Question 1

The most popular way for a U.S.bank to expand overseas is

Accepted Answer

A) branch banks. 
B) representative offices. 
C) subsidiary banks. 
D) affiliate banks. 
A) branch banks. 
B) representative offices. 
C) subsidiary banks. 
D) affiliate banks.

Question 2

With regard to creating money,

Accepted Answer

A) only central banks such as the Federal Reserve can create money. 
B) money is created when a bank customer invests in a time deposit. 
C) commercial banks can create money when a bank lends out funds borrowed from another customer who invested in a time deposit. 
D) none of the options 
A) only central banks such as the Federal Reserve can create money. 
B) money is created when a bank customer invests in a time deposit. 
C) commercial banks can create money when a bank lends out funds borrowed from another customer who invested in a time deposit. 
D) none of the options

Question 3

In the wholesale money market,denominations

Accepted Answer

A) are at least $10,000,but sizes of $100,000 or larger are more typical. 
B) are at least $100,000,but sizes of $500,000 or larger are more typical. 
C) are at least $500,000,but sizes of $1,000,000 or larger are more typical. 
D) none of the options 
A) are at least $10,000,but sizes of $100,000 or larger are more typical. 
B) are at least $100,000,but sizes of $500,000 or larger are more typical. 
C) are at least $500,000,but sizes of $1,000,000 or larger are more typical. 
D) none of the options

Question 4

A bank may establish a multinational operation for the reason of knowledge advantage.The underlying rationale being that

Accepted Answer

A) local firms may be able to obtain from a foreign subsidiary bank operating in their country more complete trade and financial market information about the subsidiary's home country than they can obtain from their own domestic banks. 
B) by maintaining foreign branches and foreign currency balances,banks may reduce transaction costs and foreign exchange risk on currency conversion if government controls can be circumvented. 
C) greater stability of earnings is possible with international diversification.Offsetting business and monetary policy cycles across nations reduces the country-specific risk of any one nation. 
D) the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit investigations for use in that foreign market. 
A) local firms may be able to obtain from a foreign subsidiary bank operating in their country more complete trade and financial market information about the subsidiary's home country than they can obtain from their own domestic banks. 
B) by maintaining foreign branches and foreign currency balances,banks may reduce transaction costs and foreign exchange risk on currency conversion if government controls can be circumvented. 
C) greater stability of earnings is possible with international diversification.Offsetting business and monetary policy cycles across nations reduces the country-specific risk of any one nation. 
D) the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit investigations for use in that foreign market.

Question 5

A domestic bank that follows a multinational client abroad to preserve that banking relationship

Accepted Answer

A) is playing the role of the desperate housewife in this relationship. 
B) is pursuing a wholesale defensive strategy. 
C) is pursuing a retail defensive strategy. 
D) none of the options 
A) is playing the role of the desperate housewife in this relationship. 
B) is pursuing a wholesale defensive strategy. 
C) is pursuing a retail defensive strategy. 
D) none of the options

Question 6

U.S.banks that establish subsidiary and affiliate banks

Accepted Answer

A) are allowed to underwrite securities. 
B) must provide FDIC insurance on their foreign-currency denominated demand deposits. 
C) can underwrite securities,but not accept dollar-denominated deposits. 
D) are allowed to underwrite securities and must provide FDIC insurance on their foreign-currency denominated demand deposits. 
A) are allowed to underwrite securities. 
B) must provide FDIC insurance on their foreign-currency denominated demand deposits. 
C) can underwrite securities,but not accept dollar-denominated deposits. 
D) are allowed to underwrite securities and must provide FDIC insurance on their foreign-currency denominated demand deposits.

Question 7

A bank may establish a multinational operation for the reason of home country information services.The underlying rationale being that

Accepted Answer

A) by maintaining foreign branches and foreign currency balances,banks may reduce transaction costs and foreign exchange risk on currency conversion if government controls can be circumvented. 
B) local firms may be able to obtain from a foreign subsidiary bank operating in their country more complete trade and financial market information about the subsidiary's home country than they can obtain from their own domestic banks. 
C) the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit investigations for use in that foreign market. 
D) greater stability of earnings is possible with international diversification.Offsetting business and monetary policy cycles across nations reduces the country-specific risk of any one nation. 
A) by maintaining foreign branches and foreign currency balances,banks may reduce transaction costs and foreign exchange risk on currency conversion if government controls can be circumvented. 
B) local firms may be able to obtain from a foreign subsidiary bank operating in their country more complete trade and financial market information about the subsidiary's home country than they can obtain from their own domestic banks. 
C) the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit investigations for use in that foreign market. 
D) greater stability of earnings is possible with international diversification.Offsetting business and monetary policy cycles across nations reduces the country-specific risk of any one nation.

Question 8

In an FRA,the seller agrees to pay the buyer

Accepted Answer

A) the increased interest cost if interest rates fall below the agreement rate. 
B) the increased interest cost if interest rates increase above the agreement rate. 
C) the increased interest cost on a notional amount if interest rates fall below an agreement rate. 
D) none of the options 
A) the increased interest cost if interest rates fall below the agreement rate. 
B) the increased interest cost if interest rates increase above the agreement rate. 
C) the increased interest cost on a notional amount if interest rates fall below an agreement rate. 
D) none of the options

Question 9

Merchant banks are different from traditional commercial banks in what way(s)?

Accepted Answer

A) Merchant banks can engage in investment banking activities. 
B) Merchant banks can arrange for foreign exchange transactions. 
C) Merchant banks can assist their clients in hedging exchange rate risk. 
D) all of the options 
A) Merchant banks can engage in investment banking activities. 
B) Merchant banks can arrange for foreign exchange transactions. 
C) Merchant banks can assist their clients in hedging exchange rate risk. 
D) all of the options

Question 10

The current exchange rate is £1.00 = $2.00.Compute the correct balances in Bank A's correspondent account(s)with bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at bank B for $90,000 using its correspondent relationship with Bank B.

Accepted Answer

A) Bank A's dollar-denominated account at B will fall by $90,000. 
B) Bank B's dollar-denominated account at A will rise by $90,000. 
C) Bank A's pound-denominated account at B will rise by £45,000. 
D) Bank B's pound-denominated account at A will fall by £45,000. 
E) all of the options 
A) Bank A's dollar-denominated account at B will fall by $90,000. 
B) Bank B's dollar-denominated account at A will rise by $90,000. 
C) Bank A's pound-denominated account at B will rise by £45,000. 
D) Bank B's pound-denominated account at A will fall by £45,000. 
E) all of the options

Question 11

Multinational banks are often not subject to the same regulations as domestic banks.

Accepted Answer

A) There may be increased need to publish adequate financial information. 
B) There may be reduced need to publish adequate financial information. 
C) The requirements to publish adequate financial information are the same. 
D) none of the options 
A) There may be increased need to publish adequate financial information. 
B) There may be reduced need to publish adequate financial information. 
C) The requirements to publish adequate financial information are the same. 
D) none of the options

Question 12

A bank bought a "three against six" $5,000,000 FRA for a three-month period beginning three months from today and ending six months from today.The reason that the bank bought the FRA was to hedge: the bank accepted a 3-month deposit and made a six-month loan.The agreement rate with the seller is 5 percent.Assume that three months from today the settlement rate is 5.25 percent.Who pays whom? How much? When? The actual number of days in the FRA is 90.

Accepted Answer

A) The bank pays $3,084.52 at the end of 3 months 
B) The bank pays $3,084.52 at the end of 6 months 
C) The counter party pays $3,084.52 at the end of 3 months 
D) The counter party pays $3,084.52 at the end of 6 months 
A) The bank pays $3,084.52 at the end of 3 months 
B) The bank pays $3,084.52 at the end of 6 months 
C) The counter party pays $3,084.52 at the end of 3 months 
D) The counter party pays $3,084.52 at the end of 6 months

Question 13

Who benefits from debt-for-equity swaps?

Accepted Answer

A) The creditor bank 
B) The LDC 
C) The market maker 
D) all of the options 
A) The creditor bank 
B) The LDC 
C) The market maker 
D) all of the options

Question 14

A forward rate agreement (FRA)is a contract between two banks

Accepted Answer

A) that allows the Euro bank to hedge the interest rate risk in mismatched deposits and credits. 
B) in which the buyer agrees to pay the seller the increased interest cost on a notional amount if interest rates fall below an agreed rate,and the seller agrees to pay the buyer the increased interest cost if interest rates increase above the agreed rate. 
C) that is structured to capture the maturity mismatch in standard-length Euro deposits and credits. 
D) all of the options 
A) that allows the Euro bank to hedge the interest rate risk in mismatched deposits and credits. 
B) in which the buyer agrees to pay the seller the increased interest cost on a notional amount if interest rates fall below an agreed rate,and the seller agrees to pay the buyer the increased interest cost if interest rates increase above the agreed rate. 
C) that is structured to capture the maturity mismatch in standard-length Euro deposits and credits. 
D) all of the options

Question 15

The core of the international money market is

Accepted Answer

A) the Eurocurrency market. 
B) the market for foreign exchange. 
C) the futures forwards and options markets on foreign exchange. 
D) none of the options 
A) the Eurocurrency market. 
B) the market for foreign exchange. 
C) the futures forwards and options markets on foreign exchange. 
D) none of the options

Question 16

Edge Act banks

Accepted Answer

A) can accept foreign deposits,extend trade credit,finance foreign projects abroad,trade foreign currencies,and engage in investment banking activities with U.S.citizens involving foreign securities. 
B) are federally chartered subsidiaries of U.S.banks that are physically located in the United States and are allowed to engage in a full range of international banking activities. 
C) can underwrite securities,but can only be located in states on the edge of the U.S. 
D) can accept foreign deposits,extend trade credit,finance foreign projects abroad,trade foreign currencies,and engage in investment banking activities with U.S.citizens involving foreign securities,and are federally chartered subsidiaries of U.S.banks that are physically located in the United States and are allowed to engage in a full range of international banking activities. 
A) can accept foreign deposits,extend trade credit,finance foreign projects abroad,trade foreign currencies,and engage in investment banking activities with U.S.citizens involving foreign securities. 
B) are federally chartered subsidiaries of U.S.banks that are physically located in the United States and are allowed to engage in a full range of international banking activities. 
C) can underwrite securities,but can only be located in states on the edge of the U.S. 
D) can accept foreign deposits,extend trade credit,finance foreign projects abroad,trade foreign currencies,and engage in investment banking activities with U.S.citizens involving foreign securities,and are federally chartered subsidiaries of U.S.banks that are physically located in the United States and are allowed to engage in a full range of international banking activities.

Question 17

Teltrex International can borrow $3,000,000 at LIBOR plus a lending margin of 0.75 percent per annum on a three-month rollover basis from Barclays in London.Suppose that three-month LIBOR is currently 5 17⁄32 percent.Further suppose that over the second three-month interval LIBOR falls to 5 1⁄8 percent.How much will Teltrex pay in interest to Barclays over the six-month period for the Eurodollar loan?

Accepted Answer

A) $79,921.875 
B) $91,171.88 
C) $96,174.39 
D) $364,687.52 
A) $79,921.875 
B) $91,171.88 
C) $96,174.39 
D) $364,687.52

Question 18

Proceeding the Asian crisis,

Accepted Answer

A) bankers from industrialized countries actively sought to finance the growth opportunities in the region. 
B) the risk exposure of the lending banks in East Asia was primarily to local banks and commercial firms,and not to sovereignties,as in the LDC debt crisis. 
C) bankers failed to correctly assess the political and economic risks. 
D) bankers were willing to lend huge amounts to borrowers with a limited potential to repay. 
E) all of the options 
A) bankers from industrialized countries actively sought to finance the growth opportunities in the region. 
B) the risk exposure of the lending banks in East Asia was primarily to local banks and commercial firms,and not to sovereignties,as in the LDC debt crisis. 
C) bankers failed to correctly assess the political and economic risks. 
D) bankers were willing to lend huge amounts to borrowers with a limited potential to repay. 
E) all of the options

Question 19

The Asian crisis

Accepted Answer

A) followed a period of economic recession in the region coupled with record private capital outflows. 
B) followed a period of economic expansion in the region financed by record private capital inflows. 
C) began in the fall of 2001 when Japan devalued the yen. 
D) none of the options 
A) followed a period of economic recession in the region coupled with record private capital outflows. 
B) followed a period of economic expansion in the region financed by record private capital inflows. 
C) began in the fall of 2001 when Japan devalued the yen. 
D) none of the options

Question 20

The Eurocurrency market

Accepted Answer

A) is only in Europe. 
B) is an external banking system that runs parallel to the domestic banking system of the country that issued the currency. 
C) has languished following monetary union in Europe. 
D) none of the options 
A) is only in Europe. 
B) is an external banking system that runs parallel to the domestic banking system of the country that issued the currency. 
C) has languished following monetary union in Europe. 
D) none of the options

The most popular way for a U.S.bank to expand overseas is

With regard to creating money,

In the wholesale money market,denominations

A bank may establish a multinational operation for the reason of knowledge advantage.The underlying rationale being that

A domestic bank that follows a multinational client abroad to preserve that banking relationship

U.S.banks that establish subsidiary and affiliate banks

A bank may establish a multinational operation for the reason of home country information services.The underlying rationale being that

In an FRA,the seller agrees to pay the buyer

Merchant banks are different from traditional commercial banks in what way(s)?

The current exchange rate is £1.00 = $2.00.Compute the correct balances in Bank A's correspondent account(s)with bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at bank B for $90,000 using its correspondent relationship with Bank B.

Multinational banks are often not subject to the same regulations as domestic banks.

Who benefits from debt-for-equity swaps?

A forward rate agreement (FRA)is a contract between two banks

The core of the international money market is

Edge Act banks

Proceeding the Asian crisis,

The Asian crisis

The Eurocurrency market

International Monetary System

Globalization and the Multinational Firm

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 11: International Banking and Money Market

The most popular way for a U.S.bank to expand overseas is

With regard to creating money,

In the wholesale money market,denominations

A bank may establish a multinational operation for the reason of knowledge advantage.The underlying rationale being that

A domestic bank that follows a multinational client abroad to preserve that banking relationship

U.S.banks that establish subsidiary and affiliate banks

A bank may establish a multinational operation for the reason of home country information services.The underlying rationale being that

In an FRA,the seller agrees to pay the buyer

Merchant banks are different from traditional commercial banks in what way(s)?

The current exchange rate is £1.00 = $2.00.Compute the correct balances in Bank A's correspondent account(s)with bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at bank B for $90,000 using its correspondent relationship with Bank B.

Multinational banks are often not subject to the same regulations as domestic banks.

Who benefits from debt-for-equity swaps?

A forward rate agreement (FRA)is a contract between two banks

The core of the international money market is

Edge Act banks

Proceeding the Asian crisis,

The Asian crisis

The Eurocurrency market

International Monetary System

Globalization and the Multinational Firm

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters