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International Business: The Challenges of Globalization, 9e (Wild)
Chapter 9 International Financial Markets
1) Company debt normally takes the form of ________, and it is an asset that can be traded
anywhere at any time.
A) global bonds
B) equity
C) stocks
D) bank loans
2) The stock market is also known as the ________.
A) capital market
B) foreign-exchange market
C) bond market
D) equity-capital market
3) 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
4) ________ 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
5) The ease with which bondholders and shareholders may convert their investments into cash is
called ________.
A) barter
B) clearing
C) countertrade
D) liquidity
6) 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
7) 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
8) 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
9) 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
10) 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
11) 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
12) 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
13) 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
14) Foreign bonds issued in the U.S. and denominated in USD are called ________.
A) bulldog bonds
B) Yankee bonds
C) samurai bonds
D) dragon bonds
15) Liquidity refers to the ease with which bondholders and shareholders may convert their
investments to cash.
16) An excess money supply creates a borrower's market, forcing interest rates up and the cost of
borrowing down.
17) Investors increase risk by holding international securities whose prices move independently.
18) With the help of microfinance, low-income entrepreneurs can borrow money at competitive
rates without having to put anything up as collateral.
19) Increased regulation of national capital markets has been instrumental in the slowing down
the expansion of the international capital market.
20) Securitization is the unbundling and repackaging of hard-to-trade financial assets into liquid
financial instruments.
21) An offshore financial center is a territory whose financial sector features very few
regulations and few, if any, taxes.
22) Booking centers are usually located on small territories with high taxes and/or secrecy laws.
23) Booking centers are typically home to offshore branches of domestic banks that use them
merely as bookkeeping facilities to record tax and currency-exchange information.
24) Issuing bonds internationally is an increasingly popular way to obtain needed funding.
25) Describe the purposes of the international capital market. What factors account for its rapid
growth?
26) Explain the role of equity in a national capital market. What factors are responsible for the
growth of the international equity market?
27) 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
28) 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
29) An offshore financial center is usually characterized by ________.
A) extensive regulations
B) economic and political instability
C) excellent telecommunications
D) high taxes
30) Which of the following is NOT one of the top four locations for trading foreign exchange?
A) London
B) New York
C) Tokyo
D) Hong Kong
31) ________ 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
32) A bond issue floated by a U.S. company in dollars in London, Luxembourg, and Switzerland
by a syndication of bonds is an example of a ________.
A) global bond
B) domestic bond
C) Eurobond
D) foreign bond
33) 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
34) 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
35) 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
36) British pounds of a British trading company that are deposited in a U.S. bank are called
________.
A) Eurodollars
B) U.S. dollars
C) Europounds
D) Pounds
37) 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
38) 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
39) Why is London most likely the top market for trading foreign exchange?
A) The British pound is the world's top trading currency.
B) Most multinational firms are headquartered in London.
C) London is uniquely positioned geographically in terms of time zones.
D) British traders have always been the most sophisticated in the world.
40) The company's financial advisors recommend that ABC Software conduct most of its
business in a vehicle currency. Which of the following is true of vehicle currencies?
A) A vehicle currency is a contract that requires the exchange of an agreed-upon amount of a
currency on an agreed-upon date at a specific exchange rate.
B) The U.S. dollar, Australian dollar, Japanese yen, and British pound are all examples of
vehicle currencies.
C) The U.S. dollar became a vehicle currency after World War II when all of the world's major
currencies were tied indirectly to the dollar because it was the most stable currency.
D) The Chinese yuan is expected to become a vehicle currency in the near future as China's
position in world trade continues to grow.
41) 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
42) The spread of nationalization encourages the growth of the international equity market.
43) A Eurocurrency refers to a currency on deposit outside its country of issue.
44) The London Interbank Bid Rate (LIBID) is the interest rate offered by London banks to large
investors for Eurocurrency deposits.
45) The forces of supply and demand play no role in determining rates of exchange and currency
prices.
46) Currency arbitrage is the instantaneous purchase and sale of a currency in different markets
for profit.
47) Companies use interest arbitrage to find better interest rates abroad than those that are
available in their home countries.
48) What is an offshore financial center? Differentiate between an operational center and a
booking center, providing examples for each.
49) How does the international capital market reduce the cost of money for borrowers? What are
the two components for every quoted exchange rate?
50) What is the role of debt in national capital markets, and what form does company debt
normally take? Describe the different types of international bonds.
51) Briefly describe any two of the three main components of the international capital market.
52) 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
53) The ________ is the currency that dominates the foreign exchange market.
A) Japanese yen
B) British pound
C) U.S. dollar
D) Australian dollar
54) 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
55) 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
56) 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
57) What is the foreign exchange market? Explain why investors use this market.
58) 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
