Suppose a U

question 99

Multiple Choice

Suppose a U.S.-based MNC makes bicycles with parts from its subsidiary in a low-tax East Asian country. The bicycle frames are made here, the component parts (cranksets, wheels, and so on) are made abroad, the bicycles are assembled in Japan and reimported to the U.S. It can reduce its reported U.S. income-and increase its subsidiary's profits-by

• A)overcharging its subsidiaries for the U.S.-made frames.
• B)undercharging its subsidiaries for the U.S.-made frames.
• C)assembling the bicycles in the U.S.
• D)none of the above

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Definitions:

Conversion Ratio

The number of shares an investor receives when converting a convertible security, like a convertible bond or preferred stock, into common stock.

Callable Bonds

Bonds that can be redeemed by the issuer before their maturity date at a specified price.

Call Option

A call option is a financial contract that gives the buyer the right, but not the obligation, to buy an asset at a specified price within a specific time period.

Convertible Bond

A type of bond that can be converted into a predetermined number of the issuing company's shares, typically at the discretion of the bondholder.