Deck 18: Global Financial Services

Question 1

Many small and large banks in the U.S. use correspondent banks to handle their international banking activity.

Answer 1

True

Question 2

Foreign banks are not permitted to operate "branches" of their banks in the United States.

Answer 2

False

Question 3

The International Banking Act of 1978 permits domestic banks to acquire foreign banks and financial organizations.

Answer 3

True

Question 4

Edge Act offices refer to offices of foreign banks located in major cities to conduct some of the banking activities in accordance with the International Banking Act.

Question 5

The first foreign bank to establish operations in the United States in 1818 was the bank of Toronto.

Question 6

Foreign owned "investment companies" are the same thing as an investment company (mutual fund) in the U.S., and are regulated by both the FDIC and the SEC.

Question 7

With respect to international debts, illiquid countries refer to those without oil reserves.

Question 8

The Brady Initiative called for agreements between creditor and debtor nations to deal with cold war repatriations.

Question 9

The direct foreign exchange rate is the number of home currency units that can be exchanged for one unit of a foreign currency.

Question 10

If the indirect exchange rate for the French franc increased from 5.57 FF to 5.80 FF, the franc depreciated against the dollar.

Question 11

A cross-rate two foreign currencies can be exchanged in terms o dollars or some other currency.

Question 12

Most FX transactions take place in the spot market

Question 13

Contracts in the forward market are standardized for ease of trading.

Question 14

The futures market provides future price information about standardized commodity contracts.

Question 15

Trading in both FX futures and forward contracts are conducted on commodities exchanges.

Question 16

In futures trading, margin refers to a security deposit.

Question 17

The principal difference between American and European options is where they are traded.

Question 18

Options give the holder the right to exercise, whereas future contracts are "obligations" to buy or sell.

Question 19

Arbitrage refers to the simultaneous purchase and sale of assets in order to benefit from price changes in the commodity.

Question 20

Outward arbitrage occurs in the U.S. when banks find it lower cost to borrow overseas.

Question 21

Interest rate parity is when under normal market conditions, investors should not be able to make arbitrage profits because premiums or discounts are exactly offset by adjusted interest rate differentials.

Question 22

Credit risk in an FX transaction may be due to the failure of a counterparty to meet contractual obligations.

Question 23

Country risk is due to war and other factors that may impede the recovery of debt or equity investments in that country.

Question 24

The syndication process of foreign lending is usually handled by investment bankers such as Merrill Lynch.

Question 25

An import letter of credit is issued by a domestic bank in favor of a beneficiary in a foreign country.

Question 26

The term "accepted" on a bankers acceptance indicates an irrevocable obligation of the accepting bank.

Question 27

Documentary collections means that payment will be made upon presentation of the correct documents such as bills of lading.

Question 28

Which of the following is NOT one of the principal activities involved in international banking?

A) making foreign loans
B) dealing in foreign exchange
C) dealing in standby letters of credit
D) dealing in commercial letters of credit

Question 29

Most banks in the United States do not deal in international banking on a regular basis. When they do require such services, they frequently use

A) foreign branches
B) correspondent banks
C) Edge Act offices
D) foreign affiliates

Question 30

Banks that do not have international departments frequently use the services of ____ to serve their customers' intentional needs.

A) Federal Reserve wire transfer
B) major investment banking firms
C) international syndicates
D) correspondent banks

Question 31

Banks may establish foreign branches with the approval of the _____.

A) BIS
B) U.N.
C) Federal Reserve
D) OCC

Question 32

The Edge Act permits banks to have subsidiary corporations that _____.

A) provide a means of financing international trade
B) serve as branch offices
C) gather deposits and make foreign loans
D) none of the above

Question 33

In international banking, a representative office may

A) book loans
B) take deposits
C) provide investment banking services
D) develop business

Question 34

The network of banks which buy and sell foreign currencies is known as the:

A) foreign exchange market
B) foreign bank market
C) interbank market
D) interchange market

Question 35

In quoting foreign exchange rates, the _____is amount of a foreign currency equivalent to $1.

A) direct rate
B) direct ratio
C) indirect rate
D) indirect ratio

Question 36

If the indirect rate for marks is 3 and the direct rate for pound is $0.50, then the crossrate for marks per pound is:

A) 1.50
B) 6.00
C) 3.00
D) 0.50

Question 37

The date on which the buyer and seller of foreign exchange agree to conduct a transaction is known as the:

A) value date
B) exchange date
C) contract date
D) promised date

Question 38

Spot market transactions in the foreign exchange market have value dates that are:

A) the same as the transaction origination date
B) within 1 day of the transaction origination date
C) within 2 days of the transaction origination date
D) within 5 days of the transaction origination date

Question 39

In the futures market transferable legal agreements to make or take delivery of a certain commodity at a known price are based on ______ contracts.

A) commercial
B) noncommercial
C) standardized
D) all of the above

Question 40

______ is a cash market transaction in which delivery of the commodity is deferred until after the contract has been made.

A) futures contract
B) commercial contract
C) options contract
D) forward contract

Question 41

When the forward rates for a currency exceed the spot rate, the currency is trading at a _____ in the forward market.

A) surplus
B) discount
C) premium
D) positive gap

Question 42

In forward transactions:

A) funds exchange hands when the transaction occurs
B) funds exchange hands on the maturity date
C) funds exchange hands on both the transaction date and the maturity date
D) funds never exchange hands

Question 43

The formula for the annual forward rate is:

A) $\frac{(F-S) \times 100}{S} \times \frac{365}{n}$
B) ( $\frac{(F-S) \times 100}{F} \times \frac{365}{n}$
C) $\frac{(\mathrm{S}-\mathrm{F}) \times 100}{\mathrm{~S}} \times \frac{365}{\mathrm{n}}$
D) $\frac{(\mathrm{S}-\mathrm{F}) \times 100}{\mathrm{~F}} \times \frac{365}{\mathrm{n}}$