Question 1

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 2

The major legislation controlling the operation of foreign banks in the U.S.

Accepted Answer

A) specifies that foreign branch banks operating in the U.S. must comply with U.S. banking regulations just like U.S. banks. 
B) specifies that foreign branch banks operating in the U.S. must comply with their country-of-origin banking regulations just like U.S. banks operating abroad. 
C) specifies that the "shell" branches are illegal for U.S. and foreign banks. 
D) both a and c 
A) specifies that foreign branch banks operating in the U.S. must comply with U.S. banking regulations just like U.S. banks. 
B) specifies that foreign branch banks operating in the U.S. must comply with their country-of-origin banking regulations just like U.S. banks operating abroad. 
C) specifies that the "shell" branches are illegal for U.S. and foreign banks. 
D) both a and c

Question 3

Eurocredits

Accepted Answer

A) are credit cards that work in the euro zone. 
B) short- to medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign governments, nonprime banks, or international organizations. 
C) short- to medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign governments, nonprime banks, or international organizations. 
D) none of the above 
A) are credit cards that work in the euro zone. 
B) short- to medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign governments, nonprime banks, or international organizations. 
C) short- to medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign governments, nonprime banks, or international organizations. 
D) none of the above

Question 4

The most widely used futures contract for hedging short-term U.S. dollar interest rate risk is

Accepted Answer

A) the Eurodollar contract. 
B) the Euroyen contract. 
C) the EURIBOR contract. 
D) none of the above 
A) the Eurodollar contract. 
B) the Euroyen contract. 
C) the EURIBOR contract. 
D) none of the above

Question 5

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 6

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 7

Banking tends to be

Accepted Answer

A) a low marginal cost industry. 
B) a high marginal cost industry. 
C) a constant average cost industry. 
D) none of the above 
A) a low marginal cost industry. 
B) a high marginal cost industry. 
C) a constant average cost industry. 
D) none of the above

Question 8

Edge Act banks are so-called becauseE. 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.

Accepted Answer

A) the 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 
A) the 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

Question 9

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 10

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 11

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 12

Since international banks have the facilities to trade foreign exchange,

Accepted Answer

A) they generally also make a market as a dealer in foreign exchange. 
B) they generally also make a market as a dealer in foreign exchange derivatives. 
C) they generally also trade foreign exchange products for their own account. 
D) none of the above 
A) they generally also make a market as a dealer in foreign exchange. 
B) they generally also make a market as a dealer in foreign exchange derivatives. 
C) they generally also trade foreign exchange products for their own account. 
D) none of the above

Question 13

You entered in to a 3 × 6 forward rate agreement that obliged you to borrow $10,000,000 at 3%. Suppose at the maturity of the FRA, the correct interest rate is 3½%. Clearly you are better off since you have the ability to borrow $10,000,000 for 3 months at 3% instead of 3½%. What is the payoff at the maturity of the FRA?

Accepted Answer

A) Net payment of $12,391.57 to you 
B) Net payment of $12,500 to you 
C) Net payment of $50,000 to you 
D) Net payment of $48,309.18 to you 
A) Net payment of $12,391.57 to you 
B) Net payment of $12,500 to you 
C) Net payment of $50,000 to you 
D) Net payment of $48,309.18 to you

Question 14

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

Question 15

Which of the following are reasons why a bank may establish a multinational operation?

Accepted Answer

A) Low marginal and transaction costs 
B) Home nation information services, and prestige 
C) Growth and risk reduction 
D) All of the above 
A) Low marginal and transaction costs 
B) Home nation information services, and prestige 
C) Growth and risk reduction 
D) All of the above

Question 16

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 17

A bank may establish a multinational operation for the reason of retail 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 18

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 19

The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's correspondent account(s) with bank B 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

A)  Bank A's dollar-denominated account at B will fall by $90,000. 
B)  Bank B's dollar-denominated account at A will rise by $90,000. 
C)  Bank A's pound-denominated account at B will rise by £45,000. 
D)  Bank B's pound-denominated account at A will fall by £45,000. 
E)  All of the above are correct 
A)  Bank A's dollar-denominated account at B will fall by $90,000. 
B)  Bank B's dollar-denominated account at A will rise by $90,000. 
C)  Bank A's pound-denominated account at B will rise by £45,000. 
D)  Bank B's pound-denominated account at A will fall by £45,000. 
E)  All of the above are correct

Question 20

Major distinguishing features between domestic banks and international banks are

Accepted Answer

A) the types of deposits they accept. 
B) the types of loans and investments they make. 
C) membership in loan syndicates. 
D) all of the above 
A) the types of deposits they accept. 
B) the types of loans and investments they make. 
C) membership in loan syndicates. 
D) all of the above

A U.S.-based multinational bank

The major legislation controlling the operation of foreign banks in the U.S.

Eurocredits

The most widely used futures contract for hedging short-term U.S. dollar interest rate risk is

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?

Banking tends to be

Edge Act banks are so-called becauseE. 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.

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.

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

Since international banks have the facilities to trade foreign exchange,

A correspondent bank relationship is established when

Which of the following are reasons why a bank may establish a multinational operation?

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

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

Which banks cannot accept foreign deposits?

The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's correspondent account(s) with bank B 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.

Major distinguishing features between domestic banks and international banks are

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

A U.S.-based multinational bank

The major legislation controlling the operation of foreign banks in the U.S.

Eurocredits

The most widely used futures contract for hedging short-term U.S. dollar interest rate risk is

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?

Banking tends to be

Edge Act banks are so-called becauseE. 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.

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.

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

Since international banks have the facilities to trade foreign exchange,

A correspondent bank relationship is established when

Which of the following are reasons why a bank may establish a multinational operation?

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

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

Which banks cannot accept foreign deposits?

The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's correspondent account(s) with bank B 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.

Major distinguishing features between domestic banks and international banks are

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