Question 1

The primary activities of offshore banks

Accepted Answer

A) include money laundering where banking secrecy laws are strict. 
B) is to seek deposits and grant loans in currencies other than the currency of the host government. 
C) involve check clearing of large bags of checks. 
D) none of the above 
A) include money laundering where banking secrecy laws are strict. 
B) is to seek deposits and grant loans in currencies other than the currency of the host government. 
C) involve check clearing of large bags of checks. 
D) none of the above

Question 2

A domestic bank that becomes a multinational bank to prevent erosion by foreign banks of the traveler's checks,touring,and foreign business market

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 above 
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 above

Question 3

One enduring truth of banking is that

Accepted Answer

A) for some reason, bankers always seem willing to lend huge amounts to borrowers with a limited potential to repay. 
B) credit ratings work, but only in the aggregate. 
C) when liquidity dries up, bankers are typically able to ride out the storm by buying up other investors debt at pennies on the dollar, holding it until the crisis is over, and then selling at a huge profit. 
D) none of the above 
A) for some reason, bankers always seem willing to lend huge amounts to borrowers with a limited potential to repay. 
B) credit ratings work, but only in the aggregate. 
C) when liquidity dries up, bankers are typically able to ride out the storm by buying up other investors debt at pennies on the dollar, holding it until the crisis is over, and then selling at a huge profit. 
D) none of the above

Question 4

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 5

Many lessons should be learned from the credit crunch.

Accepted Answer

A) One lesson is that credit rating agencies need to refine their models for evaluating esoteric credit risk created in MBS and CDOs. 
B) One lesson is that borrowers must be more wary of putting complete faith in credit ratings. 
C) One lesson is that 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) All of the above 
A) One lesson is that credit rating agencies need to refine their models for evaluating esoteric credit risk created in MBS and CDOs. 
B) One lesson is that borrowers must be more wary of putting complete faith in credit ratings. 
C) One lesson is that 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) All of the above

Question 6

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 above 
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 above

Question 7

Foreign banks that establish subsidiary and affiliate banks in the U.S.

Accepted Answer

A) tend to locate in states that are major centers of financial activity. 
B) tend to locate in the highly populous states of New York, California, Illinois, Florida, Georgia, and Texas. 
C) can underwrite securities, but not accept dollar-denominated deposits. 
D) both a and b 
A) tend to locate in states that are major centers of financial activity. 
B) tend to locate in the highly populous states of New York, California, Illinois, Florida, Georgia, and Texas. 
C) can underwrite securities, but not accept dollar-denominated deposits. 
D) both a and b

Question 8

The models that the credit rating firms (e.g.Moody's,S&P,and Fitch)used to evaluate the risk of the various tranches of MBS debt and thereby assign a credit rating (e.g.AAA,AA-BB,or unrated)were

Accepted Answer

A) right on target, but only in the aggregate. 
B) poorly specified. 
C) superfluous, since the CDOs turned out to be backed by the full faith and credit of the U.S.Treasury. 
D) supermodels, and while as a group they were not so good at evaluating credit risk, they made up for it with their good looks and impeccable fashion sense. 
A) right on target, but only in the aggregate. 
B) poorly specified. 
C) superfluous, since the CDOs turned out to be backed by the full faith and credit of the U.S.Treasury. 
D) supermodels, and while as a group they were not so good at evaluating credit risk, they made up for it with their good looks and impeccable fashion sense.

Question 9

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) both a and b 
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) both a and b

Question 10

Eurocredits feature rollover pricing.

Accepted Answer

A) Rollover pricing was created on Eurocredits so that Eurobanks do not end up paying more on Eurocurrency time deposits than they earn from the loans. 
B) Because of the rollover pricing feature, a Eurocredit may be viewed as a series of shorter-term loans, where at the end of each time period (generally three or six months), the loan is rolled over and the base lending rate is repriced to current LIBOR over the next time interval of the loan. 
C) The lending rate on these Eurocredits is stated as LIBOR + X percent, where X is the lending margin charged depending upon the creditworthiness of the borrower.LIBOR is reset according to a set schedule. 
D) All of the above are true 
A) Rollover pricing was created on Eurocredits so that Eurobanks do not end up paying more on Eurocurrency time deposits than they earn from the loans. 
B) Because of the rollover pricing feature, a Eurocredit may be viewed as a series of shorter-term loans, where at the end of each time period (generally three or six months), the loan is rolled over and the base lending rate is repriced to current LIBOR over the next time interval of the loan. 
C) The lending rate on these Eurocredits is stated as LIBOR + X percent, where X is the lending margin charged depending upon the creditworthiness of the borrower.LIBOR is reset according to a set schedule. 
D) All of the above are true

Question 11

Teltrex International can borrow $3,000,000 at LIBOR plus a lending margin of .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 12

Which of the following are principles of sound banking behavior?

Accepted Answer

A) Avoid an undue concentration of loans to single activities 
B) Control mismatches between assets and liabilities 
C) Expand cautiously into unfamiliar activities 
D) All of the above 
A) Avoid an undue concentration of loans to single activities 
B) Control mismatches between assets and liabilities 
C) Expand cautiously into unfamiliar activities 
D) All of the above

Question 13

You are a bank and your customer asks you to quote an agreed-upon rate for a 3*6 FRA.You observe the following rates: $$\begin{array} { c | l } 
\text { Maturity } & \text { Rate } \
\hline 3 \text { months (90 actual days) } & 3 \% \
6 \text { months (180 actual days) } & 4 \% \
9 \text { months } ( 270 \text { actual days } ) & 5 \%
\end{array}$$ What rate should you quote?

Accepted Answer

A) 5.96% 
B) 4.96% 
C) 2.48% 
D) None of the above 
A) 5.96% 
B) 4.96% 
C) 2.48% 
D) None of the above

Question 14

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 15

Why would a U.S.bank open a foreign branch bank instead of a foreign chartered subsidiary?

Accepted Answer

A) This form of bank organization allows the bank to be able to extend a larger loan to a customer than a locally chartered subsidiary bank of the parent. 
B) To slow down check clearing and maximize the bank's float. 
C) To avoid U.S.banking regulation. 
D) Both a and c 
A) This form of bank organization allows the bank to be able to extend a larger loan to a customer than a locally chartered subsidiary bank of the parent. 
B) To slow down check clearing and maximize the bank's float. 
C) To avoid U.S.banking regulation. 
D) Both a and c

Question 16

An Edge Act bank is typically located in a state different from that of its parent in order to get around the prohibition on interstate branch banking.

Accepted Answer

A) True 
 B)False

Question 17

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 above 
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 above

Question 18

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) both a and b 
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) both a and b

Question 19

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 20

Edge Act banks are so-called because

Accepted Answer

A) they 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. 
B) Senator Walter 
C) they can only be chartered in states that are on the borders of the United States-on the "edge" of the map. 
D) none of the above 
E) Edge of New Jersey sponsored the 1919 amendment to Section 25 of the Federal Reserve Act to allow U.S.banks to be competitive with the services foreign banks could supply their customers. 
A) they 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. 
B) Senator Walter 
C) they can only be chartered in states that are on the borders of the United States-on the "edge" of the map. 
D) none of the above 
E) Edge of New Jersey sponsored the 1919 amendment to Section 25 of the Federal Reserve Act to allow U.S.banks to be competitive with the services foreign banks could supply their customers.

The primary activities of offshore banks

A domestic bank that becomes a multinational bank to prevent erosion by foreign banks of the traveler's checks,touring,and foreign business market

One enduring truth of banking is that

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

Many lessons should be learned from the credit crunch.

In the wholesale money market,denominations

Foreign banks that establish subsidiary and affiliate banks in the U.S.

The models that the credit rating firms (e.g.Moody's,S&P,and Fitch)used to evaluate the risk of the various tranches of MBS debt and thereby assign a credit rating (e.g.AAA,AA-BB,or unrated)were

Edge Act banks

Eurocredits feature rollover pricing.

Which of the following are principles of sound banking behavior?

You are a bank and your customer asks you to quote an agreed-upon rate for a 3*6 FRA.You observe the following rates: Maturity Rate 3 months (90 actual days) 3\% 6 months (180 actual days) 4\% 9 months (270 actual days ) 5\% What rate should you quote?

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

Why would a U.S.bank open a foreign branch bank instead of a foreign chartered subsidiary?

An Edge Act bank is typically located in a state different from that of its parent in order to get around the prohibition on interstate branch banking.

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

U.S.banks that establish subsidiary and affiliate banks

Since SR < AR,then

Edge Act banks are so-called because

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

The primary activities of offshore banks

A domestic bank that becomes a multinational bank to prevent erosion by foreign banks of the traveler's checks,touring,and foreign business market

One enduring truth of banking is that

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

Many lessons should be learned from the credit crunch.

In the wholesale money market,denominations

Foreign banks that establish subsidiary and affiliate banks in the U.S.

The models that the credit rating firms (e.g.Moody's,S&P,and Fitch)used to evaluate the risk of the various tranches of MBS debt and thereby assign a credit rating (e.g.AAA,AA-BB,or unrated)were

Edge Act banks

Eurocredits feature rollover pricing.

Which of the following are principles of sound banking behavior?

You are a bank and your customer asks you to quote an agreed-upon rate for a 3*6 FRA.You observe the following rates: Maturity Rate 3 months (90 actual days) 3\% 6 months (180 actual days) 4\% 9 months (270 actual days ) 5\% What rate should you quote?

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

Why would a U.S.bank open a foreign branch bank instead of a foreign chartered subsidiary?

An Edge Act bank is typically located in a state different from that of its parent in order to get around the prohibition on interstate branch banking.

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

U.S.banks that establish subsidiary and affiliate banks

Since SR < AR,then

Edge Act banks are so-called because

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