Question 1

Which of the following is NOT one of the three leading financial centers in the world?

Accepted Answer

A) London 
B) Amsterdam 
C) Tokyo 
D) New York 
A) London 
B) Amsterdam 
C) Tokyo 
D) New York

Question 2

Banks are subject to exchange rate risk when

Accepted Answer

A) their net worth fluctuates with increases or decreases in exchange rates. 
B) they engage in currency swaps. 
C) they buy foreign-exchange futures contracts. 
D) they sell foreign-exchange futures contracts. 
A) their net worth fluctuates with increases or decreases in exchange rates. 
B) they engage in currency swaps. 
C) they buy foreign-exchange futures contracts. 
D) they sell foreign-exchange futures contracts.

Question 3

Which of the following is NOT true of the U.S. economy before World War II?

Accepted Answer

A) The U.S. economy was an open economy. 
B) Capital flows between the United States and other economies were restricted by regulation. 
C) The volume of international trade was small relative to the level of domestic economic activity. 
D) Cross-border communication costs were relatively high. 
A) The U.S. economy was an open economy. 
B) Capital flows between the United States and other economies were restricted by regulation. 
C) The volume of international trade was small relative to the level of domestic economic activity. 
D) Cross-border communication costs were relatively high.

Question 4

From the mid-1970s to the late 1980s the largest source of deposits in Euromarkets was

Accepted Answer

A) OPEC countries. 
B) multinational corporations. 
C) European governments. 
D) the U.S. government. 
A) OPEC countries. 
B) multinational corporations. 
C) European governments. 
D) the U.S. government.

Question 5

The principal activities of international banking are

Accepted Answer

A) engaging in currency swaps. 
B) accepting deposits from savers and lending to borrowers. 
C) fending off restrictive domestic regulations. 
D) fending off restrictive international regulations. 
A) engaging in currency swaps. 
B) accepting deposits from savers and lending to borrowers. 
C) fending off restrictive domestic regulations. 
D) fending off restrictive international regulations.

Question 6

Before World War II

Accepted Answer

A) the United States was basically a closed economy. 
B) the United States economy was more open than it is today. 
C) New York was the leading center of international finance. 
D) international banking was of great importance to U.S. banks, savers, and borrowers. 
A) the United States was basically a closed economy. 
B) the United States economy was more open than it is today. 
C) New York was the leading center of international finance. 
D) international banking was of great importance to U.S. banks, savers, and borrowers.

Question 7

Which of the following is likely to be true as the international coordination of bank regulation continues?

Accepted Answer

A) Branches of foreign banks probably will continue to be treated differently than domestic banks by the lender of last resort. 
B) Cross-border transactions of domestic banks will be addressed by the foreign lender of last resort. 
C) Deposit insurance will follow host country rules for branches and subsidiaries. 
D) Regulation will become an even more serious impediment to international capital flows. 
A) Branches of foreign banks probably will continue to be treated differently than domestic banks by the lender of last resort. 
B) Cross-border transactions of domestic banks will be addressed by the foreign lender of last resort. 
C) Deposit insurance will follow host country rules for branches and subsidiaries. 
D) Regulation will become an even more serious impediment to international capital flows.

Question 8

A problem facing Islamic banking is

Accepted Answer

A) the limited amount of funds available in Gulf States. 
B) the lack of standardization as to how to interpret the Koran's teaching about money. 
C) little interest among most Muslims to mix religion with finances. 
D) the desire to earn higher returns in western banks. 
A) the limited amount of funds available in Gulf States. 
B) the lack of standardization as to how to interpret the Koran's teaching about money. 
C) little interest among most Muslims to mix religion with finances. 
D) the desire to earn higher returns in western banks.

Question 9

Why is credit risk in international commerce magnified?

Accepted Answer

A) Because of exchange rate fluctuations 
B) Because of the volatility of global interest rates 
C) Because exporters often have limited information about importers 
D) Because of tariffs and quotas on international trade 
A) Because of exchange rate fluctuations 
B) Because of the volatility of global interest rates 
C) Because exporters often have limited information about importers 
D) Because of tariffs and quotas on international trade

Question 10

Since the late 1980s, the share of eurocurrency deposits denominated in dollars

Accepted Answer

A) has risen. 
B) has held steady. 
C) has fallen. 
D) fell initially, but since then has risen. 
A) has risen. 
B) has held steady. 
C) has fallen. 
D) fell initially, but since then has risen.

Question 11

In which of the following countries was a deposit insurance fund first established?

Accepted Answer

A) The United States 
B) France 
C) Japan 
D) The United Kingdom 
A) The United States 
B) France 
C) Japan 
D) The United Kingdom

Question 12

A U.S. bank has £50 million in deposits and makes a loan of £100 million when the exchange rate is $1 = £1. 5. If the exchange rate changes to $1 = £2, then the bank's net worth will change by

Accepted Answer

A) +$8.33 million. 
B) +$16.67 million. 
C) -$8.33 million. 
D) -$16.67 million. 
A) +$8.33 million. 
B) +$16.67 million. 
C) -$8.33 million. 
D) -$16.67 million.

Question 13

Edge Act Corporations are

Accepted Answer

A) legally prohibited from owning banks. 
B) banks that may accept deposits, but that may not make loans. 
C) special subsidiaries of U.S. banks that conduct only international banking services. 
D) U.S. branches of banks headquartered outside of the United States. 
A) legally prohibited from owning banks. 
B) banks that may accept deposits, but that may not make loans. 
C) special subsidiaries of U.S. banks that conduct only international banking services. 
D) U.S. branches of banks headquartered outside of the United States.

Question 14

Which countries are the most important centers of international banking? Why is international banking concentrated in these countries?

Accepted Answer

The United Kingdom, Japan, the United St

Question 15

The Eurodollar arose from

Accepted Answer

A) the desire of U.S. companies to shield their profits from the U.S. income tax. 
B) the reluctance of Eastern Bloc countries to deposit their dollar reserves in U.S. banks. 
C) the scarcity of British pounds in the immediate post-World War II period. 
D) the scarcity of U.S. dollars in the immediate post-World War II period. 
A) the desire of U.S. companies to shield their profits from the U.S. income tax. 
B) the reluctance of Eastern Bloc countries to deposit their dollar reserves in U.S. banks. 
C) the scarcity of British pounds in the immediate post-World War II period. 
D) the scarcity of U.S. dollars in the immediate post-World War II period.

Question 16

IBFs are

Accepted Answer

A) U.S. branches of banks headquartered outside of the United States. 
B) foreign branches of U.S. banks. 
C) securities tradeable on the Eurodollar market. 
D) U.S. institutions that aren't allowed to conduct domestic banking business. 
A) U.S. branches of banks headquartered outside of the United States. 
B) foreign branches of U.S. banks. 
C) securities tradeable on the Eurodollar market. 
D) U.S. institutions that aren't allowed to conduct domestic banking business.

Question 17

When were U.S. banks authorized to use bankers' acceptances for short-term financing of their customers' foreign and domestic trade?

Accepted Answer

A) In 1789, by the U.S. Constitution 
B) In 1913, by the Federal Reserve Act 
C) In 1934, by the International Exchange Act 
D) In 1980, by the Deregulation of Domestic and International Exchange Act 
A) In 1789, by the U.S. Constitution 
B) In 1913, by the Federal Reserve Act 
C) In 1934, by the International Exchange Act 
D) In 1980, by the Deregulation of Domestic and International Exchange Act

Question 18

Which of the following was NOT an important factor in the rise of the Eurodollar market?

Accepted Answer

A) Restrictions on British banks lending pounds abroad 
B) Restrictions on U.S. banks lending dollars abroad 
C) Regulation Q 
D) Reserve requirements on banks in the United States 
A) Restrictions on British banks lending pounds abroad 
B) Restrictions on U.S. banks lending dollars abroad 
C) Regulation Q 
D) Reserve requirements on banks in the United States

Question 19

Which of the following countries has the longest history of international banking?

Accepted Answer

A) The United States 
B) Japan 
C) Switzerland 
D) Canada 
A) The United States 
B) Japan 
C) Switzerland 
D) Canada

Question 20

A key reason the commercial paper market developed later in Europe than in the United States is that

Accepted Answer

A) well-capitalized European banks did not need to find substitutes for traditional bank lending activities. 
B) participation in the commercial paper market has been required of U.S. banks since 1914. 
C) in the United States there have been important tax advantages to corporations in using the commercial paper market. 
D) it was impossible for the commercial paper market in Europe to develop until the Eurodollar market became sufficiently large. 
A) well-capitalized European banks did not need to find substitutes for traditional bank lending activities. 
B) participation in the commercial paper market has been required of U.S. banks since 1914. 
C) in the United States there have been important tax advantages to corporations in using the commercial paper market. 
D) it was impossible for the commercial paper market in Europe to develop until the Eurodollar market became sufficiently large.

Exam 16: Banking in the International Economy

Which of the following is NOT one of the three leading financial centers in the world?

Banks are subject to exchange rate risk when

Which of the following is NOT true of the U.S. economy before World War II?

From the mid-1970s to the late 1980s the largest source of deposits in Euromarkets was

The principal activities of international banking are

Before World War II

Which of the following is likely to be true as the international coordination of bank regulation continues?

A problem facing Islamic banking is

Why is credit risk in international commerce magnified?

Since the late 1980s, the share of eurocurrency deposits denominated in dollars

In which of the following countries was a deposit insurance fund first established?

A U.S. bank has £50 million in deposits and makes a loan of £100 million when the exchange rate is $1 = £1. 5. If the exchange rate changes to $1 = £2, then the bank's net worth will change by

Edge Act Corporations are

Which countries are the most important centers of international banking? Why is international banking concentrated in these countries?

The Eurodollar arose from

IBFs are

When were U.S. banks authorized to use bankers' acceptances for short-term financing of their customers' foreign and domestic trade?

Which of the following was NOT an important factor in the rise of the Eurodollar market?

Which of the following countries has the longest history of international banking?

A key reason the commercial paper market developed later in Europe than in the United States is that

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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