Question 1

What are the types of institution banks used to conduct foreign business?

Accepted Answer

A)  corporations 
B)  central banks 
C)  commercial banks 
D)  agency offices, subsidiary banks, and foreign branches 
E)  state-owned enterprises 
A)  corporations 
B)  central banks 
C)  commercial banks 
D)  agency offices, subsidiary banks, and foreign branches 
E)  state-owned enterprises

Question 2

Why is the foreign exchange market so vital?

Accepted Answer

The foreign exchange market is the centr

Question 3

Why is it useful to make a distinction between debt and equity instruments?

Accepted Answer

Debt instruments such as bonds and bank

Question 4

How well has the international capital market performed?

Accepted Answer

International portfo

Question 5

Assume interest parity holds. Calculate   for each of the following cases.

Accepted Answer

The answer of Assume interest parity holds. Calculate  ...

Question 6

What would best describe the international capital markets?

Accepted Answer

A)  the market of exchange of bonds 
B)  the market of exchange of stocks 
C)  the market of exchange of real estate 
D)  the market in which residents of different countries trade assets 
E)  the currency market 
A)  the market of exchange of bonds 
B)  the market of exchange of stocks 
C)  the market of exchange of real estate 
D)  the market in which residents of different countries trade assets 
E)  the currency market

Question 7

Discuss studies based on the interest parity conditions.

Accepted Answer

In general, the formula does n

Question 8

Which of the following statements is TRUE for the U.S.?

Accepted Answer

A)  The FDIC does not provide insurance for deposits for Savings and Loans (S&L) associations. 
B)  The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations, but only up to $50,000. 
C)  The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations up to $250,000. 
D)  The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations up to $150,000. 
E)  The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations up to $100,000. 
A)  The FDIC does not provide insurance for deposits for Savings and Loans (S&L) associations. 
B)  The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations, but only up to $50,000. 
C)  The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations up to $250,000. 
D)  The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations up to $150,000. 
E)  The FDIC does provide insurance for deposits for Savings and Loans (S&L) associations up to $100,000.

Question 9

Explain Tobin's idea of "Don't put all your eggs in one basket."

Accepted Answer

Trade in assets can make both parties be

Question 10

In the Interest Parity Condition, Rt - R   t = (   - Et)/Et + xt, where Rt - R   t is the interest rate differential and (   - Et)/Et is the expected change in the exchange rate, what does xt stand for if it potentially is a market efficient difference between the two?

Accepted Answer

A)  market inefficiency 
B)  risk premium 
C)  forecast error 
D)  tracking error 
E)  excessive volatility 
A)  market inefficiency 
B)  risk premium 
C)  forecast error 
D)  tracking error 
E)  excessive volatility

Question 11

Eurobanks are

Accepted Answer

A)  all European Banks. 
B)  all non American banks. 
C)  banks that accept deposits denominated in Eurocurrencies excluding Eurodollars. 
D)  banks that accept deposits denominated in Eurocurrencies including Eurodollars. 
E)  banks that do not take U.S. dollars. 
A)  all European Banks. 
B)  all non American banks. 
C)  banks that accept deposits denominated in Eurocurrencies excluding Eurodollars. 
D)  banks that accept deposits denominated in Eurocurrencies including Eurodollars. 
E)  banks that do not take U.S. dollars.

Question 12

Does the interest rate parity hold in each of the following cases? In case it does not hold, calculate the risk premium.
A. Rt = 5,   = 3, Et = 5,   = 7
B. Rt = 6,   = 3, Et = 5,   = 7
C. Rt = 7,   = 3, Et = 5,   = 7
D. Rt = 8,   = 3, Et = 5,   = 7
E. Rt = 5,   = 4, Et = 5,   = 7
F. Rt = 5,   = 5, Et = 5,   = 7
G. Rt = 5,   = 6, Et = 5,   = 7
H. Rt = 5,   = 3, Et = 6,   = 7
I. Rt = 5,   = 3, Et = 7,   = 7
J. Rt = 5,   = 3, Et = 8,   = 7
K. Rt = 5,   = 3, Et = 5,   = 8
L. Rt = 5,   = 3, Et = 5,   = 9
M. Rt = 5,   = 3, Et = 5,   = 10

Accepted Answer

Question 13

The idea of risk aversion

Accepted Answer

A)  is at odds with the idea of insurance. 
B)  helps explain the profitability of insurance companies. 
C)  has nothing to do with insurance companies. 
D)  helps explain the losses suffered by the insurance industry. 
E)  helps explain why insurance companies in the long run are zero profit companies. 
A)  is at odds with the idea of insurance. 
B)  helps explain the profitability of insurance companies. 
C)  has nothing to do with insurance companies. 
D)  helps explain the losses suffered by the insurance industry. 
E)  helps explain why insurance companies in the long run are zero profit companies.

Question 14

Credit Suisse, Goldman Sachs, and Lazard Freres are examples of

Accepted Answer

A)  commercial banks. 
B)  corporations. 
C)  non-bank financial institutions, such as insurance companies, pension funds, and mutual funds. This includes investment banks, which specialize in underwriting sales of stocks and bonds by corporations and in some cases governments. 
D)  central banks and other government agencies. 
E)  non-profit organizations. 
A)  commercial banks. 
B)  corporations. 
C)  non-bank financial institutions, such as insurance companies, pension funds, and mutual funds. This includes investment banks, which specialize in underwriting sales of stocks and bonds by corporations and in some cases governments. 
D)  central banks and other government agencies. 
E)  non-profit organizations.

Question 15

What is a difficulty encountered in regulating international banking?

Accepted Answer

A)  excessive deposit insurance rates on international banks 
B)  absence of reserve requirements 
C)  oppressive regulatory controls that reduce competitiveness 
D)  lack of funds and incentive to secure payments 
E)  variability in exchange rates 
A)  excessive deposit insurance rates on international banks 
B)  absence of reserve requirements 
C)  oppressive regulatory controls that reduce competitiveness 
D)  lack of funds and incentive to secure payments 
E)  variability in exchange rates

Question 16

If you are offered a gamble in which you win 500 dollars 3/8 of the time and you lose 500 dollars 5/8 of the time, what is your expected payoff and your behavior given that you are a risk-lover?

Accepted Answer

A)  $500, take the gamble 
B)  -$125, take the gamble 
C)  -$125, it is unclear what you would do without further information 
D)  $500, decline the gamble 
E)  -$125, decline the gamble 
A)  $500, take the gamble 
B)  -$125, take the gamble 
C)  -$125, it is unclear what you would do without further information 
D)  $500, decline the gamble 
E)  -$125, decline the gamble

Question 17

Explain the difficulties in regulating international banking.

Accepted Answer

(1) No deposit insurance, in particular,

Question 18

Who is the Basel Committee? Discuss both their involvement in the Concordat as well as the role of the Concordat in international banking.

Accepted Answer

In 1975, the Basel Committee reached an

Question 19

Suppose one is offered a gamble in which you win $1,000 half the time but lose $1,000 half the time. Since in this case one is as likely to win as to lose the $1,000, the average payoff on this gamble-its expected value-is: 0.5 ∗ $1,000 + 0.5 ∗ (-$1,000) = 0.
Under such circumstances:

Accepted Answer

A)  no one will take the gamble. 
B)  risk averse individuals will take the gamble. 
C)  risk lovers individuals will not take the gamble. 
D)  risk neutral individuals will not take the gamble. 
E)  risk lovers and risk neutral individuals may take the gamble. 
A)  no one will take the gamble. 
B)  risk averse individuals will take the gamble. 
C)  risk lovers individuals will not take the gamble. 
D)  risk neutral individuals will not take the gamble. 
E)  risk lovers and risk neutral individuals may take the gamble.

Question 20

Using international asset trade, countries can

Accepted Answer

A)  never really eliminate all risk. 
B)  eliminate all risk. 
C)  actually increase their risk in some cases. 
D)  eliminate all their risk except for emerging markets. 
E)  never really diversify their holdings. 
A)  never really eliminate all risk. 
B)  eliminate all risk. 
C)  actually increase their risk in some cases. 
D)  eliminate all their risk except for emerging markets. 
E)  never really diversify their holdings.

Exam 20: Financial Globalization: Opportunity and Crisis

What are the types of institution banks used to conduct foreign business?

Why is the foreign exchange market so vital?

Why is it useful to make a distinction between debt and equity instruments?

How well has the international capital market performed?

Assume interest parity holds. Calculate for each of the following cases.

What would best describe the international capital markets?

Discuss studies based on the interest parity conditions.

Which of the following statements is TRUE for the U.S.?

Explain Tobin's idea of "Don't put all your eggs in one basket."

In the Interest Parity Condition, Rt - R t = ( - Et)/Et + xt, where Rt - R t is the interest rate differential and ( - Et)/Et is the expected change in the exchange rate, what does xt stand for if it potentially is a market efficient difference between the two?

Eurobanks are

The idea of risk aversion

Credit Suisse, Goldman Sachs, and Lazard Freres are examples of

What is a difficulty encountered in regulating international banking?

If you are offered a gamble in which you win 500 dollars 3/8 of the time and you lose 500 dollars 5/8 of the time, what is your expected payoff and your behavior given that you are a risk-lover?

Explain the difficulties in regulating international banking.

Who is the Basel Committee? Discuss both their involvement in the Concordat as well as the role of the Concordat in international banking.

Suppose one is offered a gamble in which you win $1,000 half the time but lose $1,000 half the time. Since in this case one is as likely to win as to lose the $1,000, the average payoff on this gamble-its expected value-is: 0.5 ∗ $1,000 + 0.5 ∗ (-$1,000) = 0. Under such circumstances:

Using international asset trade, countries can

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

In the Interest Parity Condition, R_t - R _t = ( - E_t)/E_t + x_t, where R_t - R _t is the interest rate differential and ( - E_t)/E_t is the expected change in the exchange rate, what does x_t stand for if it potentially is a market efficient difference between the two?