ch20

CHAPTER 20
Managing the Multinational Financial System

EASY (definitional)

20.1 The value of the multinational financial system is NOT based on the ability to take advantage of
a) tax arbitrage
b) financial market arbitrage
c) regulatory system arbitrage
d) differing political systems between subsidiaries

Ans: d
Section: The value of the multinational financial system
Level: Easy

20.2 Tax arbitrage
a) arises when subsidiary profits vary due to local regulations
b) occurs when firms move funds to lower tax jurisdictions
c) arises when barriers to trade exist
d) occurs due to the incidence of capital flight

Ans: b
Section: The value of the multinational financial system
Level: Easy

20.3 MNCs may use _______ arbitrage to resist government price controls or union wage pressures.
a) tax
b) financial system
c) regulatory
d) triangular

Ans: c
Section: The value of the multinational financial system
Level: Easy

20.4 Subsidiaries A and B buy from and sell to each other. Suppose that A has excess cash, whereas B is short of cash. How can A funnel money to B?
a) A can lead payments owed to B
b) B can lag payments owed to A
c) A can raise transfer prices on goods sold to B
d) a and b only

Ans: d
Section: Leading and lagging
Level: Easy

20.5 _______ is the pricing of internally traded goods for the purpose of moving profits to a more tax-friendly nation.
a) Transfer pricing
b) Leading and lagging
c) Arm’s length pricing
d) Advanced pricing

Ans: a
Section: Transfer pricing
Level: Easy

20.6 Using transfer prices may lead to _______.
a) increased local taxes
b) reduced ad valorem tariffs
c) exchange rate controls
d) decreased political risk

Ans: b
Section: Transfer pricing
Level: Easy

20.7 Reinvoicing centers are usually set up in _______ jurisdictions.
a) economically secure
b) politically stable
c) high-tax
d) low-tax

Ans: d
Section: Reinvoicing centers
Level: Easy

20.8 One disadvantage of