Deck 6: The Eurocurrency Market and International Banking

Question 1

The Eurocurrency market is the market for:

A) short-term assets and liabilities denominated in Eurocurrencies
B) European currencies
C) syndicated loans arranged by European banks
D) bonds denominated in European currencies

Answer 1

short-term assets and liabilities denominated in Eurocurrencies

Question 2

Eurocurrencies are:

A) currencies of European countries
B) short-term assets and liabilities denominated in European currencies
C) short-term assets and liabilities denominated in currencies other than those of the country in which they are located
D) deposits with European banks

Answer 2

short-term assets and liabilities denominated in currencies other than those of the country in which they are located

Question 3

A Eurodollar deposit is:

A) a US dollar-denominated deposit with a European bank
B) a US dollar-denominated deposit with a US bank
C) a US dollar-denominated deposit with a bank located outside the US
D) a US non-dollar deposit with a European bank

Answer 3

a US dollar-denominated deposit with a bank located outside the US

Question 4

Asian dollars are:

A) US dollar notes bought and sold in Asia
B) US dollar-denominated assets and liabilities of Asian banks
C) US dollar-denominated bills used to finance trade with Asian countries
D) Asian currencies, such as the Hong Kong and Singapore dollars

Question 5

Which of the following is NOT a Eurocurrency?

A) US dollars held on deposit held in a branch of a U.S. bank in London
B) Euro-denominated assets of U.S. banks in Asia
C) US dollar-denominated liabilities of a branch of a U.K. bank in Asia
D) Euro-denominated deposits held in a branch of a U.K. bank in London

Question 6

If a bank in London has on its books an Australian dollar deposit, then the deposit is:

A) a Eurodollar deposit
B) a Eurodeposit
C) a Eurocurrency deposit
D) both a Eurodeposit and a Eurocurrency deposit

Question 7

European centres account for:

A) 25% of the Eurocurrency market
B) 100% of the Eurocurrency market
C) 60% of the Eurocurrency market
D) 50% of the Eurocurrency market

Question 8

The Cayman Islands is a favoured location for US banks to establish shell branches because of:

A) a low minimum capital requirement
B) the absence of restrictions on lending and interest rates, as well as reserve requirements on Eurocurrency operations
C) having the same business hours as New York
D) all the given answers

Question 9

A Eurocurrency centre is a:

A) concentration of British banks
B) Cayman Islands
C) concentration of French banks
D) either a concentration of British or French banks

Question 10

Which of the following is NOT a prerequisite for a Eurocurrency centre?

A) A favourable environment, which is conducive to the smooth conduct of international finance
B) Good telecommunication systems
C) Political stability
D) A European location

Question 11

The largest Eurocurrency centre is.

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

Question 12

What are IBFs?

A) International Banking Facilities, which are ATMs which allow access to international accounts
B) International Banking Facilities, which are the offshore branches of Australian banks
C) International Banking Facilities, which are essentially a set of books kept at US banks recording Eurocurrency assets and liabilities
D) boxers operating under the auspices of the International Boxing Federation

Question 13

The relationship between Eurobanking and international banking is that:

A) they are the same
B) international banking encompasses Eurobanking
C) international banking is more geographically diverse than Eurobanking
D) Eurobanking is more diverse functionally

Question 14

Eurobanks are considered to be NBFIs because:

A) they hold long-term assets and liabilities
B) their liabilities are time or call deposits, not demand deposits
C) they deal in the wholesale market only
D) they deal in the interbank market only

Question 15

The operations of Eurobanks handicap domestic monetary policy because:

A) they create money in excessive amounts
B) these operations are primarily international
C) these operations are not subject to the regulatory measures of the local monetary authorities
D) they are subject to a lower reserve requirement than domestic banks

Question 16

The Eurocurrency market is dominated by:

A) U.S. banks
B) Chinese banks
C) interbank operations
D) none of the given answers

Question 17

Which of the following factors did NOT lead to the creation and growth of the Eurocurrency market?

A) US dollar deposits by the Soviet with European banks
B) Controls imposed by the Bank of England on pound-denominated transactions between British banks and non-residents
C) Changes in the US tax system
D) Restoration of the convertibility of European currencies

Question 18

The competitive efficiency of Eurobanks is indicated by:

A) a low actual reserve ratio
B) a low actual liquidity ratio
C) a relatively narrow spread between the interest charged to prime borrowers and that paid on deposits
D) low charges and fees as compared with domestic banks

Question 19

The competitive efficiency of Eurobanks is the result of:

A) Eurobanks not being subject to regulation by monetary authorities of the countries where they are located
B) Eurobanks not being subject to reserve requirements
C) economies of scale
D) all of the given answers

Question 20

Regulation Q specified:

A) a lower limit on the reserve ratio
B) an upper limit on the interest paid by US banks on saving accounts
C) a lower limit on the liquidity ratio
D) an upper limit on the loan-to-deposit ratio

Question 21

The equilibrium Eurodeposit rate is kept within a range (between the cost of raising funds in the domestic market and the domestic deposit rate) by:

A) arbitrage
B) speculation
C) regulation
D) agreement between banks

Question 22

The equilibrium Eurodeposit rate is kept within a range (between the cost of raising funds in the domestic market and the domestic deposit rate) by:

A) arbitrage
B) speculation
C) regulation
D) agreement between banks

Question 23

Factors which led to the growth in the Eurocurrency market include:

A) the devaluation of the US dollar
B) the oil price rise of 1973/74
C) the fall of communism
D) the establishment of the euro

Question 24

Which measures increased the degree of imperfection in the US domestic money market during the 1960s, which also encouraged the development of the Eurocurrency market?

A) regulation Q
B) the 1963 interest equalisation tax
C) both Regulation Q and the 1963 interest equalisation tax
D) the establishment of branches of US banks outside the jurisdiction of US banking laws

Question 25

Eurobanking is characterised by:

A) transactions which are in sums of a million US dollars and over
B) tight restrictions on banks wanting to enter the Eurocurrency market
C) the majority of transactions being interbank operations
D) transactions which are in sums of a million US dollars and over and the majority of transactions being interbank operations

Question 26

Which of the following statements is true in relation to bid-offer quotes on interest rates?

A) The bid rate is the rate at which the quoting bank accepts the placement of deposits with it by other parties, and the offer rate is the rate at which the quoting bank places deposits with other parties
B)The offer rate is the rate at which the quoting bank accepts the placement of deposits with it by other . parties, and the bid rate is the rate at which the quoting bank places deposits with other parties
C) The bid rate is the rate at which the quoting bank lends to other parties, and the offer rate is the rate . at which the quoting bank borrows from other parties
D) None of the given answers

Question 27

Which of the following statements is true in relation to bid-offer quotes on interest rates?

A) The offer rate is determined by the intersection of the quoting bank's demand curve and the other parties' supply curve
B) The bid rate is determined by the intersection of the quoting bank's demand curve and the other parties' supply curve
C) The bid rate is determined by the intersection of the quoting bank's supply curve and the other parties' demand curve
D) None of the given answers

Question 28

Which of the following statements is true in relation to the interest rates on Eurocurrencies?

A) The offer rate is determined by the intersection of the quoting bank's demand curve and the other parties' supply curve
B) The bid rate is determined by the intersection of the quoting bank's supply curve and the other parties' demand curve
C) The offer rate is determined by the intersection of the quoting bank's supply curve and the other parties' demand curve
D) None of the given answers

Question 29

Which of the following statements is true in relation to the interest rates on Eurocurrencies?

A) The offer rate is determined by the intersection of the quoting bank's demand curve and the other parties' supply curve
B) Lending banks add a risk premium appropriate for the credit or default risk of the borrower
C) The bid rate is determined by the intersection of the quoting bank's supply curve and the other parties' demand curve
D) None of the given answers

Question 30

Which of the following factors did NOT contribute to the growth of international banking?

A) the growth of non-bank multinationals
B) regulation Q
C) the desire of banks to participate actively in the foreign exchange market
D) changes in the US tax system

Question 31

Which of the following is NOT a traditional activity of international banks?

A) Export-import finance
B) Trading in foreign exchange
C) Provision of foreign loans
D) Management of Eurobond issues

Question 32

Basel II is an accord produced by the Basel Committee in 2001 to:

A) establish minimum capital requirements for banks
B) provide incentives to strengthen risk-management and internal banking controls
C) introduce an entirely new treatment of market risk
D) establish minimum capital requirements for banks and provide incentives to strengthen risk-. management and internal banking controls

Question 33

International banks face four types of risk, namely:

A) credit risk, currency risk, country risk and telecommunications risk
B) credit risk, currency risk, sovereign risk and telecommunications risk
C) credit risk, currency risk, country risk and systematic risk
D) legal risk, currency risk, country risk and systematic risk

Question 34

Bank agencies:

A) are similar to ordinary commercial banks, except that they do not offer cheque accounts
B) are similar to ordinary commercial banks, except that they do not handle ordinary deposits
C) are similar to ordinary investment banks
D) are similar to ordinary merchant banks

Question 35

Correspondent banks:

A) are banks which settle customer payments on behalf of foreign banks not permitted to operate in their jurisdiction
B) are banks which do not have an internet site
C) are banks which correspond electronically
D) no longer operate since the advent of the internet

Question 36

Some of the innovative activities of international banks include:

A) new issuance facilities
B) private banking
C) swaps
D) all of the given answers

Question 37

Some of the new activities of international banks DO NOT include:

A) dealing in Eurocurrencies
B) provision of syndicated Eurocredit
C) home loans
D) investment banking activities

Question 38

'EPCs' are:

A) European Provided Credits
B) European Public Currency
C) Electronic Purchase Cards
D) none of the given answers