Final Exam

Answer quaternary of the following s flush render questions. Essay answers should be in paragraph form using end sentences. (No bullet points) Use PAPA style for citations as needed. Exams whitethorn be subject to student forbearance using Turning at the professors discretion. Your answers should be submitted as a Word file attached to an netmail sent to me by the start of class on serve 5th. While brevity Is the soul of wit, essay answers should err on the side of completeness versus brevity.That said, I dont want to chew the fat the answer to apiece question go beyond deuce single-spaced hypocrites pages using a personaface coat of 10-12 points. 1. Congratulations You wee beneficial been elected ruler off sm whole OLD. What steps leave al aneing you run through to exercise the acress balance of consider, and Its gold? Name and make use of an actual country dont make unrivaled up. sierra Le 1 is a country that is adequate in agricultural and mining resources , yet the smashing volume (over 70%) of the country still lives in poverty. sparing growth is hindered by disadvantageous exchange grade and government budget deficits.As the recently elected President of sierra Leone, I provide take any and all necessity steps o need this beautiful country out of poverty (www. Henbane. Org, 2014). sierra Leone Is currently forming with the International fiscal Fund ( seeing red) to implement changes and improvements in our countrys scotch system. sierra Leone has make important strides in economic reconstructive memory and macroeconomic as well as policy-making stability since the end of the civil conflict in 2002. Economic growth has strengthened in the last 2 twelvemonths with a stream of conjure ore production and increased Infrastructure Investment.As the new president, I will lapse working with the MIFF to manage the balance of trade and brace our bullion (www. MFC. Org, 2013). In regards to sierra Lenss coin, the exchange com targete system is sort out as aimless, with the value of the Leone ( capital) qualifyd by the market. Currently, the central banks interventions argon limited and aimed at smoothing volatility in the market. In order to stabilize the up-to-dateness, I will diligently work with the Bank of Sierra Leone ( impress) and with the MIFF to Introduce a stringent stabilization indemnity and ignore our countrys debt.This policy will be aimed at first and foremost at tightening pecuniary regulations and minify government borrowing. I will kick upstairs the BOSS o act from a whole barter strange exchange auction system to a retail auction system avail open to importers. This will provoke the golds stability in the market as well as improve competitiveness. I will in any case work with the BOSS to improve monetary policy signaling, address prevailing gaps In banking supervision, monetary and conflicting exchange operations. I initiatives to encourage the developing of mic romanage in rural beas.Lastly, and perhaps most importantly, I will continue to work with the MIFF and the BOSS to develop a financial literacy campaign that will attend to disseminate knowledge and titivation to continue efforts to stabilize the currency (www. Miff. Org, 2013) As president, I make water similarly been charged with stabilizing trade in Sierra Leone. wizard of the biggest challenges in trade in Sierra Leone is that of smuggling and illicit trading activities. Sierra Leone is cognise for mining, oddly infields, entirely light regulation and policy enforcement, and high levels of corruption that lead to colossal levels of coin laundering activities.As president, I will establish stricter hold backs and taxes near the mining trade, and crack d have on corrupt government officials. I will continue to work with the government-created mining community development store (DACCA), created to raise local communities stake in the legal diamond trade, which heel counters a portion of diamond exporting taxes to diamond mining communities (www. Heritage. Org, 2014). Throughout my term as president, I confide to create a great economic turnaround for Sierra Leone, not only finished balancing the currency and trade in the country, but through many much positive changes.I hope that by reducing budget deficits and modify the fiscal position of the government, I will be able to rehabilitate our social and economic infrastructure, stabilize the economy and provide a better life for Sierra Lenss people. 2. Comp ar and rail line the contrastive methods of hedging operation mental picture. Include both differential coefficient and non-derivative upshots. Transaction characterization is one of three types of foreign currency mental picture. It is a type of try that companies involved in external trade will face when move into fixed- check financial contracts.The risk of photo occurs after the financial contract is do, and the conseq uent fluctuations in currency exchange judge occur randomly and unpredictably. Although movement impression is considered short-term economic exposure, these changes in exchange orders foundation still affect the contract negatively, resulting in signifi senst losings for the theatre. Therefore, companies participate in various hedging activities to avoid losses from exploit exposure (Nun & Arsenic, 2012). In transaction hedging, there ar both derivative as well as non-derivative solutions. Derivatives be simply a contract between two parties.One of the ship tail assemblyal which faithfuls bilk transaction exposure is through the use of derivatives such(prenominal) as options contacts. Options are contracts utilize to inhibit the risk of legal proceeding by sing calls ( merchandise) or puts (buy) on a financial asset at an agreed-upon price at virtually cadence in the future, which is known as exercising the option. Options also have a maturity date or expiratio n date. In Europe, options arsehole only be exercised at their maturity date, whereas in the united States, options piece of tailful be exercised any time during the contract (Nun & Arsenic, 2012). Another derivative solution is a futures contract.Futures contracts are an agreement to buy or sell an asset at an agreed-upon price in the future. Unlike options, futures contracts are standardized for an amount of the asset, and are usually transacted to exit the market. Hedgers avoid price summercater in the market by and pass off risk to a speculator who will take a long or short position in the futures contract. The speculator is considered to be to a greater extent voluntary to take on the price risk variation. Futures contracts are short-term and profits and losses are complete on a daily basis (Nun & Arsenic, 2012).Somewhat similar to a futures contract is a forward contract. forward are also a contract to buy or sell an asset at an agreed-upon price in the future, however , forward contracts have a specific maturity date inappropriate the daily settlements use in uterus contracts. Rather than being a standardized contract, forwards are tailor made to the needs of the participants. Also different than futures is that when trading forwards, forwards are often settled through the tar of goods or property (Nun & Arsenic, 2012).There are legion(predicate) other types of derivatives use to justify foreign exchange risk, but the most putting green are forward and futures contracts, futures options, and interchanges which will be discussed later in this exam (Nun & Arsenic, 2012). many Macs also participate in non-derivative methods for hedging transaction risk. These are often used if a firm has positions in less liquid currencies. In order to mitigate risk in these cases, cross-hedging is a common technique in which a firm will hedge a position in one asset by taking a position in another asset.Effectiveness of cross-hedging is highly dependable on the strength of the relationship between the commodity futures prices and the exchange rate (Nun & Arsenic, 2012). Another non-derivative method to avoid transaction exposure is hedging via lead and fall behind. A association can lead, to pay or elate on an invoice early, or lag, which means to pay or collect late. By timing the lead and lag strategy correctly, the firm can protect themselves against depreciation or appreciation of the foreign currency they are dealing in (Nun & Arsenic, 2012).Hedging through invoice currency can help firms diversify exchange exposure by using currency basket units. A currency basket is a selected group of currencies in which the weighted average is used as a round of the value of a contract or obligation. It functions as a benchmark for regional currency movements. Because it is a portfolio of currencies, its value is more stable and can be useful as a hedging LOL, especially for long-term contracts where there are no forward or options contrac ts available (Nun & Arsenic, 2012).The last non-derivative form of transaction hedging that we will discuss is that of exposure netting. Exposure netting helps to centralize a firms exchange exposure management function in one location, typically in a reinforce center. All invoices from nitrating transactions are sent here, where overall exposure is analyzed and placed. Foreign exchange experts can then determine the optimal hedging methods for the portfolio of transactions and move forward to implement them (Nun Arsenic, 2012). Overall, we have seen that there are numerous options to hedge transaction exposure.There are some similarities among them, but they differ from each other and are relevant to different needs. Derivative forms of hedging are typically contractual, relatively short term solutions to transaction exposure, whereas non- lifestyle. No matter what the case, however, it is prudent for any NC to determine a strategy for transaction hedging before going into signi ficant overseas contracts. 3. Compare and contrast a ostensible vanilla currency swap with a plain vanilla enliven rate swap. Describe and Justify a situation where a NC would use each type of swap.As discussed briefly above, swap transactions are a type of derivative used to mitigate currency exposure in forward trades. A swap is an agreement between two parties to exchange a sequence of interchange flows over a boundary of time- a simultaneous sale of spot foreign exchange against a forward purchase of an equal amount of foreign currency (Nun & Arsenic, 2012). A plain vanilla interest group rate swap is the most common and simplest type of swap. They are customized contracts that can be paid monthly, quarterly, yearly, or on a basis decided on by the firms involved.In a plain vanilla interest rate swap, one part agrees to pay the contract at a fixed interest rate, small-arm the other party agrees to pay at a vagrant interest rate, and the two cash flows are paid in the sa me currency. The swap typically has a set date of maturity set at some point in the future (MacAfee, 2012). A plain vanilla currency swap, unlike the plain vanilla interest swap, interest and principal payments on a loan are transfer in 2 currencies. In the plain vanilla currency swap, the two parties exchange payments at the bloodline and end of the swap, which also differs from interest rate swaps (MacAfee, 2012).In the case of plain vanilla interest rate swaps, Macs or Miff would use these when they are paying a floating rate of interest on liabilities and earning a fixed rate of interest on assets. It can be highly risky for a firm to have such a mismatch between assets and liabilities. Therefore, the firm could use a plain vanilla interest rate swap to rectify the imbalance in their interest payments (MacAfee, 2012). For the case of the plain vanilla currency swap, a firm would be interested in conducting this type of swap when the firm wants to flip ones wig operations int o another country, but has comparative advantage in its stem country.The firm will burnished have more favorable financing in its home country, and therefore could perform a currency swap with the country it is expanding into, and gain the necessary funds in the new currency to finance its inaugural and operations (MacAfee, 2012). 4. Discuss the issues and potential solutions for a NC contemplating foreign transport investiture in a OLD. By definition, a NC or Multinational Corporation, is registered and/or has operations in more than one country. These types of firms engage in FED, or Foreign Direct Investment.FED is an investing made by a company found in one country onto a company or entity based in another country. Macs making sway investments typically have a significant degree of settle and bid over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to pull in larger amounts of foreign need investme nt than closed, highly regulated economies (www. Investigated. Com, 2014). FED can have numerous risks and obstacles for the NC involved. Olds, or Less Foreign adopt investment can be an important source of drill opportunities for developing countries.However, anti-corporate advocates criticize Macs for entering Olds that have low human rights or environmental standards. They claim that multinationals defy rise to large merged conglomerations that degrade competition and free enterprise, raise capital in server countries but export the profits, exploit countries for their inborn resources, limit workers wages, erode traditional cultures, and challenge national sovereignty. However, they remain attractive to investors due to low be of labor, poorly enforced environmental and economic regulations, and inexpensive resources (www. Investigated. Com, 2014). Economic risk depends on the foreign countrys financial state. A country with stable finances and a hale economy will be mor e attractive to foreign investors than one that has currency fluctuations and difficulty paying debt. switch over barriers and shareholder diversification issues can all be part of the economic risks taken on by a NC that is contemplating FED (Nun & Arsenic, 2012). Trade barriers can often be overcome by miserable trade through other countries without trade restrictions.In the case of physical trade barriers, such as poor transportation, FED can be put into place to improve infrastructure and reduce transportation be (Nun & Arsenic, 2012). governmental risk emerges when the political mode in a foreign country becomes unfriendly to investors. Political risk can be separate into three types transfer risk, operational risk, and control risk. Transfer risk arises from uncertainty roughly cross gross profit flows of capital and payments. Operational risk arises when the host countrys policies affect the NC.Lastly, control risk is caused by uncertainty about the host countrys poli cies regarding ownership and control of local operations (Nun & Arsenic, 2012). When contemplating drop in a OLD, the NC should take fearfulness to meticulously search and define the level of risk for doing business organization with the OLD they are considering, and also digest possible solutions in case of risk exposure. For example, those seeking more in-depth coverage of a particular country or region, two excellent sources of objective, comprehensive country nurture are the Economist Intelligence Unit and the Central Intelligence Agency World Fastback.Either of these resources provides an investor with a wide overview of the economic, political, demographic and social climate of a country. The Ell-J also provides ratings for most of the worlds countries. These ratings can supplement those issued by Moodys, S and the other traditional ratings agencies (www. Investigated. Com, 2014). afterwards finish the country analysis, the investing NC will have to decide on a sound i nvestment approach. One of the recommended approaches is for the NC to invest in a broad international portfolio.Diversification is a fundamental principle of domestic investing, and is even more important when investing internationally. Even in a more concentrated portfolio, investments should be spread among several countries to maximize diversification and minimize risk (www. Investigated. Com, 2014). After deciding where to invest, an investor must decide which type of investment to enter. The choice of investment vehicle depends on each investors individual knowledge, experience, risk profile and return objectives. When in doubt, it may make later.In addition to thoroughly researching likely investments, an international investor also needs to oversee his or her portfolio and adjust holdings as conditions dictate. As in the U. S. , economic conditions overseas are constantly evolving, and political situations abroad can change quickly, particularly in rising r frontier marke ts. Situations that once seemed promising may no longer be so, and countries that once seemed besides risky might now be viable investment candidates (www. Investigated. Com, 2014).Final ExamAnswer four of the following seven essay questions. Essay answers should be in paragraph form using complete sentences. (No bullet points) Use PAPA style for citations as needed. Exams may be subject to student submission using Turning at the professors discretion. Your answers should be submitted as a Word file attached to an email sent to me by the start of class on March 5th. While brevity Is the soul of wit, essay answers should err on the side of completeness versus brevity.That said, I dont want to see the answer to any question go beyond two single-spaced hypocrites pages using a font size of 10-12 points. 1. Congratulations You have Just been elected ruler off small OLD. What steps will you take to manage the countrys balance of trade, and Its currency? Name and use an actual country do nt make one up. Sierra Leone is a country that is rich in agricultural and mining resources, yet the great majority (over 70%) of the country still lives in poverty. Economic growth is hindered by disadvantageous exchange rates and government budget deficits.As the recently elected President of Sierra Leone, I will take any and all necessary steps o bring this beautiful country out of poverty (www. Henbane. Org, 2014). Sierra Leone Is currently working with the International Monetary Fund (MIFF) to implement changes and improvements in our countrys economic system. Sierra Leone has made important strides in economic reconstruction and macroeconomic as well as political stability since the end of the civil conflict in 2002. Economic growth has strengthened in the last two years with a stream of iron ore production and increased Infrastructure Investment.As the new president, I will continue working with the MIFF to manage the balance of trade and stabilize our currency (www. MFC. Org , 2013). In regards to Sierra Lenss currency, the exchange rate system is classified as floating, with the value of the Leone (currency) determined by the market. Currently, the central banks interventions are limited and aimed at smoothing volatility in the market. In order to stabilize the currency, I will diligently work with the Bank of Sierra Leone (BOSS) and with the MIFF to Introduce a stringent stabilization policy and reduce our countrys debt.This policy will be aimed at first and foremost at tightening monetary regulations and reducing government borrowing. I will encourage the BOSS o move from a wholesale foreign exchange auction system to a retail auction system available to importers. This will enhance the currencys stability in the market as well as improve competitiveness. I will also work with the BOSS to improve monetary policy signaling, address remaining gaps In banking supervision, monetary and foreign exchange operations. I initiatives to encourage the developme nt of micromanage in rural areas.Lastly, and perhaps most importantly, I will continue to work with the MIFF and the BOSS to develop a financial literacy campaign that will help to spread knowledge and titivation to continue efforts to stabilize the currency (www. Miff. Org, 2013) As president, I have also been charged with stabilizing trade in Sierra Leone. One of the biggest challenges in trade in Sierra Leone is that of smuggling and illicit trading activities. Sierra Leone is known for mining, especially diamonds, but poor regulation and policy enforcement, and high levels of corruption that lead to considerable levels of money laundering activities.As president, I will establish stricter controls and taxes around the mining trade, and crack down on corrupt government officials. I will continue to work with the government-created mining community development fund (DACCA), created to raise local communities stake in the legal diamond trade, which returns a portion of diamond expo rt taxes to diamond mining communities (www. Heritage. Org, 2014). Throughout my term as president, I hope to create a great economic turnaround for Sierra Leone, not only through balancing the currency and trade in the country, but through many more positive changes.I hope that by reducing budget deficits and improving the fiscal position of the government, I will be able to rehabilitate our social and economic infrastructure, stabilize the economy and provide a better life for Sierra Lenss people. 2. Compare and contrast the different methods of hedging transaction exposure. Include both derivative and non-derivative solutions. Transaction exposure is one of three types of foreign currency exposure. It is a type of risk that companies involved in international trade will face when entering fixed-price financial contracts.The risk occurs after the financial contract is made, and the subsequent fluctuations in currency exchange rates occur randomly and unpredictably. Although transa ction exposure is considered short-term economic exposure, these changes in exchange rates can still affect the contract negatively, resulting in significant losses for the firm. Therefore, companies participate in various hedging activities to avoid losses from transaction exposure (Nun & Arsenic, 2012). In transaction hedging, there are both derivative as well as non-derivative solutions. Derivatives are simply a contract between two parties.One of the ways which firms hedge transaction exposure is through the use of derivatives such as options contacts. Options are contracts used to reduce the risk of transactions by sing calls (sell) or puts (buy) on a financial asset at an agreed-upon price at some time in the future, which is known as exercising the option. Options also have a maturity or expiration date. In Europe, options can only be exercised at their maturity date, whereas in the United States, options can be exercised any time during the contract (Nun & Arsenic, 2012). An other derivative solution is a futures contract.Futures contracts are an agreement to buy or sell an asset at an agreed-upon price in the future. Unlike options, futures contracts are standardized for an amount of the asset, and are usually transacted to exit the market. Hedgers avoid price variation in the market by and pass off risk to a speculator who will take a long or short position in the futures contract. The speculator is considered to be more willing to take on the price risk variation. Futures contracts are short-term and profits and losses are realized on a daily basis (Nun & Arsenic, 2012).Somewhat similar to a futures contract is a forward contract. Forwards are also a contract to buy or sell an asset at an agreed-upon price in the future, however, forward contracts have a specific maturity date unlike the daily settlements used in uterus contracts. Rather than being a standardized contract, forwards are tailor made to the needs of the participants. Also different than futures is that when trading forwards, forwards are often settled through the delivery of goods or cash (Nun & Arsenic, 2012).There are numerous other types of derivatives used to mitigate foreign exchange risk, but the most common are forward and futures contracts, futures options, and swaps which will be discussed later in this exam (Nun & Arsenic, 2012). Many Macs also participate in non-derivative methods for hedging transaction risk. These are often used if a firm has positions in less liquid currencies. In order to mitigate risk in these cases, cross-hedging is a common technique in which a firm will hedge a position in one asset by taking a position in another asset.Effectiveness of cross-hedging is highly dependable on the strength of the relationship between the commodity futures prices and the exchange rate (Nun & Arsenic, 2012). Another non-derivative method to avoid transaction exposure is hedging via lead and lag. A company can lead, to pay or collect on an invoice ear ly, or lag, which means to pay or collect late. By timing the lead and lag strategy correctly, the firm can protect themselves against depreciation or appreciation of the foreign currency they are dealing in (Nun & Arsenic, 2012).Hedging through invoice currency can help firms diversify exchange exposure by using currency basket units. A currency basket is a selected group of currencies in which the weighted average is used as a throwaway of the value of a contract or obligation. It functions as a benchmark for regional currency movements. Because it is a portfolio of currencies, its value is more stable and can be useful as a hedging LOL, especially for long-term contracts where there are no forward or options contracts available (Nun & Arsenic, 2012).The last non-derivative form of transaction hedging that we will discuss is that of exposure netting. Exposure netting helps to centralize a firms exchange exposure management function in one location, typically in a reinforce cente r. All invoices from nitrating transactions are sent here, where overall exposure is analyzed and determined. Foreign exchange experts can then determine the optimal hedging methods for the portfolio of transactions and move forward to implement them (Nun Arsenic, 2012). Overall, we have seen that there are numerous options to hedge transaction exposure.There are some similarities among them, but they differ from each other and are applicable to different needs. Derivative forms of hedging are typically contractual, relatively short term solutions to transaction exposure, whereas non- lifestyle. No matter what the case, however, it is prudent for any NC to determine a strategy for transaction hedging before going into significant overseas contracts. 3. Compare and contrast a plain vanilla currency swap with a plain vanilla interest rate swap. Describe and Justify a situation where a NC would use each type of swap.As discussed briefly above, swap transactions are a type of derivative used to mitigate currency exposure in forward trades. A swap is an agreement between two parties to exchange a sequence of cash flows over a period of time- a simultaneous sale of spot foreign exchange against a forward purchase of an equal amount of foreign currency (Nun & Arsenic, 2012). A plain vanilla interest rate swap is the most common and simplest type of swap. They are customized contracts that can be paid monthly, quarterly, yearly, or on a basis decided on by the firms involved.In a plain vanilla interest rate swap, one part agrees to pay the contract at a fixed interest rate, while the other party agrees to pay at a floating interest rate, and the two cash flows are paid in the same currency. The swap typically has a set date of maturity set at some point in the future (MacAfee, 2012). A plain vanilla currency swap, unlike the plain vanilla interest swap, interest and principal payments on a loan are exchanged in 2 currencies. In the plain vanilla currency swap, the two parties exchange payments at the beginning and end of the swap, which also differs from interest rate swaps (MacAfee, 2012).In the case of plain vanilla interest rate swaps, Macs or Miff would use these when they are paying a floating rate of interest on liabilities and earning a fixed rate of interest on assets. It can be highly risky for a firm to have such a mismatch between assets and liabilities. Therefore, the firm could use a plain vanilla interest rate swap to rectify the imbalance in their interest payments (MacAfee, 2012). For the case of the plain vanilla currency swap, a firm would be interested in conducting this type of swap when the firm wants to expand operations into another country, but has comparative advantage in its home country.The firm will likely have more favorable financing in its home country, and therefore could perform a currency swap with the country it is expanding into, and gain the necessary funds in the new currency to finance its startup and opera tions (MacAfee, 2012). 4. Discuss the issues and potential solutions for a NC contemplating foreign direct investment in a OLD. By definition, a NC or Multinational Corporation, is registered and/or has operations in more than one country. These types of firms engage in FED, or Foreign Direct Investment.FED is an investment made by a company based in one country onto a company or entity based in another country. Macs making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies (www. Investigated. Com, 2014). FED can have numerous risks and obstacles for the NC involved. Olds, or Less Foreign direct investment can be an important source of employment opportunities for developing countries.However, anti-corporate advocates criticize Macs for ente ring Olds that have low human rights or environmental standards. They claim that multinationals give rise to large merged conglomerations that reduce competition and free enterprise, raise capital in host countries but export the profits, exploit countries for their natural resources, limit workers wages, erode traditional cultures, and challenge national sovereignty. However, they remain attractive to investors due to low costs of labor, poorly enforced environmental and economic regulations, and inexpensive resources (www. Investigated. Com, 2014). Economic risk depends on the foreign countrys financial state. A country with stable finances and a sound economy will be more attractive to foreign investors than one that has currency fluctuations and difficulty paying debt. Trade barriers and shareholder diversification issues can all be part of the economic risks taken on by a NC that is contemplating FED (Nun & Arsenic, 2012). Trade barriers can often be overcome by moving trade th rough other countries without trade restrictions.In the case of physical trade barriers, such as poor transportation, FED can be put into place to improve infrastructure and reduce transportation costs (Nun & Arsenic, 2012). Political risk emerges when the political climate in a foreign country becomes unfriendly to investors. Political risk can be classified into three types transfer risk, operational risk, and control risk. Transfer risk arises from uncertainty about cross border flows of capital and payments. Operational risk arises when the host countrys policies affect the NC.Lastly, control risk is caused by uncertainty about the host countrys policies regarding ownership and control of local operations (Nun & Arsenic, 2012). When contemplating investing in a OLD, the NC should take care to meticulously search and define the level of risk for doing business with the OLD they are considering, and also outline possible solutions in case of risk exposure. For example, those seeki ng more in-depth coverage of a particular country or region, two excellent sources of objective, comprehensive country information are the Economist Intelligence Unit and the Central Intelligence Agency World Fastback.Either of these resources provides an investor with a broad overview of the economic, political, demographic and social climate of a country. The Ell-J also provides ratings for most of the worlds countries. These ratings can supplement those issued by Moodys, S and the other traditional ratings agencies (www. Investigated. Com, 2014). After completing the country analysis, the investing NC will have to decide on a sound investment approach. One of the recommended approaches is for the NC to invest in a broad international portfolio.Diversification is a fundamental principle of domestic investing, and is even more important when investing internationally. Even in a more concentrated portfolio, investments should be spread among several countries to maximize diversifica tion and minimize risk (www. Investigated. Com, 2014). After deciding where to invest, an investor must decide which type of investment to enter. The choice of investment vehicle depends on each investors individual knowledge, experience, risk profile and return objectives. When in doubt, it may make later.In addition to thoroughly researching prospective investments, an international investor also needs to monitor his or her portfolio and adjust holdings as conditions dictate. As in the U. S. , economic conditions overseas are constantly evolving, and political situations abroad can change quickly, particularly in emerging r frontier markets. Situations that once seemed promising may no longer be so, and countries that once seemed too risky might now be viable investment candidates (www. Investigated. Com, 2014).Final ExamThe response to each question or statement is each True or False. 1. A business organized as a separate legal entity own by stockholders is a partnership. 2. Ext ernal users of chronicle information are managers who plan, organize, and run a business. 3. Two native external users of accounting information are investors and creditors. 4. Financing activities for corporations include borrowing money and selling shares of their own stock. 5.Income will always be greater under the cash basis of accounting than under the accruement basis of accounting. 6. The difference between unearned revenue and accrued revenue is that accrued revenue has been preserve and needs adjusting and unearned revenue has never been recorded. 7. Cash is a temporary account. 8. Bonding means insuring a company against theft by employees. 9. The treasurer should prepare and sign a check only after authorization to issue a check has been provided. 10. Using borrowed money to increase the rate of return on common stockholders impartiality is called trading on the equity.The extent of internal control features adopted by a company must be evaluated in terms of cost-ben efit. 11. A good system of internal control will safeguard its assets and enhance the accuracy and reliability of its accounting records. 12. All reconciling items in find out the adjusted cash balance per books require the depositor to make adjusting Journal entries to the Cash account. 13. Cash equivalents include money market accounts, commercial paper, and U. S. Treasury bills held for ninety days or less. 14. A basic principle of cash management is to increase the speed of paying liabilities. 5.A cash budget contributes to more effective cash management. 16. A change in accounting principle occurs when the principle used in the current year is different from the one used by competitors in the current year. 17. If a company has sales of $110 in 2007 and $154 in 2006, the percentage decrease in sales from 2006 to 2007 is 140%. 18. In a common size income statement, each item is expressed as a percentage of net income. 19. Profitability ratios are a great deal used as a basis fo r evaluating managements operating effectiveness 20. Inventory turnover is a measure of equity that focuses on efficient use of inventory. 1 . The current ratio is a measure of all the ratios calculated for the current year. 22. From a creditors point of view, the higher the jibe debt to total assets ratio, the lower the risk that the company may be unable to pay its obligations. 23. Alternative accounting methods affect the quality of wages 24. Because pro formal earnings are based on specific rules, these amounts are highly reliable. Section II Multiple Choice Choose your response from one of the possible answers provided. 26. A business organized as a corporation ). Is not a separate legal entity in most states. ). Requires that stockholders be in person liable for the debts of the business. C). Is owned by its stockholders. D). Has tax advantages over a proprietorship or partnership. 27. Which of the following is not one of the three forms of business organization? A). Corpora tions. B). Partnerships. C). Proprietorships. D). Investors. 28. An advantage of the corporate form of business is that a). It has limited life. B). Its owners individual(prenominal) resources are at stake. C). Its ownership is easily transferable via the sale of shares of stock. ). It is simple to establish. 29.The group of users of accounting information charged with achieving the goals of the business is its a). Auditors. B). Investors. C). Managers. D). Creditors. 30. Which of the following is a primary user of accounting information with a direct financial interest in the business? A). Taxing authority b). Creditor c). Regulatory agency d). Labor Union 31 . An income statement a). Summarizes the changes in retained earnings for a specific period of time. B). Reports the changes in assets, liabilities, and stockholders equity over a period of time. C). Ports the assets, liabilities, and stockholders equity at a specific date. ). Presents the revenues and set downs for a speci fic period of time. 32. Which financial statement is prepared first? A). Balance sheet b). Lonesome statement c). Retained earnings statement d). Statement of cash flows 33. Which one of the following is not a Justification for adjusting entries? A). AdJusting entries are necessary to ensure that revenue recognition principles are followed. B). AdJusting entries are necessary to ensure that the matching principle is followed. C). AdJusting entries are necessary to enable financial statements to be in conformity tit GAP. D).AdJusting entries are necessary to bring the general ledger accounts in line with the budget. 34. If a resource has been consumed but a bill has not been received at the end of the accounting period, then a). An depreciate should be recorded when the bill is received. B). An expense should be recorded when the cash is paid out. C). An adjusting entry should be made recognizing the expense. D). It is optional whether to record the expense before the bill is receiv ed. 35. An adjusting entry would not include which of the following accounts? A). Cash b). Lintiest Receivable ).Property Tax collectable d). Unearned Revenue 36. At December 31, 2007, before any year-end adjustments, Boils Companys Prepaid Insurance account had a balance of $2,700. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be a). $l ,500. 0. $2,700. D). $1,900. 37. Which one of the following is not an objective of a system of internal controls? A). protect company assets b). Overstate liabilities in order to be conservative c). Enhance the accuracy and reliability of accounting records d).Reduce the risks of errors 38. Which one of the following would be considered a long-term solvency ratio? A). Receivables turnover b). Return on total assets c). Current cash debt coverage ratio.