Chapter 10Analysis of Foreign Financial StatementsMultiple Choice Questions1.Why is investing in foreign companies an effective way to diversify an individuals investment portfolio?A.Foreign economies are stronger than the U.S. economy.B.Foreign stocks are less risky than the stocks of U.S. corporations.C.Stock returns of companies in foreign companies are highly correlated with stock returns of U.S. companies.D.Returns on foreign company stocks do not always change in the same direction as returns on U.S. stocks.2.Investing in several corporate stocks that have different characteristics is referred to as:A.diversification.B.portfolio consolidation.C.asset translation.D.income determination.3.Which of the following is a reason for analyzing the financial statements of foreign corporations?A.Making credit decisions about foreign customersB.Evaluating international business combinationsC.Diversifying an investment portfolioD.All of the above are reasons for analyzing foreign financial statements.4.Which of the following statements is NOT true concerning reasons for analyzing foreign financial statements?A.It is important to determine the financial stability of foreign suppliers.B.The stock returns of foreign corporations are nearly perfectly correlated with returns on U.S. stocks.C.In a global economy, managers may use foreign competitors as benchmarks for evaluating performance.D.Managers should determine the financial health of foreign customers before extending credit.5.Which is NOT one of the common sources of distortions in financial statements?A.Accounting standards that are inconsistent with economic realityB.Estimation errors made by managers in applying accounting standardsC.Miscalculation of foreign currency translationD.Management of earnings6.Which is NOT one of the basic steps in financial statement analysis?A.Prospective analysisB.Accounting analysisC.Translation analysisD.Financial analysis7.Evaluating liquidity and solvency to assess a companys ability to meet its obligations is an example of:A.cash flow analysis.B.risk analysis.C.ROI analysis.D.accounting analysis.8.Which of the following is a potential problem in analyzing foreign financial statements?A.LanguageB.Data accessibilityC.TerminologyD.All of the above pose potential problems.9.What language will be used for the quarterly reports submitted by foreign companies to the U.S. Securities and Exchange Commission?A.The quarterly reports may be in the companys local languageB.English or GermanC.English or one of the languages of the European UnionD.English only10.Which of the following is true about financial statement disclosure?A.When account balances are aggregated, the analyst has the greatest amount of information.B.The amount and types of financial statement disclosure vary widely from one country to another.C.The concept of full disclosure has been universally adopted around the world.D.An analyst can always disaggregate financial statement disclosures to obtain needed information.11.Timeliness of financial statements varies across nations. Which of the following countries has financial statements issued closest to year-end (on average)?A.JapanB.GermanyC.CanadaD.Italy12.Which of the following is most likely to affect an analysts ability to make meaningful comparisons of financial statement ratios for companies in different countries?A.Differences in currencyB.Language differencesC.Diversity of accounting principles and practicesD.Mathematical degrees of magnitude13.Foreign companies listed on U.S. stock exchanges must reconcile their net income and stockholders equity to U.S. GAAP. Which ratios can be calculated with the information provided in this reconciliation?A.Operating profit marginB.Asset turnoverC.Return on equityD.Current ratio14.What U.S. term was equivalent to inventories as it was used in financial statements of companies located in the United Kingdom, prior to adoption of IFRS in 2005?A.Operating assetsB.ConsumablesC.StocksD.Merchandise15.If an analyst saw a Monetary position loss in a companys annual report, where would that company be located?A.The NetherlandsB.MexicoC.ChinaD.Sweden16.Which of the following is likely to affect an analysts ability to make meaningful comparisons of financial statement ratios for companies in different countries?A.Accounting diversityB.Var