Question 1

An offshore banking center is

Accepted Answer

A) a country whose banking system is organized to permit external accounts beyond the normal economic activity of the country. 
B) is external to any government,frequently located on old oil drilling platforms located in international waters. 
C) a country like North Korea. 
D) none of the options 
A) a country whose banking system is organized to permit external accounts beyond the normal economic activity of the country. 
B) is external to any government,frequently located on old oil drilling platforms located in international waters. 
C) a country like North Korea. 
D) none of the options

Question 2

Correspondent bank services include

Accepted Answer

A) prepaid postage and packing materials. 
B) letters of introduction. 
C) foreign exchange conversions. 
D) letters of introduction and foreign exchange conversions. 
A) prepaid postage and packing materials. 
B) letters of introduction. 
C) foreign exchange conversions. 
D) letters of introduction and foreign exchange conversions.

Question 3

ABC International can borrow $4,000,000 at LIBOR plus a lending margin of 0.65 percent per annum on a three-month rollover basis from Barclays in London.Three month LIBOR is currently 5.5 percent.Suppose that over the second three-month interval LIBOR falls to 5.0 percent.How much will ABC pay in interest to Barclays over the six-month period for the Eurodollar loan?

Accepted Answer

A) $50,000 
B) $100,000 
C) $118,000 
D) $120,000 
A) $50,000 
B) $100,000 
C) $118,000 
D) $120,000

Question 4

By far the most important international finance centers are

Accepted Answer

A) New York and London. 
B) New York,London,and Tokyo. 
C) New York,London,Tokyo,Paris,and Zurich. 
D) New York,London,Tokyo,Paris,Zurich,and Frankfurt. 
A) New York and London. 
B) New York,London,and Tokyo. 
C) New York,London,Tokyo,Paris,and Zurich. 
D) New York,London,Tokyo,Paris,Zurich,and Frankfurt.

Question 5

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

Accepted Answer

A) growth prospects in a home nation may be limited by a market largely saturated with the services offered by domestic banks. 
B) multinational banks are often not subject to the same regulations as domestic banks.There may be reduced need to publish adequate financial information,lack of required deposit insurance and reserve requirements on foreign currency deposits,and the absence of territorial restrictions. 
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) 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. 
A) growth prospects in a home nation may be limited by a market largely saturated with the services offered by domestic banks. 
B) multinational banks are often not subject to the same regulations as domestic banks.There may be reduced need to publish adequate financial information,lack of required deposit insurance and reserve requirements on foreign currency deposits,and the absence of territorial restrictions. 
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) 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.

Question 6

A representative office

Accepted Answer

A) is a way for the parent bank to provide its MNC clients with a level of service greater than that provided through merely a correspondent relationship. 
B) is a small service facility staffed by parent bank personnel that is designed to assist MNC clients of the parent bank in dealings with the bank's correspondents. 
C) is a step up from a correspondent relationship,but below a foreign branch. 
D) all of the options 
A) is a way for the parent bank to provide its MNC clients with a level of service greater than that provided through merely a correspondent relationship. 
B) is a small service facility staffed by parent bank personnel that is designed to assist MNC clients of the parent bank in dealings with the bank's correspondents. 
C) is a step up from a correspondent relationship,but below a foreign branch. 
D) all of the options

Question 7

A bank agrees to buy from a customer a "three against six" FRA at the market rate for such instruments.How can the bank hedge this obligation?

Accepted Answer

A) Go long a 6-month Eurodollar deposit in the amount of the FRA at the current 6-month rate financed by going short a 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate. 
B) Go short a 6-month Eurodollar deposit in the amount of the FRA at the current 6-month rate; go long a 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate. 
C) Borrow a 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate. 
D) none of the options 
A) Go long a 6-month Eurodollar deposit in the amount of the FRA at the current 6-month rate financed by going short a 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate. 
B) Go short a 6-month Eurodollar deposit in the amount of the FRA at the current 6-month rate; go long a 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate. 
C) Borrow a 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate. 
D) none of the options

Question 8

A bank may establish a multinational operation for the reason of wholesale defensive strategy.The underlying rationale being that

Accepted Answer

A) banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign banks seeking to service the multinational's foreign subsidiaries. 
B) multinational banking operations help a bank prevent the erosion of its traveler's check,tourist,and foreign business markets from foreign bank competition. 
C) 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. 
D) multinational banks are often not subject to the same regulations as domestic banks.There may be reduced need to publish adequate financial information,lack of required deposit insurance and reserve requirements on foreign currency deposits,and the absence of territorial restrictions. 
A) banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign banks seeking to service the multinational's foreign subsidiaries. 
B) multinational banking operations help a bank prevent the erosion of its traveler's check,tourist,and foreign business markets from foreign bank competition. 
C) 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. 
D) multinational banks are often not subject to the same regulations as domestic banks.There may be reduced need to publish adequate financial information,lack of required deposit insurance and reserve requirements on foreign currency deposits,and the absence of territorial restrictions.

Question 9

Forward rate agreements can be used for speculative purposes.If one believes rates will be less than the agreement rate,

Accepted Answer

A) take a short position in a forward rate agreement. 
B) the purchase of a FRA is the suitable position. 
C) the sale of a FRA is the suitable position. 
D) take a long position in the spot market. 
A) take a short position in a forward rate agreement. 
B) the purchase of a FRA is the suitable position. 
C) the sale of a FRA is the suitable position. 
D) take a long position in the spot market.

Question 10

Since SR < AR,then

Accepted Answer

A) ABC Bank will pay XYZ Bank a cash settlement at the beginning of the 91-day FRA period. 
B) XYZ Bank will pay ABC Bank a cash settlement at the beginning of the 91-day FRA period. 
C) ABC Bank will pay XYZ Bank a cash settlement at the end of the 91-day FRA period. 
D) XYZ Bank will pay ABC Bank a cash settlement at the end of the 91-day FRA period. 
A) ABC Bank will pay XYZ Bank a cash settlement at the beginning of the 91-day FRA period. 
B) XYZ Bank will pay ABC Bank a cash settlement at the beginning of the 91-day FRA period. 
C) ABC Bank will pay XYZ Bank a cash settlement at the end of the 91-day FRA period. 
D) XYZ Bank will pay ABC Bank a cash settlement at the end of the 91-day FRA period.

Question 11

A foreign branch bank operates like a local bank,but legally

Accepted Answer

A) it is a part of the parent bank. 
B) a branch bank is subject to both the banking regulations of its home country and the country in which it operates. 
C) a branch bank is subject to only the banking regulations of its home country and not the country in which it operates. 
D) it is a part of the parent bank,and a branch bank is subject to both the banking regulations of its home country and the country in which it operates. 
A) it is a part of the parent bank. 
B) a branch bank is subject to both the banking regulations of its home country and the country in which it operates. 
C) a branch bank is subject to only the banking regulations of its home country and not the country in which it operates. 
D) it is a part of the parent bank,and a branch bank is subject to both the banking regulations of its home country and the country in which it operates.

Question 12

A bank bought a "three against six" FRA.Payment is made when?

Accepted Answer

A) At the end of 3 months 
B) At the end of 6 months 
C) At the end of 9 months 
D) none of the options 
A) At the end of 3 months 
B) At the end of 6 months 
C) At the end of 9 months 
D) none of the options

Question 13

Both subsidiary and affiliate banks

Accepted Answer

A) operate under the banking laws of the country in which they are incorporated. 
B) operate under the banking laws of the U.S. 
C) can underwrite securities,but not accept dollar-denominated deposits. 
D) operate under the banking laws of the country in which they are incorporated,as well as the banking laws of the U.S. 
A) operate under the banking laws of the country in which they are incorporated. 
B) operate under the banking laws of the U.S. 
C) can underwrite securities,but not accept dollar-denominated deposits. 
D) operate under the banking laws of the country in which they are incorporated,as well as the banking laws of the U.S.

Question 14

A bank may establish a multinational operation for the reason of low marginal costs.The underlying rationale being that

Accepted Answer

A) banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign banks seeking to service the multinational's foreign subsidiaries. 
B) multinational banking operations help a bank prevent the erosion of its traveler's check,tourist,and foreign business markets from foreign bank competition. 
C) managerial and marketing knowledge developed at home can be used abroad with low marginal costs. 
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) banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign banks seeking to service the multinational's foreign subsidiaries. 
B) multinational banking operations help a bank prevent the erosion of its traveler's check,tourist,and foreign business markets from foreign bank competition. 
C) managerial and marketing knowledge developed at home can be used abroad with low marginal costs. 
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 15

A U.S.-based multinational bank

Accepted Answer

A) would not have to provide deposit insurance and meet reserve requirements on foreign currency deposits. 
B) would have to provide deposit insurance and meet reserve requirements on foreign currency deposits. 
C) would not have to provide deposit insurance but would have to meet reserve requirements on foreign currency deposits. 
D) would have to provide deposit insurance but not meet reserve requirements on foreign currency deposits. 
A) would not have to provide deposit insurance and meet reserve requirements on foreign currency deposits. 
B) would have to provide deposit insurance and meet reserve requirements on foreign currency deposits. 
C) would not have to provide deposit insurance but would have to meet reserve requirements on foreign currency deposits. 
D) would have to provide deposit insurance but not meet reserve requirements on foreign currency deposits.

Question 16

Proceeding the Asian crisis,

Accepted Answer

A) domestic price bubbles in East Asia,particularly in real estate,were fostered by capital inflows from bankers from the G-10 countries. 
B) the liberalization of financial markets coupled with capital inflows from bankers from the G-10 countries contributed to bubbles in financial asset prices. 
C) the close interrelationships common among commercial firms and financial institutions in Asia resulted in poor investment decision making. 
D) all of the options 
A) domestic price bubbles in East Asia,particularly in real estate,were fostered by capital inflows from bankers from the G-10 countries. 
B) the liberalization of financial markets coupled with capital inflows from bankers from the G-10 countries contributed to bubbles in financial asset prices. 
C) the close interrelationships common among commercial firms and financial institutions in Asia resulted in poor investment decision making. 
D) all of the options

Question 17

LIBOR

Accepted Answer

A) is a market rate,analogous to the U.S.Federal Funds rate. 
B) is a government set rate,like the discount rate. 
C) is the rate at which banks in London will accept interbank deposits. 
D) none of the options 
A) is a market rate,analogous to the U.S.Federal Funds rate. 
B) is a government set rate,like the discount rate. 
C) is the rate at which banks in London will accept interbank deposits. 
D) none of the options

Question 18

A foreign branch bank

Accepted Answer

A) is a small service facility staffed by parent bank personnel that is designed to assist MNC clients of the parent bank in dealings with the bank's correspondents. 
B) operates like a local bank,but legally is a part of the parent bank. 
C) is subject to domestic regulation only. 
D) all of the options 
A) is a small service facility staffed by parent bank personnel that is designed to assist MNC clients of the parent bank in dealings with the bank's correspondents. 
B) operates like a local bank,but legally is a part of the parent bank. 
C) is subject to domestic regulation only. 
D) all of the options

Question 19

A bank sold a 3 × 9 FRA.Payment is made when?

Accepted Answer

A) At the end of 3 months 
B) At the end of 6 months 
C) At the end of 9 months 
D) none of the options 
A) At the end of 3 months 
B) At the end of 6 months 
C) At the end of 9 months 
D) none of the options

Question 20

In an FRA,the buyer agrees to pay the seller

Accepted Answer

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

An offshore banking center is

Correspondent bank services include

By far the most important international finance centers are

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

A representative office

A bank agrees to buy from a customer a "three against six" FRA at the market rate for such instruments.How can the bank hedge this obligation?

A bank may establish a multinational operation for the reason of wholesale defensive strategy.The underlying rationale being that

Forward rate agreements can be used for speculative purposes.If one believes rates will be less than the agreement rate,

Since SR < AR,then

A foreign branch bank operates like a local bank,but legally

A bank bought a "three against six" FRA.Payment is made when?

Both subsidiary and affiliate banks

A bank may establish a multinational operation for the reason of low marginal costs.The underlying rationale being that

A U.S.-based multinational bank

Proceeding the Asian crisis,

LIBOR

A foreign branch bank

A bank sold a 3 × 9 FRA.Payment is made when?

In an FRA,the buyer agrees to pay the seller

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

An offshore banking center is

Correspondent bank services include

By far the most important international finance centers are

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

A representative office

A bank agrees to buy from a customer a "three against six" FRA at the market rate for such instruments.How can the bank hedge this obligation?

A bank may establish a multinational operation for the reason of wholesale defensive strategy.The underlying rationale being that

Forward rate agreements can be used for speculative purposes.If one believes rates will be less than the agreement rate,

Since SR < AR,then

A foreign branch bank operates like a local bank,but legally

A bank bought a "three against six" FRA.Payment is made when?

Both subsidiary and affiliate banks

A bank may establish a multinational operation for the reason of low marginal costs.The underlying rationale being that

A U.S.-based multinational bank

Proceeding the Asian crisis,

LIBOR

A foreign branch bank

A bank sold a 3 × 9 FRA.Payment is made when?

In an FRA,the buyer agrees to pay the seller

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