Question

No Explanation needed only True or false

1. Networking capital may be defined as “Current Assets” minus “Current Liabilities.”

2. The forward rate is the rate applied to buy currency for immediate delivery.

3. The shorter a firm’s “Cash Conversion Cycle” (CCC), the better. A shorter CCC will result in lower “Interest Expense” for the firm.

4. Exchange rates influence a multinational firm’s inventory policy because changing currency values can affect the value of inventory.

5. If a single U.S. dollar will buy fewer units of a foreign currency in the forward market than in the spot market, then the forward currency is said to be selling at a premium to the spot rate.

6. Holding minimal levels of inventory (i.e., the “lean and mean” or “restricted” working capital policy) can reduce inventory carrying costs and cannot lead to any adverse effects on profitability.

7. The sound working capital policy is designed to maximize the time between cash expenditures on raw materials and the collection of cash from credit sales.

8. The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

9. A given indirect currency quotation is the reciprocal of the direct quotation.

10. Prior to 1971, the United States used a fixed exchange rate system, with the U.S. dollar being tied to gold.

11. Due to advanced technology and the similarity of general procedures, multi-national financial management is no more complex than financial management for domestic firms.

12. A country’s central bank can “prop up” or raise the value of its currency on the market by selling additional reserves of its own currency on the open market.

13. The volatility of exchange rates under a floating rate system increases the uncertainty of the cash flows for a multinational corporation.

14. According to today’s edition of The Wall Street Journal, $1.5769 U.S. dollars can purchase one euro. This is an indirect quote in terms of U.S. dollars.

15. Under a “relaxed” current asset investment policy, a firm holds only small amounts of current assets relative to sales.

Answer 1

1. Networking capital may be defined as “Current Assets” minus “Current Liabilities.” TRUE

2. The forward rate is the rate applied to buy currency for immediate delivery. FALSE

3. The shorter a firm’s “Cash Conversion Cycle” (CCC), the better. A shorter CCC will result in lower “Interest Expense” for the FIRM. FALSE

4. Exchange rates influence a multinational firm’s inventory policy because changing currency values can affect the value of INVENTORY. TRUE

5. If a single U.S. dollar will buy fewer units of a foreign currency in the forward market than in the spot market, then the forward currency is said to be selling at a premium to the spot RATE. TRUE

6. Holding minimal levels of inventory (i.e., the “lean and mean” or “restricted” working capital policy) can reduce inventory carrying costs and cannot lead to any adverse effects on PROFITABILITY. FALSE

7. The sound working capital policy is designed to maximize the time between cash expenditures on raw materials and the collection of cash from credit sales. TRUE

8. The United States and most other major industrialized nations currently operate under a system of floating exchange rates. TRUE

9. A given indirect currency quotation is the reciprocal of the direct QUOTATION. TRUE

10. Prior to 1971, the United States used a fixed exchange rate system, with the U.S. dollar being tied to gold. TRUE

11. Due to advanced technology and the similarity of general procedures, multi-national financial management is no more complex than financial management for domestic FIRMS. FALSE

12. A country’s central bank can “prop up” or raise the value of its currency on the market by selling additional reserves of its own currency on the open market. True

13. The volatility of exchange rates under a floating rate system increases the uncertainty of the cash flows for a multinational corporation. TRUE

14. According to today’s edition of The Wall Street Journal, $1.5769 U.S. dollars can purchase one euro. This is an indirect quote in terms of U.S. dollars. TRUE

15. Under a “relaxed” current asset investment policy, a firm holds only small amounts of current assets relative to sales.