Deck 13: Functions of Euromarkets

Question 1

The rate of interest paid at which high-quality borrowers can borrow at lower rates in the eurocurency markets is known as the ____ rate.

A)LIBOR
B)prime
C)LIBIL
D)LIBID

Answer 1

D

Question 2

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

Answer 2

D

Question 3

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

Answer 3

C

Question 4

Eurocurrency spreads are __________ the domestic money market spreads.

A)wider than
B)narrower than
C)very similar to
D)exactly the same as

Question 5

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 6

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)depositors holding dollars in non-US banks

Question 7

The dominant currency of the Eurocurrency markets is the

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

Question 8

Historically,most Eurobonds have been ________ denominated.

A)U.S.dollar
B)yen
C)euro
D)pound

Question 9

One advantage of the Euro-commercial paper market over its American counterpart is

A)flexibility that allows borrowers a range of currencies
B)larger size of transactions
C)greater liquidity
D)greater transparency

Question 10

Which one of the following was NOT a cause for the creation of the Eurodollar market?

A)reserve requirements that lower a bank's profits
B)special charges and taxes levied on domestic banking transactions
C)interest rate ceilings on deposits and loans
D)the lack of a requirement to hold a fractional reserve at the Federal Reserve of all deposits

Question 11

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 12

A dollar or other freely convertible currency deposited in a bank outside its country of origin is known as

A)a Eurocurrency
B)fiat money
C)a dragon bond
D)a drawdown

Question 13

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 14

The period over which the borrower may take down the loan is known as the

A)drawdown
B)all-in-costs
C)inverse floater
D)swap

Question 15

One reason Eurocurrency deposit rates are higher than domestic rates is due to the fact that

A)they have no relationship to domestic rates
B)they must be higher to attract domestic depositors
C)most borrowers are well-known
D)a smaller percentage of deposits can be lent out

Question 16

What is the relationship between the euro currency of the European Union and Eurocurrency?

A)The two have nothing to do with each other
B)the euro is the underlying currency of the Eurocurrency markets
C)the euro is the dominant and most common currency in the Eurocurrency markets
D)the Eurocurrencies were first established using the European Union's euro

Question 17

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)reduce the U.S.prime rate of interest
D)raise the U.S.prime rate of interest

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

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 20

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

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

Question 21

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 22

Which one of the following does NOT cause eurocurrency spreads to be narrower than in domestic money markets?

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)U.S.Federal Reserve bank regulations to cap interest rates charged on loans in the U.S.

Question 23

Which one of the following have NOT 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)increased government regulation of U.S.interest rates

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

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

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