Question 1

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

Accepted Answer

In a debt-for-equity swap, a company's debt is canceled in exchange for equity in the company, which can involve a bank or other creditors receiving stock in exchange for canceling the company's loans.

Question 2

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

Accepted Answer

This agreement is known as the Basel Accord or Basel I, established by the Basel Committee on Banking Supervision in 1988, aiming to standardize capital requirements for banks across countries.

Question 3

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

Accepted Answer

A consortium or a syndicate refers to a group of banks or financial institutions that come together to manage the issuance and distribution of a Eurobond issue, sharing the risk and responsibility among themselves.

Question 4

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

Accepted Answer

The answer of A change in the tax rate levied...

Question 5

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

Accepted Answer

Currency risk, also known as exchange rate risk, arises from the change in price of one currency in relation to another. Investors or companies that have assets or business operations across national borders are exposed to currency risk that can create unpredictable profits and losses.

Question 6

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.

Accepted Answer

The International Lending Supervision Act of 1983 was indeed passed by the U.S. Congress to address concerns over international banking, particularly focusing on the stability of international lending practices. It required banks to set aside reserves for potential loan losses on international loans, reflecting the increased risk associated with such lending.

Question 7

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.

Accepted Answer

The Basel Accord (Basel I), concluded in 1988, established international standards requiring banks to maintain a minimum capital ratio of capital to risk-weighted assets, aimed at enhancing the stability of the global banking system.

Question 8

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

Accepted Answer

The Gramm-Leach-Bliley Act, passed in 1999, allowed financial institutions to merge, thus permitting domestic and foreign firms to form financial holding companies that could offer a combination of banking, securities, and insurance services.

Question 9

Securitized loans are completely insulated from market risk.

Accepted Answer

Securitized loans are not completely insulated from market risk because their value can fluctuate based on changes in interest rates, credit conditions, and other market factors.

Question 10

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

Accepted Answer

The Federal Reserve has the authority to regulate and supervise the U.S. operations of foreign banks, including the power to terminate their operations if they do not meet regulatory standards or pose a risk to the stability of the U.S. financial system.

Question 11

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

Accepted Answer

The Foreign Bank Supervision Enhancement Act of 1991 actually increased the authority of the Federal Reserve over foreign banks operating in the U.S., requiring more stringent oversight and approval processes for establishing branches, agencies, or acquiring ownership in U.S. banks.

Question 12

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

Accepted Answer

Foreign banks operating in the U.S. are not required to obtain FDIC insurance for retail deposits, but they may choose to do so to offer additional protection to depositors.

Question 13

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.

Accepted Answer

The scandal involving the Bank of Credit and Commerce International (BCCI), which was found to be involved in numerous illegal activities, highlighted the need for better oversight of foreign banks operating in the United States, leading to the passage of the Foreign Bank Supervision Enhancement Act of 1991 to address these regulatory shortcomings.

Question 14

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

Accepted Answer

The Basel Accords, including the Basel III framework, require banks to maintain minimum levels of core (Tier 1) and total capital to ensure financial stability and reduce the risk of banking crises.

Question 15

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

Accepted Answer

The Basel Accords, developed by the Basel Committee on Banking Supervision, set international standards for bank capital adequacy, stress testing, and market liquidity risk. These standards are increasingly used by regulatory authorities worldwide to assess the financial health of banks and their ability to expand internationally, ensuring that banks engaging in cross-border activities maintain sufficient capital reserves and adhere to prudent risk management practices.

Question 16

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.

Accepted Answer

The Federal Reserve Board made this decision to give U.S. banks more flexibility in expanding their foreign business interests, with certain conditions to ensure the banks remain stable and well-managed.

Question 17

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.

Accepted Answer

The Federal Reserve Board must approve any acquisition by a foreign bank of more than 5 percent of the stock of a U.S. bank or bank holding company to ensure stability, compliance with U.S. banking regulations, and to assess the impact on the financial system.

Question 18

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

Accepted Answer

England uses the British pound sterling, while France and Germany use the euro along with many other European countries.

Question 19

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.

Accepted Answer

The answer of Foreign bank growth continues unabated in the...

Question 20

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

Accepted Answer

The global banking crisis of the 1990s, particularly the Asian financial crisis, demonstrated the "domino effect" in international banking, where the failure of banks in one country led to financial distress in others, highlighting the interconnectedness of global financial systems.

Quiz 24: International Banking and Financial Regulations