Deck 24: International Banking and Financial Regulations

Question 1

The multinational activities of U.S. banks increasingly are being concentrated mainly in their foreign offices rather than in their domestic offices.

Answer 1

False

Question 2

The term "multinational corporations" applied only to non-financial companies, but is inappropriate to describe large international banks whose organizational structure is unique.

Answer 2

False

Question 3

The principal purpose of establishing shell branches by U.S. banks is to attract Eurocurrency deposits from abroad.

Answer 3

True

Question 4

Among the most important services offered by international banking departments of major U.S. banks are trading in foreign currencies, issuing letters of credit and providing acceptance financing.

Question 5

When a large bank begins to expand its activities abroad it usually starts with shell branches and full-service banking offices due to the limited initial capital requirements and customer needs for a basic menu of conventional banking services; then, if business warrants, international departments and Edge Act subsidiaries typically will be organized by the bank.

Question 6

U.S. international banking operations really began on a major scale in the 1930s when weakness and large scale unemployment in the domestic economy caused many major U.S. banks to seek more profitable opportunities abroad.

Question 7

Measured by total branches and other banking office facilities, Great Britain leads the list of all foreign nations in terms of the number of offices operated by U.S. banks there.

Question 8

International banks make loans to foreign customers but do not generally advise customers regarding market conditions.

Question 9

An international bank's promise to pay for goods stored overseas or goods shipped between two nations is known as a letter of credit.

Question 10

The term "FOREX" refers to the package of services offered by large U.S. international banks today which includes issuing bankers' acceptances and letters of credit and marketing Eurobonds.

Question 11

The Federal Reserve Board gives U.S. international banks wider latitude in providing services and expanding abroad than is true of the regulatory authorities of other countries.

Question 12

Most Eurocurrency loans are unsecured and carry floating interest rates.

Question 13

Most Eurobonds are denominated in U.S. dollars.

Question 14

Maturities for Eurobonds extend up to 15 years.

Question 15

In the Eurobond market, a borrower usually contacts a major international bank with a request to form a syndicate to place a new bond issue.

Question 16

The recent trend of deregulation in the financial market is likely to experience some slowing due to the recent credit crisis of 2007-2009.

Question 17

Agency offices provide specialized services, such as recordkeeping for business transactions and providing customers with liquid balances for spending as needed.

Question 18

IBFs are branch offices of major international banks located mainly in the Bahamas and Grand Cayman Islands to attract Eurocurrency deposits.

Question 19

IBFs record both domestic and foreign deposits and funds flows.

Question 20

IBFs may be located in any foreign country that does not discriminate against or prohibit the entry of U.S. banks.

Question 21

A debt-for-equity swap involves a bank taking stock investments in exchange for loans.

Question 22

In 1988, several central banks agreed to impose uniform capital requirements on the banks under their jurisdiction.

Question 23

Groups of banks put together to subscribe to a Eurobond issue are called a consortium or a syndicate.

Question 24

A change in the tax rate levied on the interest income of foreign investors is an example of political risk.

Question 25

The potential for loss connected to changing relative prices of domestic and foreign currencies is known as currency risk.

Question 26

The International Lending and Supervision Act passed by the U.S. Congress in 1983 required U.S. banks with international credit risk exposure to post special reserves behind those loans.

Question 27

The Basle Agreement concluded in 1988 requires central banks in leading industrialized countries to monitor the capital positions of their banks and required minimum ratios of capital to risk-adjusted assets.

Question 28

The Gramm-Leach-Billey Act permitted domestic and foreign financial firms to for financial holding companies.

Question 29

Securitized loans are completely insulated from market risk.

Question 30

The Federal Reserve cannot terminate the U.S. operations of foreign banks.

Question 31

The Foreign Bank Supervision Act of 1991 limits U.S. authority over foreign banks operating in the U.S.

Question 32

Foreign banks that accept retail deposits (less than $50,000) must obtain FDIC insurance.

Question 33

The scandal involving the Bank of Credit and Commerce International of Luxembourg was a key factor in the passage of the Foreign Bank Supervision Act of 1991.

Question 34

All banks subject to the Basle Agreement must hold minimum levels of core and total capital.

Question 35

Increasingly the new Basle bank capital standards have been used as a standard for approving or denying international banks to expand their activities abroad.

Question 36

In December 1995 the Federal Reserve Board voted to allow U.S. banks to acquire foreign business interests without prior notice provided the banks involved devote no more than 2 percent of capital to the new venture and are already well capitalized and well managed.

Question 37

Any foreign bank seeking to buy more than 5 percent of the stock of a U.S. bank or bank holding company must receive Federal Reserve Board approval prior to making the acquisition.

Question 38

The euro is the currency used by England, France, Germany, and many other European countries.

Question 39

Foreign bank growth continues unabated in the U.S., as the proportion of total U.S. banking assets controlled by foreign banks has nearly doubled since 1990.

Question 40

The global banking crisis of the 1990s although severe, disproved the existence of the so-called "domino effect" in international banking.

Question 41

Universal banking combines traditional banking, insurance, securities trading and even real estate brokering under one corporate umbrella.

Question 42

International banks have become the principal source of borrowed funds for developing countries.

Question 43

The rapid expansion of banking world wide lead to thousands of cases of fraud and financial manipulation annually as a bank employees and government officials have dipped into the growing cash reserves of leading international banks.

Question 44

One of the facilities used by major U.S. banks to expand abroad is the __________, which is really a booking office located principally in the Caribbean area and designed to attract Eurocurrency deposits.

A) International banking department
B) Shell branch
C) Representative office
D) Edge Act corporation
E) None of the above

Question 45

While it cannot accept deposits, this type of international banking facility set up abroad by a U.S. bank attempts to find new loan customers for the home office and assist existing customers with their particular financial needs. The particular facility being described is the:

A) International banking department
B) Shell branch
C) Representative office
D) Agreement corporation
E) Edge Act corporation

Question 46

Special subsidiaries of U.S. banks authorized to offer international banking services are known as:

A) Shell branches
B) Credit agencies
C) Representative offices
D) Edge Act and Agreement corporations
E) IBFs

Question 47

In terms of total assets held, the country or area of the globe where the foreign branches of U.S. banks hold the most assets is:

A) Japan
B) United Kingdom
C) Middle East
D) Switzerland
E) West Germany
F) None of the above

Question 48

The instrument that is a bank's promise to pay for goods stored overseas is called a:

A) Letter of credit
B) Bankers' acceptance
C) Eurocurrency loan
D) Eurobond
E) Note issuance facility

Question 49

The rate of interest charged borrowers from most Eurocurrency loans is tied to the prevailing level of the:

A) Effective federal funds interest rate
B) LIBOR
C) Prime bank rate
D) Bank of England discount rate
E) None of the above

Question 50

A debt security denominated in a currency other than those of the countries where most or all the security issue will be sold is known as a:

A) Bankers' acceptance
B) Equity participation certificate
C) Eurobond
D) London-dollar CD
E) None of the above

Question 51

The first foreign banks to enter the U.S. were from:

A) Canada
B) Great Britain
C) France
D) The Netherlands
E) None of the above

Question 52

The federal law which provides for federal licensing of branches and agencies of foreign banks operating in the U.S. is the:

A) International Banking Act of 1978
B) Depository Institutions Deregulation Act of 1980
C) Garn-St Germain Depository Institutions Act of 1982
D) Monetary Control Act of 1980
E) None of the above

Question 53

Services offered by international banks include all of the following except:

A) Issuing letters of credit
B) Buying and selling foreign exchange
C) Issuing bankers' acceptances
D) Accepting Eurocurrency deposits
E) Assisting in the marketing of Eurocurrency bonds
F) Advising on foreign market conditions
G) All of the above are services offered by international banks

Question 54

The organizational vehicle used by a multinational bank to offer international services that is really a set of computerized accounts is the:

A) Representative office
B) International banking facility
C) Shell branch
D) Edge Act
E) None of the above

Question 55

Under regulations established by the Federal Reserve Board in 1981 IBFs must:

A) Be located in the United States
B) Carry reserve requirements on their deposits
C) Carry deposit insurance
D) A, B and C are all requirements to establish an IBF
E) None of the above are required

Question 56

To prevent further bank failures, bank regulators in the U.S. and overseas look closely at banks':

A) Deposits
B) Loans
C) Net interest margins
D) Capital positions
E) Foreign exchange operations

Question 57

A group of banks put together in order to subscribe to a Eurobond issue is called a:

A) Consortium
B) Security partner (SPA)
C) Cooperative trust
D) Best-efforts sales agreement
E) None of the above

Question 58

The danger of loss associated with changing relative prices of foreign and domestic currencies is known as:

A) Transfer risk
B) Currency risk
C) Political risk
D) Trading risk
E) None of the above

Question 59

When international investors face the possibility of loss when the country or countries in which they have invested prohibit outflows of capital or the repatriation of dividends or interest payments back to their home country, this is known as:

A) Transfer risk
B) Currency risk
C) Trading risk
D) Investment risk
E) None of the above

Question 60

The law passed by the U.S. Congress in 1983 which required American banks to post special reserves to cover possible losses on their foreign loans is known as:

A) The Foreign Loan Risk Act
B) The Basle Agreement
C) The Foreign Capital Reserves Act
D) The International Lending and Supervision Act
E) None of the above

Question 61

The compact signed by the United States, Japan, Canada and leading industrialized countries in Western Europe to monitor the capital positions of their banks and to impose minimum capital-to-risk-adjusted-asset ratios on all banks in the signing countries is known as the:

A) International Lending and Supervision Agreement
B) Cooperative Capital Regulation Treaty
C) Joint Interim Capital Agreement
D) Basle Agreement
E) None of the above

Question 62

The Foreign Bank Supervision Act of 1991 contains all of the following provisions except:

A) Foreign banks may only accept deposits less than $100,000 if they obtain FDIC insurance
B) Federal Reserve Board approval is necessary to create a branch, agency or representative office in U.S. territory
C) Foreign banks operating in the U.S. must be subject to comprehensive supervision by their home country
D) Foreign banks must not engage in unsound banking practices
E) All of the above are provisions of the 1991 Act

Question 63

International banks are offering more international services from their domestic offices for all of the following reasons except:

A) Political instability has made foreign lending less attractive
B) A large network of foreign branches is expensive to maintain
C) Improvements in communications technology have made it less necessary to have a branch or office in every country
D) Government controls over banks have relaxed
E) Banks are permitted to engage in a wider array of services than in the past

Question 64

Deposits in an International Banking Facility differ from domestic deposits in that:

A) The IBF is always owned by a foreign bank
B) The IBF is always owned by a domestic bank
C) Deposits in the IBF are not subject to U.S. reserve requirements
D) There is no difference. Both types of deposits are insured by the FDIC
E) Deposits in the IBF cannot be withdrawn on demand

Question 65

U.S. multinational banks are permitted to:

A) Underwrite most domestic corporate securities
B) Underwrite Eurobonds and Euronotes abroad
C) Buy and sell corporate stock listed on the New York Stock Exchange
D) Underwrite over-the-counter bonds
E) U.S. banks are prohibited from any kind of securities transactions

Question 66

Citigroup pools consumer credit-card receivables and sell the resulting securities in the open market. This process is called:

A) Underwriting
B) Securitizing loans
C) Note issuance facility
D) Capital enhancements
E) Factoring receivables

Question 67

Close to __________ of all foreign loans made by U.S. banks are made to lesser-developed countries (LDCs).

A) Half
B) One-third
C) Two thirds
D) One-fifth
E) None of the above

Question 68

The Asian portion of the global banking crisis of the 1990s began in Japan and ultimately spread to the following country/countries:

A) Thailand
B) Korea
C) Indonesia
D) Hong Kong
E) All of the above
F) Choices A and C only

Question 69

In the international financial markets in recent years, mergers have taken place between:

A) Banks
B) Banks and insurance companies
C) Banks and security firms
D) A and C only
E) A, B and C

Question 70

The rapid expansion of banking world wide lead to ____________ annually as bank employees and government officials have dipped into the growing cash reserves of leading international banks.

A) Thousands of cases of fraud and financial manipulation
B) Many new bank branches opening
C) Very high employee turnover
D) All of the above
E) None of the above

Question 71

What are the essential differences between the following types of banking offices or facilities?

Question 72

What important principle about international banking was revealed by the global banking crisis of the 1990s and the subsequent credit crisis of 2007-2009?

Question 73

Which services typically offered by international banks?

Question 74

Using the the description or the definition below, identify each of the key terms and concepts presented in this chapter
a. Large, non-financial companies with manufacturing and trading operations in several different countries.
b. Offshore banking offices designed to collect funds and avoid regulations.
c. Facilities to aid international banking customers but these facilities cannot accept deposits or make loans.
d. Subsidiaries of U.S. banking corporations or foreign banking companies active in the U.S. that offer banking services to accounts overseas.

Question 75

Using the the description or the definition below, identify each of the key terms and concepts presented in this chapter
a. A domestically based set of computerized accounts recording international banking transactions.
b. Deposits in a bank denominated in a currency other than the currency of the bank's home currency.
c. Loans made by a bank in a currency other than the currency in the bank's home country.
d. A long-term debt security denominated in a foreign currency.

Question 76

Using the the description or the definition below, identify each of the key terms and concepts presented in this chapter
a. A U.S. law passed during the 1970s to bring foreign banks operating in the United States under government regulation for the first time.
b. A U.S. law passed in 1983 requiring U.S. banks to increase their capital and to pursue more prudent international loan policies.
c. An agreement among leading industrialized nations to require their banks to hold the same capital requirements and to adopt the same capital standards.