Question 1

Why would a U.S.bank open a foreign branch bank?

Accepted Answer

A) Because this form of bank organization can allow a U.S.bank to provide a fuller range of services for its MNC customers than it can through a representative office. 
B) To avoid U.S.banking regulation on transactions routed through that foreign country. 
C) Because this form of organization allows the bank to service MNC clients at low cost and without the need of having bank personnel located in the country. 
D) both a and b 
A) Because this form of bank organization can allow a U.S.bank to provide a fuller range of services for its MNC customers than it can through a representative office. 
B) To avoid U.S.banking regulation on transactions routed through that foreign country. 
C) Because this form of organization allows the bank to service MNC clients at low cost and without the need of having bank personnel located in the country. 
D) both a and b

Question 2

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) both a and b 
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) both a and b

Question 3

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

Accepted Answer

A) that allows the Eurobank 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 Eurodeposits and credits. 
D) all of the above 
A) that allows the Eurobank 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 Eurodeposits and credits. 
D) all of the above

Question 4

ABC International has borrowed $4,000,000 at LIBOR plus a lending margin of .65 percent per annum on a three-month rollover basis from Barclays in London.Three month LIBOR is currently 5.5 percent,but ABC is worried about an increase in three-month LIBOR 3 months from now.What could they do to hedge?

Accepted Answer

A) Buy a 3*6 FRA in the amount of $4million. 
B) Sell a 3*6 FRA in the amount of $4million. 
C) Buy a 3*3 FRA in the amount of $4million. 
D) Buy a 3*9 FRA in the amount of $4million. 
A) Buy a 3*6 FRA in the amount of $4million. 
B) Sell a 3*6 FRA in the amount of $4million. 
C) Buy a 3*3 FRA in the amount of $4million. 
D) Buy a 3*9 FRA in the amount of $4million.

Question 5

So-called subprime mortgages were typically

Accepted Answer

A) mortgages granted to borrowers with less-than-perfect credit. 
B) backed by the full faith and credit of the U.S.government. 
C) held to maturity by the originating lender, thereby assuring that default risk was priced into the rate of return. 
D) none of the above 
A) mortgages granted to borrowers with less-than-perfect credit. 
B) backed by the full faith and credit of the U.S.government. 
C) held to maturity by the originating lender, thereby assuring that default risk was priced into the rate of return. 
D) none of the above

Question 6

Which banks cannot accept foreign deposits?

Accepted Answer

A) Domestic banks located in the U.S. 
B) Edge Act banks located in the U.S. 
C) Subsidiary banks located overseas 
D) Foreign branches located overseas 
A) Domestic banks located in the U.S. 
B) Edge Act banks located in the U.S. 
C) Subsidiary banks located overseas 
D) Foreign branches located overseas

Question 7

The payment amount under this FRA is

Accepted Answer

A) $9,985. 
B) $10,111. 
C) $60,667. 
D) $120,000. 
A) $9,985. 
B) $10,111. 
C) $60,667. 
D) $120,000.

Question 8

International banks are different from domestic banks in what way(s)?

Accepted Answer

A) International banks can arrange trade financing. 
B) International banks can arrange for foreign exchange transactions. 
C) International banks can assist their clients in hedging exchange rate risk. 
D) All of the above 
A) International banks can arrange trade financing. 
B) International banks can arrange for foreign exchange transactions. 
C) International banks can assist their clients in hedging exchange rate risk. 
D) All of the above

Question 9

Consider the balance sheets of Bank A and Bank B.Bank A is in London,Bank B is in New York.The current exchange rate is £1.00 = $2.00.Show the correct balances in each account 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

Instructors note: numerical co

Question 10

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 11

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 5.0%.Assume that three months from today the settlement rate is 5.25%.Who pays whom? How much? When? The actual number of days in the FRA is 90.

Accepted Answer

A) The bank pays $3,0084.52 at the end of 3 months 
B) The bank pays $3,0084.52 at the end of 6 months 
C) The counterparty pays $3,0084.52 at the end of 3 months 
D) The counterparty pays $3,0084.52 at the end of 6 months 
A) The bank pays $3,0084.52 at the end of 3 months 
B) The bank pays $3,0084.52 at the end of 6 months 
C) The counterparty pays $3,0084.52 at the end of 3 months 
D) The counterparty pays $3,0084.52 at the end of 6 months

Question 12

The current exchange rate is €1.00 = $1.50.Compute the correct balances in Bank A's correspondent account(s)with Bank B if a currency trader employed at Bank A buys €100,000 from a currency trader at Bank B for $150,000 using its correspondent relationship with Bank B.

Accepted Answer

A) Bank A's dollar-denominated account at B will fall by $150,000. 
B) Bank B's dollar-denominated account at A will fall by $150,000. 
C) Bank A's pound-denominated account at B will fall by €100,000. 
D) Bank B's pound-denominated account at A will rise by €100,000. 
A) Bank A's dollar-denominated account at B will fall by $150,000. 
B) Bank B's dollar-denominated account at A will fall by $150,000. 
C) Bank A's pound-denominated account at B will fall by €100,000. 
D) Bank B's pound-denominated account at A will rise by €100,000.

Question 13

One lesson from the credit crunch is that

Accepted Answer

A) in the aggregate, credit scores tend to understate the probability of default-thereby a pool of subprime mortgages is actually quite a safe investment since not every borrower defaults. 
B) moral hazard, while an issue in the market for used cars, does not seem to affect the U.S.financial system due to the effective regulatory environment. 
C) bankers seem not to scrutinize credit risk as closely when they serve only as mortgage originators and then pass it on to MBS investors rather than hold the paper themselves. 
D) none of the above 
A) in the aggregate, credit scores tend to understate the probability of default-thereby a pool of subprime mortgages is actually quite a safe investment since not every borrower defaults. 
B) moral hazard, while an issue in the market for used cars, does not seem to affect the U.S.financial system due to the effective regulatory environment. 
C) bankers seem not to scrutinize credit risk as closely when they serve only as mortgage originators and then pass it on to MBS investors rather than hold the paper themselves. 
D) none of the above

Question 14

On September 10,1990 the published prices (cents on the dollar)on Latin American bank debt was quoted as follows: $$\begin{array} { l c } 
\text { Mexico } & 43.12 \
\text { Venezuela } & 46.25 \
\text { Chile } & 70.25
\end{array}$$ Assume that the central banks of Mexico,Venezuela,and Chile redeemed their debts at 50 percent,85 percent,and 76 percent,respectively,of face value in a debt-for-equity swap.If the three countries had equal political risk,based purely on financial considerations,the cost of a $40,000,000 assembly plant investment in local currency would be ranked (lowest to highest)in dollar cost as follows:

Accepted Answer

A) Venezuela first, Mexico second, Chile third 
B) Venezuela first, Chile second, Mexico third 
C) Chile first, Venezuela second, Mexico third 
D) Mexico first, Chile second, Venezuela third 
A) Venezuela first, Mexico second, Chile third 
B) Venezuela first, Chile second, Mexico third 
C) Chile first, Venezuela second, Mexico third 
D) Mexico first, Chile second, Venezuela third

Question 15

Offshore banks

Accepted Answer

A) are frequently located on old oil drilling platforms located in international waters. 
B) are often located in "pariah" countries like North Korea and Iran. 
C) operate as branches or subsidiaries of the parent bank. 
D) none of the above 
A) are frequently located on old oil drilling platforms located in international waters. 
B) are often located in "pariah" countries like North Korea and Iran. 
C) operate as branches or subsidiaries of the parent bank. 
D) none of the above

Question 16

A bank may establish a multinational operation for the reason of transaction 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) 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 17

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 above 
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 above

Question 18

LIBOR

Accepted Answer

A) is the London Interbank Offered Rate. 
B) is the reference rate in London for Eurodollar deposits. 
C) one of several reference rates in London: there is a LIBOR for Eurodollars, Euroyen, Euro-Canadian dollars, and even euro. 
D) all of the above 
A) is the London Interbank Offered Rate. 
B) is the reference rate in London for Eurodollar deposits. 
C) one of several reference rates in London: there is a LIBOR for Eurodollars, Euroyen, Euro-Canadian dollars, and even euro. 
D) all of the above

Question 19

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 above 
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 above

Question 20

A correspondent bank relationship is established when

Accepted Answer

A) two banks maintain deposits with one another. 
B) two banks write to each other about the credit conditions of their countries. 
C) a group of banks form a syndicate to spread out the risk and cost of a large bond offering. 
D) all of the above 
A) two banks maintain deposits with one another. 
B) two banks write to each other about the credit conditions of their countries. 
C) a group of banks form a syndicate to spread out the risk and cost of a large bond offering. 
D) all of the above

Why would a U.S.bank open a foreign branch bank?

Both subsidiary and affiliate banks

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

So-called subprime mortgages were typically

Which banks cannot accept foreign deposits?

The payment amount under this FRA is

International banks are different from domestic banks in what way(s)?

A U.S.-based multinational bank

The current exchange rate is €1.00 = $1.50.Compute the correct balances in Bank A's correspondent account(s)with Bank B if a currency trader employed at Bank A buys €100,000 from a currency trader at Bank B for $150,000 using its correspondent relationship with Bank B.

One lesson from the credit crunch is that

Offshore banks

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

A representative office

LIBOR

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 correspondent bank relationship is established when

Globalization and the Multinational Firm

International Monetary System

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

Why would a U.S.bank open a foreign branch bank?

Both subsidiary and affiliate banks

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

So-called subprime mortgages were typically

Which banks cannot accept foreign deposits?

The payment amount under this FRA is

International banks are different from domestic banks in what way(s)?

A U.S.-based multinational bank

The current exchange rate is €1.00 = $1.50.Compute the correct balances in Bank A's correspondent account(s)with Bank B if a currency trader employed at Bank A buys €100,000 from a currency trader at Bank B for $150,000 using its correspondent relationship with Bank B.

One lesson from the credit crunch is that

Offshore banks

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

A representative office

LIBOR

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 correspondent bank relationship is established when

Globalization and the Multinational Firm

International Monetary System

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