Question 1

The LIBOR rate for euro

Accepted Answer

A) is EURIBOR. 
B) is a government set rate. 
C) is the rate at which Interbank deposits of euro are offered by one prime bank to another in the euro zone. 
D) both a and c 
A) is EURIBOR. 
B) is a government set rate. 
C) is the rate at which Interbank deposits of euro are offered by one prime bank to another in the euro zone. 
D) both a and c D

Question 2

Consider the position of a treasurer of a MNC, who has $20,000,000 that his firm will not need for the next 90 days.

Accepted Answer

A) He could borrow the $20,000,000 in the money market. 
B) He could take a long position in the Eurodollar futures contract. 
C) He could take a short position in the Eurodollar futures contract. 
D) None of the above 
A) He could borrow the $20,000,000 in the money market. 
B) He could take a long position in the Eurodollar futures contract. 
C) He could take a short position in the Eurodollar futures contract. 
D) None of the above B

Question 3

Consider the balance sheets of Bank A and Bank B. Bank A is in Milan, Bank B is in New York. The current exchange rate is €1.00 = $1.25. Show the correct balances in each account if a currency trader employed at Bank A buys €100,000 from a currency trader at bank B for $125,000 using its correspondent relationship with Bank B.

Accepted Answer

Instructors note: numerical correspondent banking problems assume a background in accounting. This material is also covered in chapter 5.

Question 4

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 5

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 6

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

Question 7

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:   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 8

Edge Act banks are not prohibited from owning equity in business corporations, unlike domestic commercial banks.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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) both a and b 
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) both a and b

Question 11

Approximately ___ of wholesale Eurobank external liabilities come from fixed time deposits, the remainder from Negotiable Certificates of Deposit.

Accepted Answer

A) 50% 
B) 75% 
C) 90% 
D) None of the above 
A) 50% 
B) 75% 
C) 90% 
D) None of the above

Question 12

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 13

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 14

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 15

A bank may establish a multinational operation for the reason of regulatory advantage. 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 16

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 17

Banks that both perform traditional commercial banking functions and engage in investment banking activities are often called

Accepted Answer

A) international service banks. 
B) investment banks. 
C) commercial banks. 
D) merchant banks. 
A) international service banks. 
B) investment banks. 
C) commercial banks. 
D) merchant banks.

Question 18

Who benefits from debt-for-equity swaps?

Accepted Answer

A) The creditor bank 
B) The LDC 
C) The market maker 
D) All of the above 
A) The creditor bank 
B) The LDC 
C) The market maker 
D) All of the above

Question 19

You are a bank and your customer asks you to quote an agreed-upon rate for a 3 × 9 FRA. You observe the following rates.   What rate should you quote?

Accepted Answer

A) 5.96% 
B) 4.96% 
C) 1.94% 
D) None of the above 
A) 5.96% 
B) 4.96% 
C) 1.94% 
D) None of the above

Question 20

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

The LIBOR rate for euro

Consider the position of a treasurer of a MNC, who has $20,000,000 that his firm will not need for the next 90 days.

Eurocredits feature rollover pricing.

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

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

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: What rate should you quote?

Edge Act banks are not prohibited from owning equity in business corporations, unlike domestic commercial banks.

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

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

Approximately ___ of wholesale Eurobank external liabilities come from fixed time deposits, the remainder from Negotiable Certificates of Deposit.

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

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

So-called subprime mortgages were typically

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

Which of the following are principles of sound banking behavior?

Banks that both perform traditional commercial banking functions and engage in investment banking activities are often called

Who benefits from debt-for-equity swaps?

You are a bank and your customer asks you to quote an agreed-upon rate for a 3 × 9 FRA. You observe the following rates. What rate should you quote?

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

The LIBOR rate for euro

Consider the position of a treasurer of a MNC, who has $20,000,000 that his firm will not need for the next 90 days.

Eurocredits feature rollover pricing.

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

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

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: What rate should you quote?

Edge Act banks are not prohibited from owning equity in business corporations, unlike domestic commercial banks.

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

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

Approximately ___ of wholesale Eurobank external liabilities come from fixed time deposits, the remainder from Negotiable Certificates of Deposit.

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

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

So-called subprime mortgages were typically

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

Which of the following are principles of sound banking behavior?

Banks that both perform traditional commercial banking functions and engage in investment banking activities are often called

Who benefits from debt-for-equity swaps?

You are a bank and your customer asks you to quote an agreed-upon rate for a 3 × 9 FRA. You observe the following rates. What rate should you quote?

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