International Businesses Use Foreign Exchange Markets for Many Reasons

question 41

Multiple Choice

International businesses use foreign exchange markets for many reasons. Which of the following is one of these reasons?

• A) to receive payments from domestic investors that are in local currencies
• B) to pay a foreign company for its products or services in its native country's currency
• C) to invest for short terms in money markets when they have spare cash
• D) to cover themselves from all risks involved in currency speculation

---

Definitions:

Interest Tax Shield

The reduction in income taxes that results from taking the interest expense as a deductible charge.

Capital Structure

The capital structure is the mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity which funds its overall operations and growth.

Tax Rates

The segment of earnings an individual or corporate entity owes to the government in taxes.

Interest Tax Shield

The saving in taxes due to deductible interest expenses, which reduces taxable income and ultimately decreases the tax liability.