Deck 3: International Financial Markets

Question 1

Assume that a bank's bid rate on Japanese yen is $.0041 and its ask rate is $.0043. Its bid/ask percentage spread is:​

A)about 4.99%.
B)about 4.88%.
C)about 4.65%.
D)about 4.43%.

Answer 1

C

Question 2

Forward markets for currencies of developing countries are:​

A)prohibited.
B)less liquid than markets for currencies of developed countries.
C)more liquid than markets for currencies of developed countries.
D)only available for use by government agencies.

Answer 2

B

Question 3

Assume the Canadian dollar is equal to $.88 and the Peruvian nuevo sol is equal to $.35. The value of the Peruvian nuevosol in Canadian dollars is:​

A)about .3621 Canadian dollars.
B)about .3977 Canadian dollars.
C)about 2.36 Canadian dollars.
D)about 2.51 Canadian dollars.

Answer 3

B

Question 4

The Basel III accord requires banks to:​

A)maintain higher levels of capital if they have riskier assets.
B)increase lending to less developed countries.
C)pay higher premiums for deposit insurance.
D)reduce their short-term loans.

Question 5

The bid/ask spread for small retail transactions is commonly in the range of ____ percent.

A)3 to 7
B).01 to .03
C)10 to 15
D).5 to 1

Question 6

Which of the following is not a factor that affects the bid/ask spread?​

A)order costs
B)inventory costs
C)volume
D)All of the above factors affect the bid/ask spread

Question 7

Which of the following is not true with respect to spot market liquidity?​

A)The more willing buyers and sellers there are, the more liquid a market is.
B)The spot markets for heavily traded currencies such as the Japanese yen are very liquid.
C)A currency's liquidity affects the ease with which an MNC can obtain or sell that currency.
D)If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange rate.

Question 8

If a U.S. firm will need C$200,000 in 90 days to pay for imports from Canada and it wishes to avoid the risk from exchange rate fluctuations, it could:​

A)purchase a 90-day forward contract on Canadian dollars.
B)sell a 90-day forward contract on Canadian dollars.
C)purchase Canadian dollars 90 days from now at the spot rate.
D)sell Canadian dollars 90 days from now at the spot rate.

Question 9

____ is not a bank characteristic important to customers in need of foreign exchange.

A)Quote competitiveness
B)Speed of execution
C)Forecasting advice
D)Advice about current market conditions
E)All of the above are important bank characteristics to customers in need of foreign exchange.

Question 10

The main participants in the international money market are:​

A)consumers.
B)small firms.
C)large corporations.
D)small European firms needing European currencies for international trade.

Question 11

LIBOR is:​

A)the interest rate commonly charged for loans between banks.
B)the average inflation rate in European countries.
C)the maximum loan rate ceiling on loans in the international money market.
D)the maximum deposit rate ceiling on deposits in the international money market.
E)the maximum interest rate offered on bonds that are issued in London.

Question 12

A forward contract can be used to lock in the ____ of a specified currency at a future point in time.

A)purchase price
B)sale price
C)A or B
D)none of the above

Question 13

According to the text, the forward rate is commonly used for:​

A)hedging.
B)immediate transactions.
C)previous transactions.
D)bond transactions.

Question 14

The forward rate is the exchange rate used for immediate exchange of currencies.

Question 15

The international credit market primarily concentrates on:​

A)short-term lending (less than one year).
B)medium-term lending.
C)credit cards for individuals.
D)providing an exchange of foreign currencies for firms that need them.
E)placing newly issued stock in foreign markets.

Question 16

If a U.S. firm is receiving 100,000 euros in 90 days and wishes to avoid the risk from exchange rate fluctuations, it could:​

A)purchase a 90-day forward contract on euros.
B)sell a 90-day forward contract on euros.
C)purchase euros 90 days from now at the spot rate.
D)sell euros 90 days from now at the spot rate.

Question 17

Assume that a bank's bid rate on Swiss francs is $.45 and its ask rate is $.47. Its bid/ask percentage spread is:​

A)about 4.44%.
B)about 4.26%.
C)about 4.03%.
D)about 4.17%.

Question 18

The forward market:​

A)for euros is very illiquid.
B)for currencies of Eastern European countries is very liquid.
C)does not exist for some currencies.
D)none of the above

Question 19

The international money market primarily concentrates on:​

A)short-term lending (one year or less).
B)medium-term lending.
C)long-term lending.
D)placing bonds with investors.
E)placing newly issued stock in foreign markets.

Question 20

The ask quote is the price at which a bank offers to sell a currency.

Question 21

Eurobonds:​

A)can be issued only by European firms.
B)can be sold only to European investors.
C)A and B
D)none of the above

Question 22

Futures contracts are typically ____; forward contracts are typically ____.

A)sold on an exchange; sold on an exchange
B)sold in an over-the-counter market; sold on an exchange
C)sold on an exchange; sold in an over-the-counter market
D)offered by commercial banks; offered by commercial banks

Question 23

Assume a Japanese firm invoices exports to the United States in U.S. dollars. Assume that the forward rate and spot rate of the Japanese yen are equal. If the Japanese firm expects the U.S. dollar to ____ against the yen, it would likely wish to hedge. It could hedge by ____ dollars forward.

A)depreciate; buying
B)depreciate; selling
C)appreciate; selling
D)appreciate; buying

Question 24

A syndicated loan:​

A)represents a loan by a single bank to a syndicate of corporations.
B)represents a loan by a single bank to a syndicate of country governments.
C)represents a direct loan by a syndicate of oil-producing exporters to a less developed country.
D)represents a loan by a group of banks to a borrower.
E)A and B

Question 25

A Japanese yen is worth $.0080, and a Fijian dollar (F$) is worth $.5900. What is the value of the yen in Fijian dollars (i.e., how many Fijian dollars do you need to buy a yen)?​

A)73.75.
B)125.
C)1.69.
D)0.014.
E)none of the above

Question 26

As a result of the Smithsonian Agreement, the U.S. dollar was:​

A)the currency to be used by all countries as a medium of exchange for international trade.
B)forced to be freely floating relative to all currencies without any boundaries.
C)devalued relative to major currencies.
D)revalued (upward) relative to major currencies.

Question 27

Eurobonds:​

A)are usually issued in bearer form.
B)typically carry several protective covenants.
C)cannot contain call provisions.
D)A and B

Question 28

Which of the following is true?​

A)Non-U.S. firms may desire to issue bonds in the United States due to less regulation there.
B)U.S. firms may desire to issue bonds in the United States due to less regulation there.
C)U.S. firms may desire to issue bonds in non-U.S. markets due to less regulation in some other countries.
D)A and B

Question 29

A put option is the amount or percentage by which the existing spot rate exceeds the forward rate.

Question 30

According to the text, the average foreign exchange trading around the world ____ per day.

A)equals about $200 billion
B)equals about $400 billion
C)equals about $700 billion
D)exceeds $4 trillion

Question 31

Which currency is used the most to denominate Eurobonds?​

A)the British pound
B)the Japanese yen
C)the U.S. dollar
D)the Swiss franc

Question 32

Under the gold standard, each currency was convertible into gold at a specified rate, and the exchange rate between two currencies was determined by their relative convertibility rates per ounce of gold.

Question 33

The U.S. dollar is not accepted as a medium of exchange in:​

A)industrialized countries outside the United States.
B)in any Latin American countries.
C)in Eastern European countries where foreign exchange restrictions exist.
D)none of the above

Question 34

From 1944 to 1971, the exchange rate between any two currencies was typically:​

A)fixed within narrow boundaries.
B)floating, but subject to central bank intervention.
C)floating, and not subject to central bank intervention.
D)nonexistent; that is, currencies were not exchanged, but gold was used to pay for all foreign transactions.

Question 35

Global regulations prevent the internationalization of moeny markets.

Question 36

When the foreign exchange market opens in the United States each morning, the opening exchange rate quotations will be based on the:​

A)closing prices in the United States during the previous day.
B)closing prices in Canada during the previous day.
C)prevailing prices in locations where the foreign exchange markets are already open.
D)officially set by central banks before the U.S. market opens.

Question 37

Which of the following is not true regarding the Bretton Woods Agreement?​

A)It called for fixed exchange rates between currencies.
B)Governments intervened to prevent exchange rates from moving more than 1 percent above or below their initially established levels.
C)The agreement lasted from 1944 until 1971.
D)Each country used gold to back its currency.
E)All of the above are true regarding the Bretton Woods Agreement.

Question 38

The bid/ask spread on an exchange rate can be used to directly determine:​

A)how an exchange rate will change.
B)the transaction cost of foreign exchange.
C)the forward premium.
D)the currency option premium.

Question 39

The international money market is primarily served by:​

A)the governments of European countries, which directly intervene in foreign currency markets.
B)government agencies such as the International Monetary Fund that promote development of countries.
C)several large banks that accept deposits and provide loans in various currencies.
D)small banks that convert foreign currency for tourists and business visitors.

Question 40

Which of the following is true of international money market securities?​

A)The securities may be exposed to exchange rate risk.
B)The securities are perceived to be very risky.
C)The securities issued by corporations are not subject to credit (default) risk.
D)The securities have a maturity of one to five years.

Question 41

The interest rate commonly charged for loans between banks is called the cross rate.

Question 42

A currency put option provides the right, but not the obligation, to buy a specific currency at a specific price within a specific period of time.

Question 43

The Basel Accord is an agreement among the major European countries to make regulations on imports more uniform across European countries and to reduce taxes on goods traded between these countries.

Question 44

The strike price is also known as the premium price.

Question 45

An investor engaging in a transaction whereby he or she contracts to purchase British pounds one year from now is an example of a spot market transaction.

Question 46

If there is a strong demand to borrow a currency, and a low supply of savings in that currency, the interest rate will be relatively low.

Question 47

The Single European Act prevented a trend toward increased globalization in the banking industry.

Question 48

A currency futures contract is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date.

Question 49

The ADR of a British firm is convertible into 3 shares of stock. The share price of the firm was 30 pounds when the British market closed. When the U.S. market opens, the pound is worth $1.63. The price of this ADR should be $____.

A)48.90
B)146.70
C)55.21
D)none of the above

Question 50

A share of the ADR of a Dutch firm represents one share of that firm's stock that is traded on a Dutch stock exchange. The share price of the firm was 15 euros when the Dutch market closed. As the U.S. market opens, the euro is worth $1.10. Thus, the price of the ADR should be ____.

A)$13.64
B)$15.00
C)$16.50
D)16.50 euros
E)none of the above

Question 51

The Bretton Woods Agreement is an agreement to standardize banks' capital requirements across countries; the resulting capital ratios are computed using risk-weighted assets.

Question 52

Institutional investors such as commercial banks, mutual funds, insurance companies, and pension funds from many countries are major participants in the international bond market.

Question 53

The Greece credit crisis in the 2012-2015 period refers to Greece being unable to obtain loans from any banks or governments.

Question 54

A cross exchange rate expresses the amount of one foreign currency per unit of another foreign currency.

Question 55

The term LIBOR refers to international bonds that were issued in London.

Question 56

As a result of the Sarbanes-Oxley Act, financial reporting costs were reduced, and many non-U.S. firms decided to place new issues of their stock in the United States.

Question 57

The preferences of corporations and governments to borrow in foreign currencies on a short-term basis and of investors to make short-term investments in foreign currencies resulted in the creation of the international bond market.

Question 58

Large commercial banks play a major role in the international money market by accepting short-term deposits in various currencies, and channeling the money to corporations and government agencies that need to borrow those short-term funds in the desired currencies.

Question 59

If there is a large supply of savings relative to the demand for short-term funds, the interest rate for that country will be relatively low.

Question 60

Eurobonds are certificates representing bundles of stock.

Question 61

Assume that $1 is equal to .85 euros and 98 yen. The value of the yen in euros is​

A).01
B)118
C)1.18
D).0087

Question 62

The legal protection of shareholders is the same among countries.

Question 63

In general, investors are attracted to stock markets in countries that allow very limited voting rights for shareholders.

Question 64

When obtaining a loan, the risk premium depends on the:​

A)risk-free interest rate of the borrower.
B)credit risk of the borrower.
C)borrower's stock price.
D)lender's stock price.

Question 65

Global regulations require that shareholders in all countries have the same rights wherever there are stock markets.

Question 66

In general, common-law countries such as the United States, Canada, and the United Kingdom allow for more legal protection of shareholders than civil-law countries such as France and Italy.

Question 67

In general, stock markets allow for more governance and attract more investors when they have all of the following except:​

A)more voting rights for shareholders.
B)more legal protection for shareholders.
C)more enforcement of the laws.
D)less stringent accounting requirements.

Question 68

The strike price on a currency option is also known as the exercise price.

Question 69

Shareholders in some countries may have more power to effectively sue publicly traded firms if their executives or directors commit financial fraud.

Question 70

Eurodollar deposits consisting of the oil revenues of oil-producing countries are known as:​

A)euros.
B)petro-euros.
C)petrodollars.
D)petro deposits.

Question 71

When receiving quotations on a currency's exchange rate, the bank's bid quote is the rate at which the bank is willing to sell currency.

Question 72

The interest rate in developing countries is usually very low.

Question 73

Shareholders can have influence on a wider variety of management issues in some countries than in others.

Question 74

If companies cannot rely on stock markets to obtain funds, they will have to rely more heavily on the ____ market to raise long-term funds.

A)Derivative
B)bond
C)Money
D)foreign exchange

Question 75

Assume that the bank's bid quote for the Mexican peso is $.126 and the ask price is $.129. If you have Mexican pesos, what is the amount of pesos that you need to purchase $100,000?​

A)12,600
B)775,194
C)793,651
D)12,900

Question 76

An obligation to purchase a specific amount of currency at a specific exchange rate at a future point in time is called a:​

A)call option
B)spot contract
C)put option
D)forward contract
E)both B and D

Question 77

The degree of financial information that must be provided by public companies is the same in all countries.

Question 78

Shareholders have more voting power in some countries than in others.

Question 79

Which of the following cannot be used to invest internationally?​

A)investment in MNC stocks
B)American depository receipts (ADRs)
C)exchange-traded funds (ETFs)
D)international mutual funds
E)All of the above can be used to invest internationally.

Question 80

The government enforcement of securities laws varies among countries.