6) Amundsen of Norway receives raw materials from their corporate parent in the

Question

6) Amundsen of Norway receives raw materials from their corporate parent in the U.S. with payment terms of net 60 days. Most of their sales are to firms in Norway where normal payment terms are net 30 days. This causes a problem for the subsidiary with working capital management because A) accounts receivable are so much longer than accounts payable. B) accounts receivable and accounts payable are equal. C) accounts payable are so much longer than accounts receivable. D) this doesn't really cause a problem; in fact it is to the benefit of the Norwegian subsidiary. 7) Which of the following is NOT true regarding a letter of credit? A) The importer and exporter agree on a transaction. B) The importer applies to its local bank for the issuance of a letter of credit. C) The importer's bank cuts a sales contract based on its assessment of the creditworthiness of the importer D) The exporter applies to its local bank for the issuance of a letter of credit. 8 A/An letter of credit is an obligation only of the issuing bank whereas other banks an letter of credit. A) confirmed; irrevocable C) irrevocable; unconfirmed B) unconfirmed; confirmed D) revocable; confirmed 9) In the United States, the Foreign Credit Insurance Corporation A) provides letters of credit for U.S. importers. B) is a subsidiary of the Export-Import Bank C) provides letters of credit for U.S. exporters. D) provides policies that protect U.S. exporters against default by foreign importers. 10) Translation exposure measures A) an unexpected change in exchange rates impact on short run expected cash flows. B) the potential for an increase or decrease in the parent company's net worth and reported net income caused by a change in exchange rates since the last consolidation of international operations C) changes in the value of outstanding financial obligations incurred prior to a change in exchange rates. D) none of the above

Explanation / Answer

6) Answer : D . It really doesn't cause problem for the company as the it is receiving money from customers in 30 days but they have to pay the accounts payable in 60 days. This is actualy beneficial to the company as they will have positive net working capital

7)Answer : D. Exporter does not apply for letter of credit. Importer does. Exporter draws the draft against the issuing bank and submits the necessary documents once letter of credit is received by the assuming back specifying the documents to be submitted.

8) Answer : B. When the Letter of credit is guaranteed by adding payment confirmation by the advising bank or any third bank on behalf of the opening bank, it is termed as a confirmed LC otherwise it is anunconfirmed LC.

9) Answer : D. It is a fedreal agency which pprovides protection to US exporters.

10) Answer : B . Transaltion exposure s the risk that companies' equities, liabilities, assets or income will change dut change in exchange rates

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