Deck 9: International Financial Markets

Question 1

The absence of government regulation in the Eurobond market ________.

A) substantially reduces the cost of issuing a bond
B) lowers the risk level of the bond
C) makes Eurobonds less popular than foreign bonds
D) exists because of the difficulty of regulating a multi-country market

Answer 1

A

Question 2

Bonds sold outside the borrower's country and denominated in the currency of the country in which they are sold are called ________.

A) municipal bonds
B) foreign bonds
C) Eurobonds
D) domestic bonds

Answer 2

B

Question 3

Increased regulation of national capital markets has been instrumental in the slowing down the expansion of the international capital market.

Answer 3

True

Question 4

Which of the following is a major purpose of the international capital market?

A) to reduce entrepreneurial initiatives
B) to increase the cost of borrowing
C) to reduce risk for lenders
D) to reduce the money supply for borrowers

Question 5

Which of the following is a debt instrument that specifies the timing of principal and interest payments?

A) stock
B) bond
C) share
D) equity

Question 6

The ease with which bondholders and shareholders may convert their investments into cash is called ________.

A) barter
B) clearing
C) countertrade
D) liquidity

Question 7

Foreign bonds issued in the U.S.and denominated in USD are called ________.

A) bulldog bonds
B) Yankee bonds
C) samurai bonds
D) dragon bonds

Question 8

An expanded money supply ________.

A) reduces the cost of borrowing
B) increases interest rates
C) makes it difficult for financial institutions to lend money
D) diminishes entrepreneurial initiatives in a country

Question 9

Investors increase risk by holding international securities whose prices move independently.

Question 10

With the help of microfinance,low-income entrepreneurs can borrow money at competitive rates without having to put anything up as collateral.

Question 11

The international bond market consists of all bonds sold by issuing companies,governments,or other organizations ________.

A) within their own countries
B) outside their own countries
C) within developing nations
D) within developed nations

Question 12

Company debt normally takes the form of ________,and it is an asset that can be traded anywhere at any time.

A) global bonds
B) equity
C) stocks
D) bank loans

Question 13

The unbundling and repackaging of hard-to-trade financial assets into more liquid,negotiable,and marketable financial instruments is called ________.

A) currency hedging
B) commercialization
C) currency arbitrage
D) securitization

Question 14

Securitization is the unbundling and repackaging of hard-to-trade financial assets into liquid financial instruments.

Question 15

The stock market is also known as the ________.

A) capital market
B) foreign-exchange market
C) bond market
D) equity-capital market

Question 16

An excess money supply creates a borrower's market,forcing interest rates up and the cost of borrowing down.

Question 17

One of the major forces responsible for the rapid growth rate of the international capital market is ________.

A) economic nationalism
B) information technology
C) currency control
D) extensive regulation

Question 18

Liquidity refers to the ease with which bondholders and shareholders may convert their investments to cash.

Question 19

Eurobonds are popular because ________.

A) they are less risky than traditional bonds
B) they are always denominated in euros
C) governments of nations in which they are sold do not regulate them
D) European companies are considered very stable

Question 20

________ refers to shares of ownership in a company's assets that give shareholders a claim on the company's future cash flows.

A) Stock
B) A bond
C) Debt
D) A draft

Question 21

Why is London most likely the top market for trading foreign exchange?

A) The British pound is the world's top trading currency.
B) Most multinational firms are headquartered in London.
C) London is uniquely positioned geographically in terms of time zones.
D) British traders have always been the most sophisticated in the world.

Question 22

An offshore financial center is usually characterized by ________.

A) extensive regulations
B) economic and political instability
C) excellent telecommunications
D) high taxes

Question 23

Which of the following factors is responsible for growth in the international equity market?

A) advent of cybermarkets
B) spread of countertrade
C) centrally planned economies
D) government partnerships

Question 24

Booking centers are usually located on small territories with high taxes and/or secrecy laws.

Question 25

British pounds of a British trading company that are deposited in a U.S.bank are called ________.

A) Eurodollars
B) U.S. dollars
C) Europounds
D) Pounds

Question 26

Describe the purposes of the international capital market.What factors account for its rapid growth?

Question 27

Which of the following is NOT one of the top four locations for trading foreign exchange?

A) London
B) New York
C) Tokyo
D) Hong Kong

Question 28

Scenario: ABC Software
ABC Software is a producer of educational software for children below the age of twelve. The company has operations in Switzerland and would like to expand its foreign operations with a new facility in China.
The company's financial advisors recommend that ABC Software conduct most of its business in a vehicle currency.Which of the following is true of vehicle currencies?

A) A vehicle currency is a contract that requires the exchange of an agreed-upon amount of a currency on an agreed-upon date at a specific exchange rate.
B) The U.S. dollar, Australian dollar, Japanese yen, and British pound are all examples of vehicle currencies.
C) The U.S. dollar became a vehicle currency after World War II when all of the world's major currencies were tied indirectly to the dollar because it was the most stable currency.
D) The Chinese yuan is expected to become a vehicle currency in the near future as China's position in world trade continues to grow.

Question 29

Issuing bonds internationally is an increasingly popular way to obtain needed funding.

Question 30

Booking centers are typically home to offshore branches of domestic banks that use them merely as bookkeeping facilities to record tax and currency-exchange information.

Question 31

________ are usually located on small island nations or territories with favorable tax and/or secrecy laws.

A) Cybermarkets
B) Over-the-counter markets
C) Booking centers
D) Operational centers

Question 32

An offshore financial center is a territory whose financial sector features very few regulations and few,if any,taxes.

Question 33

A bond issue floated by a U.S.company in dollars in London,Luxembourg,and Switzerland by a syndication of bonds is an example of a ________.

A) global bond
B) domestic bond
C) Eurobond
D) foreign bond

Question 34

Which of the following terms refers to a stock market with no central geographic location?

A) cybermarket
B) foreign exchange market
C) capital market
D) international bond market

Question 35

Rates that the world's largest banks charge one another for loans are called ________.

A) interbank interest rates
B) London Interbank Bid Rates
C) exchange rates
D) official bank rates

Question 36

A currency used as an intermediary to convert funds between two other currencies in the foreign exchange market is called a ________.

A) local currency
B) vehicle currency
C) community currency
D) private currency

Question 37

Explain the role of equity in a national capital market.What factors are responsible for the growth of the international equity market?

Question 38

Which of the following represents a country or territory whose financial sector features very few regulations and few,if any,taxes?

A) offshore financial center
B) interbank market
C) international financial services district
D) Eurocurrency market

Question 39

The market consisting of all the world's currencies that are banked outside their countries of origin is called the ________.

A) foreign exchange market
B) interbank market
C) Eurocurrency market
D) offshore financial center

Question 40

The world's three most important financial centers are ________.

A) Zurich, Paris, and Washington
B) China, Brazil, and Mexico
C) Tokyo, London, and New York
D) Dubai, Beijing, and Germany

Question 41

A Eurocurrency refers to a currency on deposit outside its country of issue.

Question 42

What is the foreign exchange market? Explain why investors use this market.

Question 43

In the interbank market,the process of aggregating the currencies that one bank owes another and then carrying out that transaction is called ________.

A) swapping
B) dumping
C) hedging
D) clearing

Question 44

The rate at which one currency is expressed in relation to the currency of another country is called the ________.

A) exchange rate
B) interbank interest rate
C) official cash rate
D) prime rate

Question 45

What is an offshore financial center? Differentiate between an operational center and a booking center,providing examples for each.

Question 46

The world's largest banks exchange currencies at spot and forward rates in the ________.

A) International Finance Corporation
B) Eurocurrency market
C) Interbank market
D) World Bank

Question 47

The ________ is the currency that dominates the foreign exchange market.

A) Japanese yen
B) British pound
C) U.S. dollar
D) Australian dollar

Question 48

How does the international capital market reduce the cost of money for borrowers? What are the two components for every quoted exchange rate?

Question 49

Briefly describe any two of the three main components of the international capital market.

Question 50

Currency arbitrage is the instantaneous purchase and sale of a currency in different markets for profit.

Question 51

Scenario: ABC Software
ABC Software is a producer of educational software for children below the age of twelve. The company has operations in Switzerland and would like to expand its foreign operations with a new facility in China.
Foreign bonds issued and traded in Asia outside Japan and normally denominated in dollars are called ________.

A) bulldog bonds
B) Yankee bonds
C) samurai bonds
D) dragon bonds

Question 52

What is the role of debt in national capital markets,and what form does company debt normally take? Describe the different types of international bonds.

Question 53

The forces of supply and demand play no role in determining rates of exchange and currency prices.

Question 54

The market in which currencies are bought and sold and their prices determined is called the ________.

A) Eurocurrency market
B) international capital market
C) international bond market
D) foreign exchange market

Question 55

Banks in the interbank market ________.

A) provide long-term loans to small-sized and medium-sized companies
B) provide long-term loans to large companies
C) offer advice on trading strategies
D) exchange currencies exclusively at spot rates

Question 56

Companies use interest arbitrage to find better interest rates abroad than those that are available in their home countries.

Question 57

A(n)________ is a system that allocates financial resources in the form of debt and equity according to their most efficient uses.

A) international equity market
B) forward market
C) capital market
D) eurocurrency market

Question 58

________ refers to the most commonly quoted interest rate that London banks charge other large banks that borrow Eurocurrency.

A) London Interbank Offer Rate (LIBOR)
B) London Interbank Bid Rate (LIBID)
C) Spot rate
D) Cross rate

Question 59

The London Interbank Bid Rate (LIBID)is the interest rate offered by London banks to large investors for Eurocurrency deposits.

Question 60

The spread of nationalization encourages the growth of the international equity market.

Question 61

The purchase or sale of a currency with the expectation that its value will change and generate a profit is called ________.

A) currency hedging
B) currency arbitrage
C) currency speculation
D) currency conversion

Question 62

While designating an exchange rate,the numerator indicates the ________.

A) base currency
B) transaction currency
C) quoted currency
D) cross currency

Question 63

The exchange rate at which a bank will purchase a currency is called a ________ rate.

A) prime
B) buy
C) ask
D) forward

Question 64

The bid-ask spread in the foreign exchange market is the ________.

A) price at which a bank will buy a currency
B) price of currency in the foreign exchange market
C) difference between the bid and ask quotes for a currency
D) the time lapsed between a bid quote and an ask quote

Question 65

Investors use the foreign exchange market for ________.

A) stock dilution
B) currency speculation
C) market capitalization
D) mean reversion

Question 66

The practice of insuring against potential losses that result from adverse changes in exchange rates is called currency ________.

A) hedging
B) arbitrage
C) speculation
D) conversion

Question 67

The profit-motivated purchase and sale of interest-paying securities denominated in different currencies is called ________.

A) currency conversion
B) currency hedging
C) interest arbitrage
D) interbank interest rates

Question 68

An exchange rate of ¥117.87/$ indicates ________.

A) that 117.87 yen buys one dollar
B) that 117.87 dollars buys one yen
C) a direct quote on the dollar
D) an indirect quote on the yen

Question 69

In a quoted exchange rate of $1.69/British pound,the British pound is called the ________.

A) base currency
B) counter currency
C) cross currency
D) quoted currency

Question 70

An exchange rate calculated using two other exchange rates is called a(n)________.

A) interest arbitrage
B) forward contract
C) forward rate
D) cross rate

Question 71

Scenario: Sally Goes to Japan
Sally Johnson has identified a market for her company's products in Japan. She is excited about expanding her company, but knows that she needs to learn how the foreign exchange market works before she can successfully sell her products abroad.
If Sally sees a quote of ¥117.87/$,she should know that ________.

A) the yen is the base currency here
B) this is a direct quote on the dollar
C) this is a direct quote on the yen
D) the quote is in U.S. dollars

Question 72

________ is the simultaneous purchase and sale of foreign exchange for two different dates.

A) Currency hedging
B) Currency speculation
C) Currency swap
D) Currency arbitrage

Question 73

A(n)________ is a right to exchange a specific amount of a currency on a specific date at a specific rate.

A) forward contract
B) currency option
C) currency hedging
D) interest arbitrage

Question 74

Which of the following is an exchange rate that requires delivery of the traded currency within two business days?

A) forward rate
B) spot rate
C) cross rate
D) prime rate

Question 75

Scenario: Sally Goes to Japan
Sally Johnson has identified a market for her company's products in Japan. She is excited about expanding her company, but knows that she needs to learn how the foreign exchange market works before she can successfully sell her products abroad.
Which of the following is true about a quote of ¥117.87/$?

A) It is equal to $.008484/¥.
B) The quote is in U.S. dollars.
C) This is an indirect quote on the yen.
D) It costs a little more than a dollar to buy one yen.

Question 76

The exchange rate between the euro (€)and the dollar is €0.8461/$.Which of the following is the correct direct quote on the dollar?

A) $2.20/€
B) $1.1819/€
C) $5.50/€
D) $0.8461/€

Question 77

________ is the instantaneous purchase and sale of a currency in different markets for profit.

A) Currency hedging
B) Currency arbitrage
C) Currency speculation
D) Currency conversion

Question 78

Scenario: ABC Software
ABC Software is a producer of educational software for children below the age of twelve. The company has operations in Switzerland and would like to expand its foreign operations with a new facility in China.
If ABC Software simultaneously purchases and sells foreign exchange for two different dates,the company is said to be involved in ________.

A) increasing its foreign exchange rate risk
B) conducting a currency swap
C) entering an arbitrage situation
D) buying and selling at the spot rate

Question 79

While designating an exchange rate,the ________ is always the denominator.

A) counter currency
B) base currency
C) cross currency
D) quoted currency

Question 80

Outright forward transactions involve the exchange of currency on a future date beyond two business days at a fixed exchange rate,known as the ________.

A) spot rate
B) forward rate
C) option rate
D) reverse transaction rate