Identify the correct BOP account for each of the following transactions. a. A German-based pension fund buys U.S. government 30-year bonds for its investment portfolio. b. Scandinavian Airlines System (SAS) buys jet fuel at Newark Airport for its flight to Copenhagen. c. Hong Kong students pay tuition to the University of California, Berkeley. d. The U.S. Air Force buys food in South Korea to supply its air crews. e. A Japanese auto company pays the salaries of its executives working for its U.S. subsidiaries. f. A U.S. tourist pays for a restaurant meal in Bangkok. g. A Colombian citizen smuggles cocaine into the United States, receives cash, and smuggles the dollars back into Colombia. h. A U.K. corporation purchases a euro-denominated bond from an Italian MNE.
> Assume that a taxpayer can choose when he is to receive $10,000 of fully taxable income. If the taxpayer receives the income at the end of Year 1, he will receive exactly $10,000. If he delays receipt of the income until the end of Year 2, the amount wil
> George, a high-bracket taxpayer, wishes to shift some of his own taxable income from corporate bonds he owns to his 25-year-old daughter, Debra, so that Debra rather than George is taxed on the interest. One alternative is to make a gift of the interest,
> Julia currently is considering the purchase of some land to be held as an investment. She and the seller have agreed on a contract under which Julia would pay $1,000 per month for 60 months, or $60,000 total. The seller, not in the real estate business,
> Discuss the penalties imposed on TRPs. Who is a preparer, what is defined as a tax return preparation, and what is not considered preparation?
> On creating a new 100 percent-owned corporation, Ben was advised by his tax consultant to treat 50 percent of the total amount that was invested as a loan and 50 percent as a purchase of corporate stock. What tax advantage does this arrangement have over
> Examples 12-2 and 12-3 in this chapter concern a decision between the same two mutually exclusive alternatives under identical conditions, except for the corporation’s marginal tax rate. In Example 12-2, in which the marginal tax rate was 40 percent, the
> Jim received a six-month extension (to October 15, 2018) to file his 2017 tax return. Jim actually filed the return on October 20, 2018, paying the $20,000 amount due at that time. He has no reasonable cause for failing to file the return by October 15 o
> Give an example of tax planning between a shareholder/employee and a related corporation.
> What planning engagements can the tax professional offer? Why is he or she in an ideal position to offer these services?
> Name two types of tax traps and give an example of each.
> Is the objective of tax planning always to minimize taxes? Explain.
> Higher-income taxpayers tend to engage in tax planning more than do lower-income taxpayers. Why?
> When might a taxpayer undertake transactions seemingly opposite to the usual tax planning principles?
> Why does tax planning analysis focus on the marginal tax rate?
> Briefly summarize the key takeaways regarding the use of visual aids in oral presentations.
> Explain the imposition of criminal penalties. What is the relationship between criminal and civil penalties? What are the defenses against criminal penalties?
> You are preparing for an audit with an IRS agent for an important client. Your research has uncovered several favorable rulings and court decisions. What are the key points that should guide you in evaluating sources of the law?
> Julie filed a valid extension for her 2017 tax return, giving her until October 15, 2018, to file her return. She filed her return on November 1 and paid $2,000 of tax due. For what period of time will Julie be subject to interest? For what period of tim
> Describe the civil fraud penalties, the definition of fraud, and the all-or-nothing rule for civil fraud. What are the differences in individual and corporate penalties for failure to make adequate estimated payments? What is a frivolous return?
> Define the following terms: • Foreign exchange market • Foreign exchange transaction •Foreign exchange
> Define and give an example of the following: a. Direct quote between the U.S. dollar and the Mexican peso, where the United States is designated as the home country. b. Indirect quote between the Japanese yen and the Chinese renminbi (yuan), where China
> With reference to interbank quotations, what is the difference between American terms and European terms?
> Explain the meaning of “cross-rate consistency” as used by MNEs. How do MNEs use a check of cross-rate consistency in practice?
> With reference to foreign exchange turnover in 2010: a. Rank the relative size of spot, forwards, and swaps as of 2010. b. Rank the five most important geographic locations for foreign exchange turnover. c. Rank the three most important currencies of de
> Define each of the following types of foreign exchange transactions: a. Spot. b. Outright forward. c. Forward-forward swap.
> Explain the meaning and probable significance for international business of the following contract specifications: • Specific-sized contract • Standard method of stating exchange rates • Standard maturity date • Collateral and maintenance margins • Count
> For each of the foreign exchange market participants, identify their motive for buying or selling foreign exchange.
> Incomplete exchange rate pass-through is one reason that a country’s real effective exchange rate can deviate for lengthy periods from its purchasing power equilibrium level of 100. What is meant by the term exchange rate pass-through?
> Exhibit 7.3 compares the real effective exchange rates for Japan, the United States, and the Euro area. If the comparative real effective exchange rate was the main determinant, does Japan or the United States have a competitive advantage in exporting? W
> What formula is used to convert a nominal effective exchange rate index into a real effective exchange rate index?
> At what point in the globalization process did Trident become a multinational enterprise (MNE)?
> What are the three major functions of the foreign exchange market?
> Why do you believe it is important for many of the world’s largest commercial and investment banks to be considered on-the-run in the interbank market?
> What is a credit default swap (CDS)?
> What is a structured investment vehicle (SIV)?
> After reading this chapter’s description of Trident’s globalization process, how would you explain the distinctions between international, multinational, and global companies?
> What were the three major forces behind the credit crisis of 2007–2008?
> What are the three primary methods that might be used individually or in combination to resolve the debt crisis?
> Numerous exchange rate forecasting services exist. Trident’s CFO Maria Gonzalez is considering whether to subscribe to one of these services at a cost of $20,000 per year. The price includes online access to the forecasting service’s computerized econome
> Why has the case of Portugal been termed a “case of contagion” rather than a sovereign debt crisis?
> Explain the difference between foreign currency options and futures and when either might be most appropriately used.
> What is the European Financial Stability Facility (EFSF), and what role might it play in the resolution of the eurozone debt crisis?
> Why are the sovereign debtors of the eurozone considered to have a problem that is different from these of any other heavily indebted country, like the United States?
> What were the three key elements of the package used by the U.S. government to resolve the 2008–2009 credit crisis?
> Why were LIBOR rates so much higher than Treasury yields in 2007 and 2008? What is needed to return LIBOR rates to the lower, more stable levels of the past?
> Why does the BOP always “balance”?
> What are the two main types of economic activity measured by a country’s BOP?
> Business managers and investors need BOP data to anticipate changes in host country economic policies that might be driven by BOP events. From the perspective of business managers and investors, list three specific signals that a country’s BOP data can p
> The key to understanding most theories is what they say and what they don’t. What are four or five key limitations to the theory of comparative advantage?
> Explain how technical analysis can be used to forecast future spot exchange rates. How does technical analysis differ from the BOP and asset market approaches to forecasting?
> How does organized exchange trading in swaps remove any risk that the counterparty in a swap agreement will not complete the agreement?
> Where in the balance of payments accounts do the flows of “laundered” money by drug dealers and international terrorist organizations appear?
> What are the main summary statements of the balance of payments accounts, and what do they measure?
> Classify the following as a transaction reported in a sub-component of the current account, or the capital and financial accounts of the two countries involved: a. A U.S. food chain imports wine from Chile. b. A U.S. resident purchases a euro-denominated
> What are the main components of the financial accounts? Give one debit and one credit example for each component account for the United States.
> What is the difference between a direct foreign investment and a portfolio foreign investment? Give an example of each. Which type of investment is a multinational industrial company more likely to make?
> What are the main component accounts of the current account? Give one debit and one credit example for each component account for the United States.
> Explain what is meant by the term impossible trinity, and why it is true.
> What are the advantages and disadvantages of fixed exchange rates?
> Under the gold standard all national governments promised to follow the “rules of the game.” This meant defending a fixed exchange rate. What did this promise imply about a country’s money supply?
> Define and explain the theory of comparative advantage.
> What are the main phases that Trident passed through as it evolved into a truly global firm? What are the advantages and disadvantages of each?
> Explain how the asset market approach can be used to forecast future spot exchange rates. How does the asset market approach differ from the BOP approach to forecasting?
> Why did the fixed exchange rate regime of 1945–1973 eventually fail?
> What are the attributes of the ideal currency?
> What are Special Drawing Rights?
> The IMF was established by the Bretton Woods Agreement (1944). What were its original objectives?
> The United Kingdom, Denmark, and Sweden have chosen not to adopt the euro, but rather to maintain their individual currencies. What are the motivations of each of these three countries, which are also members of the European Union?
> On January 4, 1999, 11 member states of the European Union initiated the European Monetary Union (EMU) and established a single currency, the euro, which replaced the individual currencies of participating member states. Describe three of the main ways t
> How did the Argentine currency board function from 1991 to January 2002, and why did it collapse?
> High capital mobility is forcing emerging market nations to choose between free-floating regimes and currency board or dollarization regimes. What are the main outcomes of each of these regimes from the perspective of emerging market nations?
> Fixed exchange rate regimes are sometimes implemented through a currency board (Hong Kong) or through dollarization (Ecuador). What is the difference between the two approaches?
> Why would one company with interest payments due in pounds sterling want to swap those payments for interest payments due in U.S. dollars?
> Explain the assumptions and objectives of the stakeholder wealth maximization model.
> What is meant by the term “fundamental equilibrium path” for a currency value? What is “noise”?
> Explain the assumptions and objectives of the shareholder wealth maximization model.
> Why is this separation so critical to the understanding of how businesses are structured and led?
> How does ownership alter the goals and governance of a business?
> A leveraged buyout is a financial strategy in which a group of investors gain voting control of a firm and then liquidate its assets in order to repay the loans used to purchase the firm’s shares. How would leveraged buyouts be viewed by the shareholder
> In an interlocking directorate members of the board of directors of one firm also sit on the board of directors of other firms. How would interlocking directorates be viewed by the shareholder wealth maximization model compared to the corporate wealth ma
> In Germany and Scandinavia, among others, labor unions have representation on boards of directors or supervisory boards. How might such union representation be viewed under the shareholder wealth maximization model compared to the corporate wealth maximi
> “Knowledge assets” are a firm’s intangible assets, the sources and uses of its intellectual talent—its competitive advantage. What are some of the most important “knowledge assets” that create shareholder value?
> What should be the primary operational goal of an MNE?
> How can a business firm that has borrowed on a floating-rate basis use a forward rate agreement to reduce interest rate risk?
> What are the primary principles behind corporate governance reform today? Are these culturally specific in your opinion?
> Do markets appear to be willing to pay for good governance?
> What is meant by the term “overshooting”? What causes it and how is it corrected?
> What are the key differences in the goals and motivations of family ownership of a business as opposed to those of a widely held publicly traded business?
> Which assets play the most critical role in linking the major institutions which make up the global financial marketplace?
> What have been the main causes of recent corporate governance failures in the United States and Europe?
> In recent years emerging market MNEs have improved their corporate governance policies and become more shareholder-friendly. What do you think is driving this phenomenon?
> Define the following terms: a. Corporate governance b. The market for corporate control c. Agency theory d. Stakeholder capitalism
> In many countries it is common for a firm to have two or more classes of common stock with differential voting rights. In the United States the norm is for a firm to have one class of common stock with one-share-one-vote. What are the advantages and disa
> What alternative actions can shareholders take if they are dissatisfied with their company?
> From the point of view of a borrowing corporation, what are credit and repricing risks? Explain steps a company might take to minimize both.
> How would stock options granted to a firm’s management and employees be viewed by the shareholder wealth maximization model compared to the stakeholder wealth maximization model?
> How is risk defined in the shareholder wealth maximization model compared to the stakeholder wealth maximization model?
> Conglomerates are firms that have diversified into unrelated fields. How would a policy of conglomeration be viewed by the shareholder wealth maximization model compared to the stakeholder wealth maximization model?
> What are the major differences between short-term and long-term forecasts for a fixed exchange rate versus a floating exchange rate?
> Define and give an example of each of the following quotes: a. Bid quote. b. Ask quote.
