Chapter 03: International Financial Markets
a.
48.90
b.
146.70
c.
55.21
d.
none of the above
53. 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.
a.
True
b.
False
54. 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.
a.
True
b.
False
55. 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.
a.
True
b.
False
56. 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.
a.
True
b.
False
57. The term LIBOR refers to international bonds that were issued in London.
a.
True
b.
False
58. The Greece credit crisis in the 2012-2015 period refers to Greece being unable to obtain loans from any banks or
governments.
a.
True
b.
False
59. Institutional investors such as commercial banks, mutual funds, insurance companies, and pension funds from many
countries are major participants in the international bond market.
a.
True
b.
False
60. 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.
a.
True
b.
False
61. Global regulations require that shareholders in all countries have the same rights wherever there are stock markets.
a.
True
b.
False
62. Shareholders have more voting power in some countries than in others.
a.
True
b.
False
63. Shareholders can have influence on a wider variety of management issues in some countries than in others.
a.
True
b.
False
64. The legal protection of shareholders is the same among countries.
a.
True
b.
False
65. Shareholders in some countries may have more power to effectively sue publicly traded firms if their executives or
directors commit financial fraud.
a.
True
b.
False
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.
a.
True
b.
False
67. The government enforcement of securities laws varies among countries.
a.
True
b.
False
Chapter 03: International Financial Markets
68. The degree of financial information that must be provided by public companies is the same in all countries.
a.
True
b.
False
69. In general, stock markets allow for more governance and attract more investors when they have all of the following
except:
a.
b.
c.
d.
70. In general, investors are attracted to stock markets in countries that allow very limited voting rights for shareholders.
a.
True
b.
False
71. If companies cannot rely on stock markets to obtain funds, they will have to rely more heavily on the ____ market to
Chapter 03: International Financial Markets
raise long-term funds.
a.
Derivative
b.
bond
c.
Money
d.
foreign exchange
72. The strike price on a currency option is also known as the exercise price.
a.
True
b.
False
73. 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
74. 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.
a.
True
b.
False
75. 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
76. 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.
77. The interest rate in developing countries is usually very low.
a.
True
b.
False
78. 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
79. 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.
80. Eurodollar deposits consisting of the oil revenues of oil-producing countries are known as:
a.
euros.
b.
petro-euros.
c.
petrodollars.
d.
petro deposits.
81. Which of the following is not true about syndicated loans?
a.
A borrower that receives a syndicated loan incurs various fees besides the interest rate.
b.
The loans are only denominated in U.S. dollars.
c.
The loans are provided by a group of banks to a borrower.
d.
All of the above are true
Chapter 03: International Financial Markets
82. The interest rate on the syndicated loan depends all of the following except:
a.
currency denominating the loan.
b.
maturity of the loan.
c.
creditworthiness of the borrower.
d.
loan provisions set by the International Monetary Fund
83. Assume a U.S. firm has to pay for Korean imports in 60 days. It expects that the Korean won will depreciate, but it
still wants to hedge its risk. What type of hedging is most appropriate in this situation?
a.
Buy dollars forward.
b.
Sell dollars forward.
c.
Purchase call option.
d.
Purchase put option.
84. Certificates representing bundles of the stock of a non-U.S. firm are called:
a.
Eurobonds.
b.
ADRs.
c.
FRNs.
d.
LIBOR certificates.
85. Assume that the spot rate of the Singapore dollar is $.664. The ADR of a Singapore firm is convertible into 3 shares of
stock. The price of an ADR is $20. What is the share price of the firm in Singapore dollars?
a.
10
b.
13.28
c.
30.12
d.
39.84
86. Which of the following is not true regarding ADRs?
a.
ADRs are denominated in the currency of the stock’s home country.
b.
ADRs enable U.S. investors to avoid cross-border transactions.
c.
ADRs allow non-U.S. firms to tap into the U.S. market for funds.
d.
ADRs sometimes allow for arbitrage opportunities.
87. The more intense the competition for a traded currency, the larger the bid/ask spread.
a.
True
b.
False
88. The bid/ask spreads quoted on more liquid, heavily traded currencies are larger than the spreads on less liquid, less
traded currencies.
a.
True
Chapter 03: International Financial Markets
b.
False
89. At any given point in time, a bank’s bid quote will be greater than its ask quote.
a.
True
b.
False
90. An MNC with receivables in Japanese yen purchases yen forward to hedge its exposure to exchange rate fluctuations.
a.
True
b.
False
91. 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.
a.
True
b.
False
92. The LIBOR varies among currencies because the market supply of and the demand for funds vary among currencies.
a.
True
b.
False
Chapter 03: International Financial Markets
93. The international money market is frequently accessed by MNCs for short-term investment and financing needs, while
longer-term financing needs are met in the international credit market or the international bond market and in international
stock markets.
a.
True
b.
False
94. Which of the following is not a possible bid/ask quotation for the Barbados dollar?
a.
$.50/$.51
b.
$.49/$.50
c.
$.52/$.51
d.
$.51/$.52
e.
All of the above are possible bid/ask quotations.
95. Your company expects to receive 5,000,000 Japanese yen 60 days from now. You decide to hedge your position by
selling Japanese yen forward. The current spot rate of the yen is $.0089, while the forward rate is $.0095. You expect the
spot rate in 60 days to be $.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now if you sell
yen forward?
a.
$44,500
b.
$45,000
c.
$526 million
d.
$47,500
e.
$556 million
96. Which of the following is probably not an example of the use of forward contracts by an MNC?
a.
Hedging pound payables by selling pounds forward
b.
Hedging peso receivables by selling pesos forward
c.
Hedging yen payables by purchasing yen forward
d.
Hedging peso payables by purchasing pesos forward
e.
All of the above are examples of using forward contracts.
97. A quotation representing the value of a foreign currency in dollars is referred to as a(n) ____ quotation; a quotation
representing the number of units of a foreign currency per dollar is referred to as a(n) ____ quotation.
a.
direct; indirect
b.
indirect; direct
c.
direct; direct
d.
indirect; indirect
e.
cannot be answered without more information
98. You observe a quotation of the Japanese yen (¥) of $0.007. You are, however, interested in the number of yen per
dollar. Thus, you calculate the ____ quotation of ____ ¥/$.
a.
direct; 142.86
b.
indirect; 142.86
c.
indirect; 150
d.
direct; 150
e.
indirect; 0
99. Which of the following is not true regarding electronic communications networks (ECNs)?
a.
They have a visible trading floor.
b.
Trades are executed by a computer network.
c.
They have been created in many countries to match orders between buyers and sellers.
d.
They allow investors to place orders on their computers.
e.
All of the above are true.
100. Which of the following is probably not appropriate for an MNC wishing to reduce its exposure to British pound
payables?
a.
Purchase pounds forward.
b.
Buy a pound futures contract.
c.
Buy a pound put option.
d.
Buy a pound call option.
101. The process by which higher credit risk in one country is transmitted to another country is called:
a.
interest rate risk.
b.
credit contagion.
c.
.intermediation
d.
negative cointegration
102. An MNC’s short-term financing decisions are satisfied in the ____ market, while its medium-term debt financing
decisions are satisfied in the ____ market.
a.
international money; international credit
b.
international money; international bond
c.
international credit; international money
d.
international bond; international credit
e.
international money; international stock