Chapter 20 - Financial Management and Accounting in the Global Firm Flashcards

1
Q

Equity Financing

A

Issuing shares to raise capital from investors and the use of retained earnings

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2
Q

Debt Financing

A

Borrowing money from banks or other financial intermediaries, or selling corporate bonds to individuals or institutions in order to raise capital

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3
Q

Global Money Market

A

The collective financial markets where firms and governments raise short-term financing

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4
Q

Global Capital Market

A

The collective financial markets where firms and governments raise intermediate-term and long-term financing

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5
Q

Global Equity Market

A

The worldwide market of funds for equity financing - the stock exchanges throughout the world where investors and firms meet to buy and sell shares

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6
Q

Eurodollars

A

US dollars held in banks outside the United States, including foreign branches of US banks

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7
Q

Eurocurrency

A

Any currency deposited in a bank outside its country of origin

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8
Q

Bond

A

A debt instrument that enables the issuer to raise capital by promising to repay the principal along with the interest on a specified date

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9
Q

Global Bond Market

A

The international marketplace in which bonds are bought and sold, primarily through banks and stockbrokers

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10
Q

Foreign Bond

A

A bond sold outside the issuer’s country and denominated in the currency of the country in which it is issued

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11
Q

Eurobond

A

A bond sold outside the issuer’s home country but denominated in its own currency

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12
Q

Intra-Corporate Financing

A

Funds provided from sources inside the firm (both the headquarters and subsidiaries) such as equity, loans and trade credits

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13
Q

Fronting Loan

A

A loan between the parent and its subsidiary, channelled through a large bank or other financial intermediary

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14
Q

Multilateral Netting

A

The strategic reduction of cash transfers within the multinational enterprise family through the elimination of offsetting cash flows

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15
Q

Transaction Exposure

A

The currency risk that firms face when outstanding accounts receivable or payable are denominated in foreign currencies

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16
Q

Translation Exposure

A

The currency risk that results when a firm translates financial statements denominated in a foreign currency into the functional currency of the parent firm, as part of consolidating international financial results

17
Q

Consolidation

A

The process of combining and integrating the financial results of foreign subsidiaries into the financial statements of the parent firm

18
Q

Economic Exposure

A

The currency risk that results from exchange rate fluctuations affecting the pricing of products, the cost of inputs and the value of foreign investments

19
Q

Spot Rate

A

The exchange rate applicable to the trading of foreign currencies in which the current rate of exchange is used and delivery is considered immediate

20
Q

Forward Rate

A

The exchange rate applicable to the collection or delivery of a foreign currency at some future date

21
Q

Direct Quote

A

The number of units of the domestic currency needed to acquire one unit of the foreign currency

22
Q

Indirect Quote

A

The number of units of the foreign currency obtained for one unit of domestic currency

23
Q

Hedgers

A

Currency traders who seek to minimise the risk of exchange rate fluctuations, often by buying forwards or similar financial instruments

24
Q

Speculators

A

Currency traders who seek profits by investing in currencies with the expectation that they will rise in value in the future

25
Q

Arbitragers

A

Currency traders who buy and sell the same currency in two or more foreign exchange markets to take advantage of differences in the currency’s exchange rate

26
Q

Hedging

A

Using financial instruments and other measures to reduce or eliminate exposure to currency risk

27
Q

Forward Contract

A

A financial instrument to buy or sell a currency at an exchange rate that is agreed at the initiation of the contract, for delivery and settlement in the future

28
Q

Futures Contract

A

An agreement to buy or sell a currency in exchange for another at a pre-specified price and on a pre-specified date

29
Q

Currency Option

A

A contract that gives the purchaser the right, but not the obligation, to buy a certain amount of foreign currency at a set exchange rate within a specified amount of time

30
Q

Currency Swap

A

An agreement to exchange one currency for another, according to a specified schedule

31
Q

Transparency

A

The degree to which companies regularly reveal substantial information about their financial condition and accounting practices

32
Q

Current Rate Method

A

The translation of foreign currency balance sheet and income statements at the current exchange rate - the spot exchange rate that is in effect on the day or for the period for which the statements are prepared

33
Q

Temporal Method

A

The translation of foreign currency balance sheet and income statements at an exchange rate that varies with the underlying method of valuation

34
Q

Tax Haven

A

A country that is hospitable to business and inward investment because of its low corporate income taxes