Deck 12: International Financing and National Capital Markets

Question 1

The most preferred form of securities by U.S. firms for funding is

A) debt
B) preferred stock
C) common stock
D) stock derivatives

Answer 1

A

Question 2

The supply of Eurodollar deposits is the result of

A) Federal Reserve Board policy
B) World Bank policy
C) a resolution of the member governments of the Organization of Economic Cooperation and Development (OECD)
D) none of the above

Answer 2

D

Question 3

Which of the following banking practice would be found more often under the CEJ model of corporate governance?

A) emphasis on shareholder value
B) the importance of equity financing
C) control by institutional shareholders
D) universal banking

Answer 3

D

Question 4

The most important change in Japanese corporate finance in recent years has been

A) the shift from internal funds to bank loans
B) the shift from internal funds to stock issues
C) the shift from external funds to internal funds
D) the dramatic rise in the payment of dividends

Question 5

Another name for the spread in a Eurocurrency loan is the _______.

A) drawdown
B) term
C) LIBOR rate
D) Margin

Question 6

The difference between countries in terms of company controls can be categorized into market-oriented and ____________ systems.

A) bank-centered
B) Anglo-Saxon
C) debt-denominated
D) keiretsu

Question 7

The period over which the borrower may take down a Eurocurrency loan is known as the ______.

A) maturity of the loan
B) LIBOR rate
C) Drawdown
D) Margin

Question 8

Brazil is planning to develop a major hydroelectric project in order to replace oil imports and conserve scarce foreign exchange. Which of the following international lending agencies is most likely to provide financing for this project?

A) the World Bank
B) the International Monetary Fund
C) the International Finance Agency
D) the International Development Agency

Question 9

Financial deregulation began in ____ in 1981 and in _____ in 1986.

A) Italy, Germany
B) England, France
C) the U.S., Japan
D) in the European Union, NAFTA

Question 10

Which one of the following is a consequence of a well-functioning financial market?

A) greater capital accumulation
B) better projects get financed
C) lower cost of capital
D) all of the above

Question 11

Argentina is seeking balance?of?payments financing from an international lending institution. Which of the following is most likely to provide such funding?

A) the World Bank
B) the International Monetary Fund
C) the International Finance Corporation
D) the International Development Agency

Question 12

Selling stock overseas is attractive to corporations because it

A) may raise the price of the company's stock
B) improves the company's visibility in local markets
C) provides a pool of patient investors who are not focusing exclusively on next quarter's profits
D) a and b only

Question 13

The dominant currency of the Eurocurrency markets is the

A) U.S. dollar
B) Euro
C) Yen
D) Pound

Question 14

Eurodollar deposits represent the liabilities of

A) European non-financial corporations
B) the Organization of Petroleum Exporting Countries (OPEC.
C) European banks and U.S. bank branches abroad
D) European banks exclusively

Question 15

Project finance is distinctive from other financings because the providers of the funding

A) look primarily to the cash flow from the project as the source of funds
B) use the parent's assets to secure the funds
C) merge the operations of the project with those of the parent
D) have no exit plans

Question 16

The cost of the heavy reliance on banks by Japanese and German companies is

A) less freedom of action
B) higher interest charges on loans
C) lower deposit rates
D) more control by the government

Question 17

The most important source of funds used by companies around the world is

A) internally generated cash
B) short?term external funds
C) issues of new stock
D) public debt securities

Question 18

The ________ , which resembles the U.S. commercial paper market, allows borrowers to issue their own short-term euronotes.

A) Eurobond market
B) eurobank
C) note issuance facility
D) revolving underwriter facility

Question 19

______ is replacing bank loans with securities issued in public markets.

A) A drawdown
B) Securitization
C) Capital productivity
D) Regulatory arbitrage

Question 20

In recent years, the Eurocurrency market has grown ___ the Eurobond market.

A) more slowly than
B) at about the same rate as
C) much more rapidly than
D) with no clear pattern emerges relative to

Question 21

The process of securitization reflects

A) new technology that has lowered the costs of compiling, accessing, and manipulating data
B) financial deregulation that raised the cost of funds to banks
C) lower costs of accessing public markets directly
D) all of the above

Question 22

If the current 180?day inter-bank Eurodollar rate is 15% (all rates are stated on an annualized basis. and next period's LIBOR is 13%, then a Eurocurrency loan priced at LIBOR plus 1% will cost

A) 16% this period and 16% next period
B) 15% this period and 14% next period
C) 16% this period and 14% next period
D) 15% this period and 15% next period

Question 23

Why are privately placed bonds more difficult to sell than publicly issued bonds?

A) they are usually commercial bank loans
B) the presence of customized covenants
C) funds come from private investors
D) underwriting is required

Question 24

Suppose that the current 90?day London interbank offer rate is 11% (all rates are stated on an annualized basis..If next period's LIBOR is 10.5%, then a Eurodollar rate priced at LIBOR plus 1% will cost

A) 12% this period and 11.5% next period
B) 11% this period and 10.5% next period
C) 12% this period and 12% next period
D) 11% this period and 11% next period

Question 25

As the cost of gathering information on foreign firms continues to come down, ___ should become an increasingly more cost? effective means of raising funds internationally.

A) international securitization
B) international financial intermediation
C) international bank lending
D) international portfolio investment

Question 26

The globalization of financial markets reflects
A) financial deregulation, which spurs competition among markets

A) reductions in currency controls and other government restrictions on cfree flow of capital internationally
C) new technology that has lowered the cost of information
D) all of the above

Question 27

The process of securitization reflects

A) new technology that has lowered the costs of compiling, accessing, and manipulating data
B) financial deregulation that raised the cost of funds to banks
C) lower costs of accessing public markets directly
D) all of the above

Question 28

The globalization of financial markets reflects

A) financial deregulation, which spurs competition among markets
B) reductions in currency controls and other government restrictions on cfree flow of capital internationally
C) new technology that has lowered the cost of information
D) all of the above

Question 29

Which one of the following factors does NOT promote well-functioning financial markets?

A) secure property rights
B) high tariffs
C) contracts that are easily enforced
D) transparency in financial statements

Question 30

Which one of the following new issues of stock has the greatest probability of lowering its cost of equity capital?

A) Microsoft in the New York markets
B) Toyota on the Tokyo exchange
C) Apple stock on the London exchange
D) all of the above

Question 31

S. company has the following choices of financial markets in which to raise capital. Which one will it most often prefer?

A) foreign bond
B) foreign bank
C) a new issue of common stock
D) domestic banks

Question 32

Global growth in the financial markets is driven by each of the following EXCEPT:

A) freer markets
B) widely available information
C) government capital controls
D) financial deregulation by governments

Question 33

Which one of the following is the MOST obvious example of the globalization of financial markets?

A) the creation of the European Union
B) the rise of the Euromarkets
C) the end of the Soviet Union
D) the Asian currency crisis of 1997

Question 34

Which one of the following securities in the foreign bond markets has the least amount of risk to the investor?

A) samurai bond
B) shogun bond
C) convertible bond
D) equity warrants

Question 35

Suppose the French government imposes an interest rate ceiling on French bank deposits. What is the likely effect of this regulation?

A) reduce Eurofranc interest rates
B) raise Eurofranc interest rates
C) have no effect
D) can't tell

Question 36

One reason for the multicurrency clause in the euro markets is to avoid

A) government actions to block funds
B) local traders from arbitraging away profits
C) exchange rate risk
D) political instability

Question 37

Which one of the following banks is considered the most important in the development bank industry?

A) Asian Development Bank
B) World Bank
C) African Development Bank
D) European Bank for Reconstruction and Development

Question 38

A multinational corporation attempting to secure an airport construction project involving billions of dollars in cost would be best advised to apply to the _________ for funding.

A) World Bank
B) London banking market
C) New York bond market
D) Tokyo foreign bond market

Question 39

Debt denominated in a foreign currency that is launched, priced and traded in Asia is referred to as a _________ bond.

A) shogun
B) samurai
C) Asian-tiger
D) dragon

Question 40

When the overwhelming majority of investors would be willing to pay more for the shares of a well-governed company, ___________ is improved.

A) financial innovation
B) regulatory arbitrage
C) private placement
D) capital productivity

Question 41

Which of the following have led to a closer relationship between interest rates in national and Eurocurrency money markets?

A) tax treaties that reduce the incidence of double taxation on foreign?source income
B) elimination of currency controls
C) reduced cost of transatlantic telecommunications
D) all of the above

Question 42

Which one of the following economic policies would the international financial markets tend to reward?

A) increased tariffs
B) reduced government ownership of private firms
C) a system of government currency controls
D) more government protection of infant-industries

Question 43

Eurocurrency spreads are narrower than in domestic money markets because

A) Eurobanks don't have to maintain reserves on Eurodollar deposits
B) Eurobanks face lower regulatory expenses
C) national banks are often required to lend money to certain borrowers at concessionary rates
D) all of the above

Question 44

Suppose the Belgian government imposes added taxes on interest paid on Belgian bank deposits. What is the likely effect of this regulation?

A) raise Eurofranc interest rates
B) reduce Eurofranc interest rates
C) have no effect
D) capital flight

Question 45

Which of the following bonds would NOT be found on the foreign bond markets?

A) Yankee
B) municipal
C) samurai
D) shogun