraw-Hill Education.
5. A central cash manager has a global view of the most favorable borrowing rates and most
advantageous investment rates.
True False
6. A centralized cash pool assists in reducing the problem of mislocated funds and in funds
mobilization.
True False
7. A centralized cash management system with a cash pool can reduce the investment the MNC
has in precautionary cash balances, saving the firm money.
True False
Multiple Choice Questions
8. Efficient cash management techniques can
A. reduce the investment in cash balances and foreign exchange transaction expenses.
B. provide for maximum return from the investment of excess cash.
C. result in borrowing at lowest rate when a temporary cash shortage exists.
D. all of the above
19-2
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McGraw-Hill Education.
9. Cash management refers to
A. the decision to grant credit to customers or to remain \
B. the investment the firm has in transaction balances and precautionary balances.
C. a domestic firm's investment in foreign currency.
D. none of the above
10. Precautionary cash balances
A. are necessary in case the firm has underestimated the amount of cash need to cover transactions.
B. are necessary to cover scheduled outflows of funds during a cash budgeting period.
C. both a and b
D. none of the above
11. Precautionary cash balances
A. represent an increasingly-important source of interest income for many MNCs.
B. are necessary in case the firm has underestimated the amount needed to cover transactions.
C. are synonymous with speculative cash balances.
D. none of the above
19-3
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McGraw-Hill Education.
12. Multinational cash management
A. is really no different for a MNC than for a purely domestic firm in a closed economy.
B. concerns itself with the size of cash balances, their currency denominations, and where these cash balances are located among the MNC's affiliates.
C. concerns itself with the size of cash balances and their currency denominations, but not where these cash balances are located among the MNC's affiliates, since intra-affiliate default risk is not an issue.
D. none of the above
13. Good cash management boils down to
A. investing excess funds at the most favorable interest rate and borrowing at the lowest rate when there is a temporary cash shortage.
B. investing excess funds at the lowest rate and borrowing at the highest rate when there is a temporary cash shortage.
C. hedging currency exposure with judicious use of futures, forwards, and currency option contracts.
D. none of the above
19-4
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McGraw-Hill Education.
ABC Trading Company of Singapore purchases spices in bulk from around the world, packages them into consumer size quantities and sells them through sales affiliates in Hong Kong and the Unites States. For a recent month, the following payments matrix of interaffiliate cash flows, stated in Singapore dollars, was forecasted.
14. Calculate, in Singapore dollars, the amount that the interaffiliate foreign exchange transaction will
be reduced by with multilateral netting.
A. S$152,000
B. S$170,000
C. S$322,000
D. S$405,000
15. If foreign exchange transactions cost ABC 0.45 percent, what savings results from netting?
A. S$684
B. S$765
C. S$1,449
D. S$1,823
19-5
Copyright ? 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
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