MGT3580: Global Enterprise Management

(Simulation Questions)
Part I
1. Treasurers of multinationals will likely demand more cash management services
when
a) foreign exchange markets are relatively calm
b) foreign exchange transactions costs rise
c) inflation rates are relatively low
d) telecommunications costs rise
e) none of the above
2. By centralizing subsidiaries credit policy and monitoring collection performance,
parent companies can
a) reduce the investment in receivables
b) reduce foreign exchange and other transaction costs
c) reduce banking fees
d) reduce float
e) All of the above
3. Project cash flows can diverge from parent cash flows because of ______.
a) cannibalization due to replacement of exports by local production
b) foreign exchange risks be concerned because cannibalization is a real threat
c) differences in market (economic) conditions (e.g., inflation differentials)
d) political risks
e) all of the above
4. If a U.S. parent is setting up an Indian subsidiary and funds will continue to be
provided from the parent, the ideal situation form the parents perspective is
_____.
a) a strengthening U.S. dollar after the subsidiary is established
b) a stable U.S. dollar after the subsidiary is established
c) a weak U.S. dollar after the subsidiary is established
d) b and c only
e) none of the above

5. Because of changes in market conditions in a given host country, the discount rate
used for the project is increased dramatically. The most possible outcome will be
that _______.
a) firms operating under such market conditions are more likely to produce higher
returns
b) firms can increase their borrowing locally to increase their returns
c) firms are able to reduce their cost of funds to become more competitive in the
local market
d) the performance of firms may decline as the environment changes
e) none of the above
6. If a U.S. MNEs expenses are more susceptible to exchange rate movements than
revenues, it will _____ if the dollar _____.
a) benefit; weakens
b) be unaffected; weakens
c) be unaffected; strengthens
d) benefit; strengthens

7. Which of the following strategies would the company attempt to transfer its homecountry policies and practices to its foreign units because it feels that such policies
are generalized outside the parent country?
a) multidomestic strategy
b) global strategy
c) transnational strategy
d) international strategy
e) all of these
d) none of these
8. A polycentric staffing approach essentially believes that it is important to effective
management that:
a) locals know the local environment better.
b) parent-country nationals are better qualified and more trustworthy
c) the firm adopts a policy of staffing with the person best suited for the job,
regardless of national origin.
d) none of the above.

Part II
9. A U.S. GE operates eight large, independent subsidiaries in Switzerland that
regularly trade with each other on an arms length basis. Some of the units are
relatively mature and are net generators of cash; others are growing rapidly and
need cash. In addition, these units trade with a number of other units located in
other countries as well. A recent audit revealed that these units maintained eight
separate accounts at the same bank. What potential areas of improvement are there
in this companys cash management?
10. In 1972, Tandy Corp. established a manufacturing facility in South Korea to
produce computer components. One of the attractions was the relatively low cost
of labor. In 1989, Tandy closed the facility, as the cost advantage dissipated. Why
do you think the relative cost advantage has dissipated in South Korea and other
Asian countries/regions such as Hong Kong, Singapore and Taiwan? (Ignore
possible exchange rate effects).
11. An MNE is considering establishing a two-year project in Switzerland with a $30
million initial investment. The firms cost of capital is 12%. The required rate of
return on this project is 18%. The project is expected to generate cash flows of
SF12 million in Year 1 and SF30 million in Year 2, excluding the salvage value.
Assume no taxes, and a stable exchange rate of $0.60 per Swiss Franc over the
next two years. All cash flows are remitted to the parent. What is the break-even
salvage value?