Question 1

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 2

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 3

So-called subprime mortgages were typically

Accepted Answer

A) not held by the originating bank, but instead were resold for packaging into mortgage-backed securities. 
B) aggregated and then sliced into tranches each representing a different risk class: AAA, AA-BB, or unrated. 
C) both a and b 
D) None of the above 
A) not held by the originating bank, but instead were resold for packaging into mortgage-backed securities. 
B) aggregated and then sliced into tranches each representing a different risk class: AAA, AA-BB, or unrated. 
C) both a and b 
D) None of the above

Question 4

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 5

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 6

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 £50,000 from a currency trader at bank B for $100,000 using its correspondent relationship with Bank B..

Accepted Answer

Instructors note: numerical co

Question 7

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 8

Correspondent bank services include

Accepted Answer

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

Question 9

A DECREASE in the implied three-month LIBOR yield causes Eurodollar futures price

Accepted Answer

A) to increase. 
B) to decrease. 
C) there is no direct or indirect relationship. 
D) none of the above 
A) to increase. 
B) to decrease. 
C) there is no direct or indirect relationship. 
D) none of the above

Question 10

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 11

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 above 
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 above

Question 12

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 13

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 above 
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 above

Question 14

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 15

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 county. 
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 above 
A) a country whose banking system is organized to permit external accounts beyond the normal economic activity of the county. 
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 above

Question 16

In reference to capital requirements,

Accepted Answer

A) bank capital adequacy refers to the amount of equity capital a bank holds as reserves against impaired loans. 
B) bank capital adequacy refers to the amount of debt capital a bank holds as reserves against risky assets to reduce the probability of bank failure. 
C) most bank regulators agree with the doctrine of "less is more". 
D) none of the above 
A) bank capital adequacy refers to the amount of equity capital a bank holds as reserves against impaired loans. 
B) bank capital adequacy refers to the amount of debt capital a bank holds as reserves against risky assets to reduce the probability of bank failure. 
C) most bank regulators agree with the doctrine of "less is more". 
D) none of the above

Question 17

ABC International can borrow $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. 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 18

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 19

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 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 20

A bank may establish a multinational operation for the reason of risk reduction. 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) 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. 
C) 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. 
D) multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and foreign business markets from foreign bank competition. 
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) 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. 
C) 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. 
D) multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and foreign business markets from foreign bank competition.

One lesson from the credit crunch is that

So-called subprime mortgages were typically

Since SR < AR, then

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

Edge Act banks

Correspondent bank services include

A DECREASE in the implied three-month LIBOR yield causes Eurodollar futures price

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.

Proceeding the Asian crisis,

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

The Eurocurrency market

An Offshore banking center is

In reference to capital requirements,

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

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

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

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

One lesson from the credit crunch is that

So-called subprime mortgages were typically

Since SR < AR, then

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

Edge Act banks

Correspondent bank services include

A DECREASE in the implied three-month LIBOR yield causes Eurodollar futures price

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.

Proceeding the Asian crisis,

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

The Eurocurrency market

An Offshore banking center is

In reference to capital requirements,

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

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

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

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