Random Questions Flashcards
What does the size and importance of the managerial finance function depend on?
The size of the firm.
In small companies, who typically handles finance?
The company president or accounting department.
In large businesses, how is finance typically structured?
As a separate department linked to the president or owner.
What is a multinational firm?
A firm that operates in a number of countries.
What is one reason companies go global?
Expanding customer base.
Name a factor that encourages companies to go global related to resources.
Access to raw materials.
What does vertically integrated investment secure?
Input supply at stable prices.
How does adopting new technology influence a company’s decision to go global?
It allows for the adoption of innovations.
What is one benefit of production efficiency when going global?
Lower manufacturing costs.
Why might companies consider political and regulatory hurdles when going global?
To find favorable business environments.
What is the purpose of diversifying risk for a global company?
To reduce dependence on a single market.
What is a key difference in currency management between multinational and domestic financial management?
Multinational companies deal with multiple currencies, leading to exchange rate risks.
What type of risk do multinational companies face due to foreign governments?
Political risk.
What are economic and legal ramifications in multinational financial management?
Different tax systems, labor laws, and trade regulations apply in each country.
How is domestic financial management regulated?
Regulated by the national government.
What must multinational companies consider due to language and cultural differences?
Business negotiations, marketing, and employee management.
True or False: Domestic financial management operates under multiple cultural frameworks.
False.
Fill in the blank: Multinational financial management deals with _______ currencies.
[multiple]
What are the major players in international finance?
- Central Banks
- Commercial Banks / Investment Banks
- Multinational Corporations
- International Financial Organizations
- Insurance Companies
- Government Entities
- Regulatory Bodies
These entities play significant roles in the functioning of international financial markets and systems.
What is the primary role of central banks?
Control money supply (increase or decrease) in the economy.
Central banks are crucial for maintaining economic stability.
What are the main instruments of monetary policy used by central banks?
- Legal Reserve Requirements
- Discount Rate
- Open Market Operations
Each instrument has a unique function in regulating the economy.
What are Legal Reserve Requirements?
Cash and other liquid assets that the banks are required to keep.
This requirement ensures that banks have enough liquidity to meet withdrawal demands.
What is the Discount Rate?
Rate at which banks can borrow from the central banks.
Adjustments in the discount rate influence overall economic activity.
What are Open Market Operations?
Buying and selling of securities.
This is a key tool for regulating the money supply.
What is the International Monetary System?
A system that forms rules and standards for facilitating international trade among nations and helps in relocating capital and investment from one nation to another.
It provides the framework within which exchange rates are determined.
What is an Exchange Rate?
The number of units of a given currency that can be purchased for one unit of another currency.
Exchange rates are crucial for international trade.
What is a Spot Exchange Rate?
The quoted price for a unit of foreign currency to be delivered ‘on the spot’ or within a very short period of time.
It is applicable for immediate transactions.
What is a Forward Exchange Rate?
The quoted price for a unit of foreign currency to be delivered at a specified date in the future.
This rate is used for future transactions.
What is a Fixed Exchange Rate?
Set by the government and is allowed to fluctuate only slightly (if at all) around the desired rate.
This system aims to maintain a stable currency value.
What is a Floating Exchange Rate?
Not regulated by the government. The supply and demand in the market determine the currency value.
This system reflects the market’s economic conditions.
What is meant by Devaluation or Revaluation of a Currency?
The decrease or increase in the stated par value of a currency whose value is fixed.
This can impact international competitiveness.
What is Depreciation and Appreciation of a Currency?
The decrease or increase in the floating exchange value of a floating currency.
These changes can affect import and export dynamics.
What is a Direct Quotation?
Home currency price of one unit of foreign currency.
This is useful for understanding the cost of foreign currency in domestic terms.
What is an Indirect Quotation?
Foreign currency price of one unit of home currency.
This helps in assessing how much foreign currency can be bought with the domestic currency.
