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International Financial Management, 8e (Eun)
1) Edge Act banks are not prohibited from owning equity in business corporations, unlike
domestic commercial banks.
2) An Edge Act bank is typically located in a state different from that of its parent in order to get
around the prohibition on interstate branch banking.
3) International banks are different from domestic banks in what way(s)?
A) International banks can arrange trade financing.
B) International banks can arrange for foreign exchange transactions.
C) International banks can assist their clients in hedging exchange rate risk.
D) all of the options
4) Major distinguishing features between domestic banks and international banks are
A) the types of deposits they accept.
B) the types of loans and investments they make.
C) membership in loan syndicates.
D) all of the options
5) Since international banks have the facilities to trade foreign exchange,
A) they generally also make a market as a dealer in foreign exchange.
B) they generally also make a market as a dealer in foreign exchange derivatives.
C) they generally also trade foreign exchange products for their own account.
D) none of the options
6) Banks that both perform traditional commercial banking functions and engage in investment
banking activities are often called
A) international service banks.
B) investment banks.
C) commercial banks.
D) merchant banks.
7) Merchant banks are different from traditional commercial banks in what way(s)?
A) Merchant banks can engage in investment banking activities.
B) Merchant banks can arrange for foreign exchange transactions.
C) Merchant banks can assist their clients in hedging exchange rate risk.
D) all of the options
8) By far the most important international finance centers are
A) New York and London.
B) New York, London, and Tokyo.
C) New York, London, Tokyo, Paris, and Zurich.
D) New York, London, Tokyo, Paris, Zurich, and Frankfurt.
9) Multinational banks are often not subject to the same regulations as domestic banks.
A) There may be increased need to publish adequate financial information.
B) There may be reduced need to publish adequate financial information.
C) The requirements to publish adequate financial information are the same.
D) none of the options
10) A domestic bank that follows a multinational client abroad to preserve that banking
relationship
A) is playing the role of the desperate housewife in this relationship.
B) is pursuing a wholesale defensive strategy.
C) is pursuing a retail defensive strategy.
D) none of the options
11) A domestic bank that becomes a multinational bank to prevent erosion by foreign banks of the
traveler's checks, touring, and foreign business market
A) is playing the role of the desperate housewife in this relationship.
B) is pursuing a wholesale defensive strategy.
C) is pursuing a retail defensive strategy.
D) none of the options
12) Banking tends to be
A) a low marginal cost industry.
B) a high marginal cost industry.
C) a constant average cost industry.
D) none of the options
13) A U.S.-based multinational bank
A) would not have to provide deposit insurance and meet reserve requirements on foreign currency
deposits.
B) would have to provide deposit insurance and meet reserve requirements on foreign currency
deposits.
C) would not have to provide deposit insurance but would have to meet reserve requirements on
foreign currency deposits.
D) would have to provide deposit insurance but not meet reserve requirements on foreign currency
deposits.
14) A bank may establish a multinational operation for the reason of low marginal costs. The
underlying rationale being that
A) banks follow their multinational customers abroad to prevent the erosion of their clientele to
foreign banks seeking to service the multinational's foreign subsidiaries.
B) multinational banking operations help a bank prevent the erosion of its traveler's check, tourist,
and foreign business markets from foreign bank competition.
C) managerial and marketing knowledge developed at home can be used abroad with low marginal
costs.
D) the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and
credit investigations for use in that foreign market.
15) A bank may establish a multinational operation for the reason of knowledge advantage. The
underlying rationale being that
A) local firms may be able to obtain from a foreign subsidiary bank operating in their country more
complete trade and financial market information about the subsidiary's home country than they can
obtain from their own domestic banks.
B) by maintaining foreign branches and foreign currency balances, banks may reduce transaction
costs and foreign exchange risk on currency conversion if government controls can be
circumvented.
C) greater stability of earnings is possible with international diversification. Offsetting business
and monetary policy cycles across nations reduces the country-specific risk of any one nation.
D) the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and
credit investigations for use in that foreign market.
16) A bank may establish a multinational operation for the reason of prestige. The underlying
rationale being that
A) local firms may be able to obtain from a foreign subsidiary bank operating in their country more
complete trade and financial market information about the subsidiary's home country than they can
obtain from their own domestic banks.
B) the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and
credit investigations for use in that foreign market.
C) very large multinational banks have high perceived prestige, liquidity, and deposit safety that
can be used to attract clients abroad.
D) multinational banks are often not subject to the same regulations as domestic banks. There may
be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
17) A bank may establish a multinational operation for the reason of risk reduction. The
underlying rationale being that
A) by maintaining foreign branches and foreign currency balances, banks may reduce transaction
costs and foreign exchange risk on currency conversion if government controls can be
circumvented.
B) greater stability of earnings is possible with international diversification. Offsetting business
and monetary policy cycles across nations reduces the country-specific risk of any one nation.
C) multinational banks are often not subject to the same regulations as domestic banks. There may
be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
D) multinational banking operations help a bank prevent the erosion of its traveler's check, tourist,
and foreign business markets from foreign bank competition.
18) A bank may establish a multinational operation for the reason of regulatory advantage. The
underlying rationale being that
A) banks follow their multinational customers abroad to prevent the erosion of their clientele to
foreign banks seeking to service the multinational's foreign subsidiaries.
B) multinational banking operations help a bank prevent the erosion of its traveler's check, tourist,
and foreign business markets from foreign bank competition.
C) by maintaining foreign branches and foreign currency balances, banks may reduce transaction
costs and foreign exchange risk on currency conversion if government controls can be
circumvented.
D) multinational banks are often not subject to the same regulations as domestic banks. There may
be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
19) Currently, the biggest bank in the world is
A) ICBC.
B) Bank of America.
C) UBS.
D) The World Bank.
20) A bank may establish a multinational operation for the reason of retail defensive strategy. The
underlying rationale being that
A) banks follow their multinational customers abroad to prevent the erosion of their clientele to
foreign banks seeking to service the multinational's foreign subsidiaries.
B) multinational banking operations help a bank prevent the erosion of its traveler's check, tourist,
and foreign business markets from foreign bank competition.
C) by maintaining foreign branches and foreign currency balances, banks may reduce transaction
costs and foreign exchange risk on currency conversion if government controls can be
circumvented.
D) multinational banks are often not subject to the same regulations as domestic banks. There may
be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
21) A bank may establish a multinational operation for the reason of wholesale defensive strategy.
The underlying rationale being that
A) banks follow their multinational customers abroad to prevent the erosion of their clientele to
foreign banks seeking to service the multinational's foreign subsidiaries.
B) multinational banking operations help a bank prevent the erosion of its traveler's check, tourist,
and foreign business markets from foreign bank competition.
C) by maintaining foreign branches and foreign currency balances, banks may reduce transaction
costs and foreign exchange risk on currency conversion if government controls can be
circumvented.
D) multinational banks are often not subject to the same regulations as domestic banks. There may
be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
22) Which of the following are reasons why a bank may establish a multinational operation?
A) Low marginal and transaction costs
B) Home nation information services, and prestige
C) Growth and risk reduction
D) all of the options
23) A bank may establish a multinational operation for the reason of transaction costs. The
underlying rationale being that
A) banks follow their multinational customers abroad to prevent the erosion of their clientele to
foreign banks seeking to service the multinational's foreign subsidiaries.
B) multinational banking operations help a bank prevent the erosion of its traveler's check, tourist,
and foreign business markets from foreign bank competition.
C) by maintaining foreign branches and foreign currency balances, banks may reduce transaction
costs and foreign exchange risk on currency conversion if government controls can be
circumvented.
D) multinational banks are often not subject to the same regulations as domestic banks. There may
be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
24) A bank may establish a multinational operation for the reason of growth. The rationale being
that
A) growth prospects in a home nation may be limited by a market largely saturated with the
services offered by domestic banks.
B) multinational banks are often not subject to the same regulations as domestic banks. There may
be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
C) greater stability of earnings is possible with international diversification. Offsetting business
and monetary policy cycles across nations reduces the country-specific risk of any one nation.
D) by maintaining foreign branches and foreign currency balances, banks may reduce transaction
costs and foreign exchange risk on currency conversion if government controls can be
circumvented.
25) A bank may establish a multinational operation for the reason of home country information
services. The underlying rationale being that
A) by maintaining foreign branches and foreign currency balances, banks may reduce transaction
costs and foreign exchange risk on currency conversion if government controls can be
circumvented.
B) local firms may be able to obtain from a foreign subsidiary bank operating in their country more
complete trade and financial market information about the subsidiary's home country than they can
obtain from their own domestic banks.
C) the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and
credit investigations for use in that foreign market.
D) greater stability of earnings is possible with international diversification. Offsetting business
and monetary policy cycles across nations reduces the country-specific risk of any one nation.
26) A correspondent bank relationship is established when
A) two banks maintain deposits with one another.
B) two banks write to each other about the credit conditions of their countries.
C) a group of banks form a syndicate to spread out the risk and cost of a large bond offering.
D) all of the options
27) Correspondent bank relationships can be beneficial
A) because a bank can service its MNC clients at a very low cost.
B) because a bank can service its MNC clients without the need to have personnel in many
different countries.
C) because a bank can service its MNC clients without developing its own foreign facilities to
service its clients.
D) all of the options
28) Consider a U.S. importer desiring to purchase merchandise from a Dutch exporter invoiced in
euros, at a cost of €160,000. The U.S. importer will contact his U.S. bank (where, of course, he has
an account denominated in U.S. dollars) and inquire about the exchange rate, which the bank
quotes as €0.6250/$1.00. The importer accepts this price, so his bank will proceed to ________ the
importer's account in the amount of ________.
A) debit; $256,000
B) credit; €512,100
C) credit; $500,000
D) debit; €100,000
29) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's
correspondent account(s) with bank B if a currency trader employed at Bank A buys £45,000 from
a currency trader at bank B for $90,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will rise by $90,000.
B) Bank B's dollar-denominated account at A will fall by $90,000.
C) Bank A's pound-denominated account at B will rise by £45,000.
D) Bank B's pound-denominated account at A will rise by £45,000.
30) Correspondent bank services include
A) prepaid postage and packing materials.
B) letters of introduction.
C) foreign exchange conversions.
D) letters of introduction and foreign exchange conversions.
31) The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's
correspondent account(s) with bank B if a currency trader employed at Bank A buys £45,000 from
a currency trader at bank B for $90,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will fall by $90,000.
B) Bank B's dollar-denominated account at A will rise by $90,000.
C) Bank A's pound-denominated account at B will rise by £45,000.
D) Bank B's pound-denominated account at A will fall by £45,000.
E) all of the options
32) The current exchange rate is €1.00 = $1.50. Compute the correct balances in Bank A's
correspondent account(s) with bank B if a currency trader employed at Bank A buys €100,000
from a currency trader at bank B for $150,000 using its correspondent relationship with Bank B.
A) Bank A's dollar-denominated account at B will fall by $150,000.
B) Bank B's dollar-denominated account at A will fall by $150,000.
C) Bank A's euro-denominated account at B will fall by €100,000.
D) Bank B's euro-denominated account at A will rise by €100,000.
33) A representative office
A) is what lawyers' offices are called in Mexico.
B) is a small service facility staffed by parent bank personnel that is designed to assist MNC clients
of the parent bank in dealings with the bank's correspondents.
C) is a small service facility staffed by correspondent bank personnel that is designed to assist
MNC clients of the parent bank in dealings with the bank's correspondents.
D) none of the options
34) A representative office
A) is a way for the parent bank to provide its MNC clients with a level of service greater than that
provided through merely a correspondent relationship.
B) is a small service facility staffed by parent bank personnel that is designed to assist MNC clients
of the parent bank in dealings with the bank's correspondents.
C) is a step up from a correspondent relationship, but below a foreign branch.
D) all of the options
35) A foreign branch bank
A) is a small service facility staffed by parent bank personnel that is designed to assist MNC
clients of the parent bank in dealings with the bank's correspondents.
B) operates like a local bank, but legally is a part of the parent bank.
C) is subject to domestic regulation only.
D) all of the options
36) A foreign branch bank
A) is a small service facility staffed by parent bank personnel that is designed to assist MNC
clients of the parent bank in dealings with the bank's correspondents.
B) operates like a local bank, but legally is a part of the parent bank.
C) is subject to domestic regulation only.
D) all of the options
37) Why would a U.S. bank open a foreign branch bank?
A) Because this form of bank organization can allow a U.S. bank to provide a fuller range of
services for its MNC customers than it can through a representative office.
B) To avoid U.S. banking regulation on transactions routed through that foreign country.
C) Because this form of organization allows the bank to service MNC clients at low cost and
without the need of having bank personnel located in the country.
D) Because this form of bank organization can allow a U.S. bank to provide a fuller range of
services for its MNC customers than it can through a representative office, and to avoid U.S.
banking regulation on transactions routed through that foreign country.
38) Why would a U.S. bank open a foreign branch bank instead of a foreign chartered subsidiary?
A) This form of bank organization allows the bank to be able to extend a larger loan to a customer
than a locally chartered subsidiary bank of the parent.
B) To slow down check clearing and maximize the bank's float.
C) To avoid U.S. banking regulation.
D) This form of bank organization allows the bank to be able to extend a larger loan to a customer
than a locally chartered subsidiary bank of the parent, as well as avoid U.S. banking regulation.
39) The most popular way for a U.S. bank to expand overseas is
A) branch banks.
B) representative offices.
C) subsidiary banks.
D) affiliate banks.
40) A foreign branch bank operates like a local bank, but legally
A) it is a part of the parent bank.
B) a branch bank is subject to both the banking regulations of its home country and the country in
which it operates.
C) a branch bank is subject to only the banking regulations of its home country and not the country
in which it operates.
D) it is a part of the parent bank, and a branch bank is subject to both the banking regulations of its
home country and the country in which it operates.
41) The major legislation controlling the operation of foreign banks in the U.S.
A) specifies that foreign branch banks operating in the U.S. must comply with U.S. banking
regulations just like U.S. banks.
B) specifies that foreign branch banks operating in the U.S. must comply with their
country-of-origin banking regulations just like U.S. banks operating abroad.
C) specifies that the "shell" branches are illegal for U.S. and foreign banks.
D) specifies that foreign branch banks operating in the U.S. must comply with U.S. banking
regulations just like U.S. banks, and also specifies that the "shell" branches are illegal for U.S. and
foreign banks.
42) A subsidiary bank is
A) a locally incorporated bank that is wholly owned by a foreign parent.
B) a locally incorporated bank that is majority owned by a foreign parent.
C) a locally incorporated bank that is partially owned (but not controlled) by a foreign parent.
D) a locally incorporated bank that is wholly (or majority) owned by a foreign parent.
43) An affiliate bank is
A) a locally incorporated bank that is wholly owned by a foreign parent.
B) a locally incorporated bank that is majority owned by a foreign parent.
C) a locally incorporated bank that is partially owned (but not controlled) by a foreign parent.
D) a locally incorporated bank that is wholly (or majority) owned by a foreign parent.
44) Both subsidiary and affiliate banks
A) operate under the banking laws of the country in which they are incorporated.
B) operate under the banking laws of the U.S.
C) can underwrite securities, but not accept dollar-denominated deposits.
D) operate under the banking laws of the country in which they are incorporated, as well as the
banking laws of the U.S.
45) U.S. banks that establish subsidiary and affiliate banks
A) are allowed to underwrite securities.
B) must provide FDIC insurance on their foreign-currency denominated demand deposits.
C) can underwrite securities, but not accept dollar-denominated deposits.
D) are allowed to underwrite securities and must provide FDIC insurance on their
foreign-currency denominated demand deposits.
46) Foreign banks that establish subsidiary and affiliate banks in the U.S.
A) tend to locate in states that are major centers of financial activity.
B) tend to locate in the highly populous states of New York, California, Illinois, Florida, Georgia,
and Texas.
C) can underwrite securities, but not accept dollar-denominated deposits.
D) tend to locate in states that are major centers of financial activity, as well as the highly populous
states of New York, California, Illinois, Florida, Georgia, and Texas.
47) Edge Act banks are so-called because
A) they are federally chartered subsidiaries of U.S. banks that are physically located in the United
States and are allowed to engage in a full range of international banking activities.
B) Senator Walter E. Edge of New Jersey sponsored the 1919 amendment to Section 25 of the
Federal Reserve Act to allow U.S. banks to be competitive with the services foreign banks could
supply their customers.
C) they can only be chartered in states that are on the borders of the United States—on the "edge"
of the map.
D) none of the options
48) Edge Act banks
A) can accept foreign deposits, extend trade credit, finance foreign projects abroad, trade foreign
currencies, and engage in investment banking activities with U.S. citizens involving foreign
securities.
B) are federally chartered subsidiaries of U.S. banks that are physically located in the United States
and are allowed to engage in a full range of international banking activities.
C) can underwrite securities, but can only be located in states on the edge of the U.S.
D) can accept foreign deposits, extend trade credit, finance foreign projects abroad, trade foreign
currencies, and engage in investment banking activities with U.S. citizens involving foreign
securities, and are federally chartered subsidiaries of U.S. banks that are physically located in the
United States and are allowed to engage in a full range of international banking activities.
49) Edge Act banks
A) are not prohibited from owning equity in business corporations.
B) are prohibited from owning equity in business corporations.
C) could be prohibited (or not) from owning equity in business corporations.
D) none of the options
50) An offshore banking center is
A) a country whose banking system is organized to permit external accounts beyond the normal
economic activity of the country.
B) is external to any government, frequently located on old oil drilling platforms located in
international waters.
C) a country like North Korea.
D) none of the options
51) Offshore banks
A) are frequently located on old oil drilling platforms located in international waters.
B) are often located in "pariah" countries like North Korea and Iran.
C) operate as branches or subsidiaries of the parent bank.
D) none of the options
52) The primary activities of offshore banks
A) include money laundering where banking secrecy laws are strict.
B) is to seek deposits and grant loans in currencies other than the currency of the host government.
C) involve check clearing of large bags of checks.
D) none of the options
53) Which banks cannot accept foreign deposits?
A) Domestic banks located in the U.S.
B) Edge Act banks located in the U.S.
C) Subsidiary banks located overseas
D) Foreign branches located overseas
