Which of the following statements is CORRECT? The cash flows relevant for a fore
ID: 2711942 • Letter: W
Question
Which of the following statements is CORRECT?
The cash flows relevant for a foreign investment should, from the parent company's perspective, include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.
When considering the risk of a foreign investment, a lower risk might arise from exchange rate risk and political risk while higher risk might result from international diversification.
The United States and most other major industrialized nations currently operate under a system of floating exchange rates.
LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to smaller U.S. corporations
Due to advanced communications technology and the standardization of general procedures, working capital management for multinational firms is no more complex than it is for large domestic firms.
The cash flows relevant for a foreign investment should, from the parent company's perspective, include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.
When considering the risk of a foreign investment, a lower risk might arise from exchange rate risk and political risk while higher risk might result from international diversification.
The United States and most other major industrialized nations currently operate under a system of floating exchange rates.
LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to smaller U.S. corporations
Due to advanced communications technology and the standardization of general procedures, working capital management for multinational firms is no more complex than it is for large domestic firms.
Explanation / Answer
The cash flows relevant for a foreign investment should, from the parent company's perspective, include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.
Incorrect: Only cash flows that can send back to the parent company are relevant.
When considering the risk of a foreign investment, a lower risk might arise from exchange rate risk and political risk while higher risk might result from international diversification.
Incorrect: higher risk arises from exchange rate risk and political risk
The United States and most other major industrialized nations currently operate under a system of floating exchange rates.
Correct: US and other major industrialized nations use floating rate
LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to smaller U.S. corporations
Incorrect: LIBOR is a benchmark rate that some of the world’s leading banks charge each other for short-term loans
Due to advanced communications technology and the standardization of general procedures, working capital management for multinational firms is no more complex than it is for large domestic firms.
Incorrect: working capital management for multinational firms is more complex
Due to advanced communications technology and the standardization of general procedures, working capital management for multinational firms is no more complex than it is for large domestic firms.
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