Deck 9: International Financial Markets

Question 1

The London Interbank Bid Rate (LIBID)is the interest rate that London banks charge other large banks for borrowing Eurocurrency.

Answer 1

False

Question 2

In any exchange rate,the quoted currency is always the numerator.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

The forces of supply and demand determine currency prices.

Question 5

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

Question 6

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

Question 7

All of Europe's currencies combined are referred to as Eurocurrency.

Question 8

Booking centers are usually located on small territories with favorable tax and/or secrecy laws.

Question 9

Interest arbitrage is the profit-motivated purchase and sale of interest-paying securities denominated in different currencies.

Question 10

Major financial activities take place in booking centers.

Question 11

Currency speculation is the purchase or sale of a currency with the expectation that its value will remain constant.

Question 12

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

Question 13

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

Question 14

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

Question 15

Exchange rate risk is the risk of adverse changes in exchange rates.

Question 16

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

Question 17

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

Question 18

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

Question 19

International transactions between two currencies other than the U.S.dollar often use the dollar as a vehicle currency.

Question 20

The international bond market consists of all bonds sold by issuing companies outside their own countries.

Question 21

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 22

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 23

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 24

An offshore financial center is usually characterized by ________.

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

Question 25

One goal of currency restriction is to preserve hard currencies to pay for imports and to finance trade deficits.

Question 26

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 27

Company debt normally takes the form of ________.

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

Question 28

Forward rates represent the expectations of currency traders and bankers regarding a currency's future spot rate.

Question 29

An exchange rate requiring delivery of the traded currency within two business days is called a cross rate.

Question 30

________ 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 31

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 32

If an individual is traveling to another country and wants to exchange currencies at his bank before departing,he will be quoted the spot rate since he is exchanging on the spot.

Question 33

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 34

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 35

All foreign exchange transactions can be performed in the over-the-counter (OTC)market.

Question 36

The process of aggregating the currencies that one bank owes another and then carrying out the transaction is called clearing.

Question 37

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

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

Question 38

A convertible currency is traded freely in the foreign exchange market with its price determined by London banks.

Question 39

A loan in which the borrower promises to repay the borrowed amount plus a predetermined rate of interest is called a(n)________.

A)equity
B)exchange rate
C)stock
D)debt

Question 40

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 41

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

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

Question 42

The rate at which one currency is interchanged for another is called the ________.

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

Question 43

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 44

A bond issued by a Venezuelan company,denominated in U.S.dollars,and sold in Britain,France,and Germany is an example of a ________.

A)dragon bond
B)yankee bond
C)Eurobond
D)samurai bond

Question 45

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 46

________ is a prominent operational center.

A)Dubai
B)London
C)Singapore
D)Mexico

Question 47

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 48

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

Question 49

________ 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 50

Foreign bonds issued in the U.S.are called ________.

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

Question 51

________ 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 52

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 53

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 54

Investors use the foreign exchange market for ________.

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

Question 55

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 56

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 57

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 58

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

Question 59

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 60

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 61

________ 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 62

________ 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 63

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

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

Question 64

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 65

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 66

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 67

The exchange rate at which two parties agree to exchange currencies on a specified future date is called a ________ rate.

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

Question 68

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 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

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

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

Question 71

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 72

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 73

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

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

Question 74

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 75

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 76

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

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

Question 77

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 78

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 79

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 80

________ dominates the foreign exchange market.

A)London
B)New York
C)Tokyo
D)Beijing