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Student name:__________
1) What is a capital market? Define market makers.
2) Explain how equity loans and debt loans differ in terms of attractiveness to businesses.
3) Explain the changes observed in the risk of investments when an investor increases the
number of stocks in his or her portfolio.
4) There is a low correlation between the movement of stock markets in two different
countries. What are the two factors that influence this?
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5) Discuss the impact of technology on the growth of the global capital market.
6) Briefly describe the trends observed in the global deregulation of financial services.
7) What are the financial advantages that make the Eurocurrency market attractive to both
depositors and borrowers?
8) What are the drawbacks of the Eurocurrency market?
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9) Describe a fixed-rate bond.
10) What are foreign bonds?
11) Explain Eurobonds with an example.
12) Write a brief note on foreign exchange risks and the cost of capital.
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13) How can a borrower hedge against unpredictable movements in exchange rates?
14) How does growth in global capital markets impact investing firms?
15) Market makers are the financial service companies that connect investors and borrowers.
Those who want to borrow money typically include
A) governments.
B) corporations with surplus cash.
C) pension funds.
D) insurance companies.
16) _____ perform a direct connection function in capital markets.
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A) Insurance brokers
B) Investment banks
C) Pension fund managers
D) Commercial banks
17) _____ requires a corporation to repay a predetermined portion of the loan amount at
regular intervals regardless of how much profit it is making.
A) An equity loan
B) A stock loan
C) A debt loan
D) A bonded loan
18) The liquidity of the market is _____ in a purely domestic capital market.
A) held in reserves
B) unlimited
C) based upon the stock market
D) limited
19) The cost of capital is
A) higher in a purely domestic capital market than in a global market.
B) lower in a domestic capital market than in an international market.
C) higher in a global market than in a purely domestic capital market.
D) the same in either a global market or a purely domestic capital market.
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20) The risk associated with a portfolio
A) declines exponentially as the number of stocks purchased increases and continues to
decline until a point of zero risk is reached.
B) decreases as the investor increases the number of stocks in her portfolio.
C) grows exponentially with the number of stocks purchased.
D) increases as the investor increases the number of stocks in her portfolio.
21) The systematic risk of the stock market is the
A) movement in a stock portfolio’s value that is attributable to the individual selections
made for that portfolio.
B) level of diversifiable risk in an economy.
C) movement of the economy of a country.
D) level of nondiversifiable risk in an economy.
22) A _____ brings together those who want to invest money and those who want to borrow
money.
A) consumer market
B) value chain
C) supply chain
D) capital market
23) Market makers are
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A) financial service companies that connect investors and borrowers.
B) nonbank financial institutions who want to invest money.
C) high net worth individuals with surplus cash to reinvest.
D) those who want to borrow money including individuals, companies, and
governments.
24) Which of the following statements is true of market makers?
A) Commercial banks are not allowed to function as market makers.
B) Market makers are large investors who drive an economy.
C) Market makers facilitate only equity-based loans.
D) Market makers connect investors and borrowers in a capital market.
25) An equity loan is made when
A) a corporation pledge equities or other assets to borrow money.
B) corporations avail cash loans from individuals.
C) a corporation sells stock to investors.
D) corporations issue bonds to individual investors.
26) Which of the following statements is true of debt loans?
A) Management has the discretion in paying the amount to investors.
B) Debt loans should be repaid at regular intervals.
C) Returns from debt loans are variable in nature.
D) Corporations need not pay back the debt loans if they incur losses.
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27) When an investor purchases a corporate bond, he purchases the right to receive a
A) share of the overall revenues that the company generates.
B) part of the title for the assets that the corporate holds.
C) specified fixed stream of income from the corporation.
D) share of the profits that the company generates through operations.
28) An important drawback of a purely domestic capital market is that the
A) investment does not receive protection from governments.
B) investments are riskier than in global capital markets.
C) market lacks a strong regulatory mechanism.
D) cost of capital tends to be higher than it is in a global market.
29) A purely domestic capital market faces the problem of
A) foreign exchange risk.
B) limited liquidity.
C) lack of regulation.
D) deregulated markets.
30) The cost of capital is the
A) interest received on investments made by the company.
B) price of borrowing money.
C) difference between cost of inputs and outputs.
D) total value of raw materials that a company uses.
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31) As investors increase the number of stocks in their portfolio, the portfolio’s risk
A) increases initially and declines later.
B) declines slowly and steadily.
C) increases exponentially.
D) declines rapidly in the beginning.
32) Systematic risk refers to movements in a stock portfolio’s value that are
A) attributable to macroeconomic forces affecting an economy.
B) specific to the firm or individuals who invest in a portfolio.
C) attributable to factors pertaining to an individual firm.
D) specific to the company that facilitates the investment portfolio.
33) The relatively low correlation between the movement of stock markets in different
countries indicates that
A) diversifying a portfolio will increase the risk of investing.
B) most countries face similar economic conditions.
C) countries pursue different macroeconomic policies.
D) most stock markets are highly segmented from each other.
34) The element of risk into investing in foreign assets is greater with _____ exchange rates.
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A) floating
B) pegged
C) fixed
D) managed
35) ________ is made when a corporation sells stock to investors.
A) A corporate bond sale
B) A debt loan
C) A Eurobond investment
D) An equity loan
36) In _____, the limited pool of investors implies that borrowers must pay more to persuade
investors to lend them their money.
A) a purely domestic market
B) a mixed market
C) an international market
D) a purely Euro market
37) Investors are able to reduce risks by diversifying an investment portfolio internationally,
and the risk reduction effects would be greater if not for
A) volatile exchange rates associated with the current floating exchange risk regime.
B) the different kinds of tax regimes in different countries.
C) the inaccessibility of foreign stock exchanges to most investors.
D) the poor quality of many stocks in international start-up firms.
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38) A _____ market benefits investors by providing a wider range of investment
opportunities, thereby allowing them to build portfolios of international investments that
diversify their risks.
A) foreign exchange
B) global capital
C) domestic exchange
D) domestic capital
39) Which of the following statements is true of the use of information technology in
financial services?
A) Information technology prevents the spread of financial crises.
B) Financial services are an information-intensive industry.
C) Financial services do not use decision-making systems.
D) It does not require the processing of large volumes of information.
40) What is a disadvantage of the integration of the international capital market facilitated by
technology?
A) Segregated international capital markets will emerge as a result of technology.
B) Complexity in processing large volumes of data will increase.
C) Shocks that occur in one financial center will spread globally.
D) Systems integration hinders real-time data transfer across different countries.
41) Hedge funds position themselves to make ________ bets on assets that they think will
________.
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A) long; weather a volatile market
B) long; increase in value
C) short; weather a volatile market
D) short; increase in value
42) Which of the following statements is true of the deregulation of the financial industry?
A) Countries can strengthen the global capital market by encouraging strict regulations.
B) Financial services have historically been the most deregulated of all industries.
C) Deregulation helped the development of an international capital market.
D) Deregulation compels financial services companies to remain as domestic
companies.
43) Hedge funds
A) are public investment funds that invest in corporate bonds and shares.
B) make long bets rather than short bets.
C) are investment funds managed by the government.
D) make short bets on assets that they think will decline in value.
44) Some analysts, who believe that globalization of capital has serious risks, argue that
A) capital does not shift in and out of countries as quickly as conditions change.
B) individual nations are becoming more vulnerable to speculative capital flows.
C) deregulation of trade is helpful for the economic growth in a country.
D) most of the capital that moves internationally is pursuing long-term gains.
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45) What is a disadvantage of the global capital market?
A) Foreign investments may be driven by speculative flows in the market.
B) A truly global market reduces the liquidity of investments.
C) The availability of capital is low in a global capital market.
D) The cost of capital is more in a global market than a domestic market.
46) According to some analysts, deregulation and reduced controls on cross-border capital
flows are
A) having a stabilizing effect on national economies.
B) making individual nations more vulnerable to speculative capital flows.
C) making investors nervous and causing them to pull their money out of foreign
nations.
D) allowing undeveloped nations to enter the global market.
47) Harvard economist Martin Feldstein argues that the lack of patient money is due to
A) the flood of information, due to the Internet, that investors receive about current
events in other countries.
B) money owners and managers preferring to keep their money “home.”
C) the relative scarcity of information that investors have about foreign investments.
D) money owners and managers preferring to place their money in foreign investments.
48) A Eurocurrency is
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A) the currency used by the countries of the European Union.
B) the currency formerly used in many European countries before the formation of the
European Union and the institution of the euro.
C) any currency banked outside of its country of origin.
D) any currency banked within a European country.
49) The Eurocurrency market is attractive to both depositors and borrowers because
A) it allows fair trade within the European Union.
B) it has strong government regulations and safeguards.
C) of its commitment to economic growth in underdeveloped nations.
D) of its lack of government regulation.
50) _____ is characterized by a lack of government regulation.
A) The Eurocurrency market
B) A money market fund
C) The New Your Stock Exchange
D) A hedge fund
51) _____ deposits are regulated in all industrialized countries.
A) U.S. currency
B) Domestic currency
C) Foreign currency
D) Eurocurrency
52) Companies receive _____ when using the Eurocurrency market.
A) a lower interest rate on deposits and pay more for loans
B) tax incentives
C) a higher interest rate on deposits and pay less for loans
D) liquid asset reserve waiver
53) Investors who purchase a fixed-rate bond receive
A) incremental payouts until the bonded money runs out.
B) cash payoffs only at maturity.
C) a full cash payoff on demand.
D) a fixed set of cash payoffs.
54) Foreign bonds sold in the United States are
A) Yankee bonds.
B) Uncle Sam’s bonds.
C) Bulldogs.
D) Eagles.
55) _____ are normally underwritten by an international syndicate of banks.
A) Samurai bonds
B) Eurobonds
C) Yankee bonds
D) Foreign bonds