Version 1 16
56) Eurodollars are
A) the exchange value of the dollar with the euro.
B) used to pay for imports from Europe.
C) dollars banked outside of the United States.
D) the exchange buffer that the euro has against dollar.
57) Which of the following statements is true of Eurocurrency?
A) The Eurocurrency market is a relatively high-cost source of funds.
B) It is produced and banked within European countries.
C) Eurocurrency can be created anywhere in the world.
D) It is used only for internal transactions within European Union.
58) The main factor that makes the Eurocurrency market attractive to both depositors and
borrowers is that it
A) is separated from the foreign exchange market.
B) lacks government regulation.
C) is associated with low risk.
D) gives high levels of investor protection.
59) Banks offer higher interest rates on Eurocurrency deposits than on deposits made in the
home currency because Eurocurrency deposits
Version 1 17
A) are funded by the European union.
B) lack government regulations.
C) are associated with low risk.
D) have minimum foreign exchange risk.
60) What is an advantage that banks have when they deal with foreign currencies?
A) Interest payments to customers are low when dealing with foreign currencies.
B) Accounts need not be maintained when dealing with foreign currencies.
C) Risks that investors face are low when dealing with foreign currencies.
D) Governments give banks more freedom when dealing with foreign currencies.
61) When using the Euromarkets, companies
A) have funds that lack liquidity.
B) pay less for loans.
C) attract low interest rates.
D) are secured from foreign exchange risks.
62) One drawback of the Eurocurrency market is
A) increased governmental controls.
B) high reserve ratio requirements.
C) low interest rates on deposits.
D) exposure to foreign exchange risk.
63) Which of the following is true of fixed-rate bonds?
Version 1 18
A) Returns from fixed-rate bonds are dependent on the profitability of the issuing
company.
B) Investors get back the face value of the bond at maturity of fixed-rate bonds.
C) Fixed-rate bonds issue cash payoffs only at maturity of fixed-rate bonds.
D) Investors get a share of the company’s profit when using fixed-rate bonds.
64) _____ are sold outside of the borrower’s country and are denominated in the currency of
the country in which they are issued.
A) Micro bonds
B) Eurobonds
C) Foreign bonds
D) Regulatory bonds
65) The United States sells bonds that are denominated in dollars in Europe.This isan
example of a
A) foreign bond.
B) Eurobond.
C) micro bond.
D) regulatory bond.
66) _____ are international bonds, normally underwritten by an international syndicate of
banks and placed in countries other than the one in whose currency the bond is denominated.
A) Micro bonds
B) Foreign bonds
C) Eurobonds
D) Regulatory bonds
Version 1 19
67) Eurobonds are
A) denominated in the currency of the country in which they are issued.
B) normally underwritten by an international syndicate of banks.
C) denominated in a currency that is accepted by the European Union.
D) sold outside the borrower’s county with reference to the originating currency.
68) An Italian corporation issues a bond denominated in dollars that has no regulatory
interference. This is an example of a
A) foreign bond.
B) Eurobond.
C) micro bond.
D) regulatory bond.
69) What makes Eurobonds more attractive than most major domestic bonds?
A) presence of regulatory interference
B) strong disclosure requirements
C) favorable tax status
D) protection from exchange risks
70) Historically, _____ separated national equity markets from each other.
Version 1 20
A) substantial regulatory barriers
B) fixed exchange rates
C) financial similarities
D) desire for high levels of profit
71) Approximately two-thirds of all Eurocurrencies are
A) Euro-yen.
B) Euro-pound.
C) Euro-euro.
D) Euro-dollars.
72) Which of the following is a drawback of the Eurocurrency market?
A) Borrowing funds within its home country can expose a company to foreign exchange
risk.
B) There is a greater probability of a bank failure that would cause depositors to lose
their money.
C) The system is overregulated and, therefore, more costly.
D) The higher interest rate received on home-country deposits reflects the costs of
insuring against bank failure.
73) Which of the following is true of the Eurobond market?
A) There are many regulations that protect investors.
B) Government limitations are generally more stringent for securities denominated in
foreign currencies.
C) There are less stringent disclosure requirements than in most domestic bond markets.
D) They have an unfavorable tax status.
Version 1 21
74) _____ can inject risk into foreign currency borrowing.
A) Movements in exchange rates
B) Use of fixed-exchange rates
C) Issue of domestic bonds
D) Use of pegged exchange rates
75) Borrowers can hedge against foreign exchange risks by entering into a _____ contract.
A) hedge fund insurance
B) prevailing exchange rate
C) forward
D) global capital market
76) Entering into a forward contract will
A) increase the risk involved in a transaction.
B) lower the borrower’s cost of capital.
C) benefit the borrower because the interest rate will be lower.
D) raise the borrower’s cost of capital.
77) A capital market brings together those who want to invest money and those who want to
borrow money.
⊚ true
⊚ false
Version 1 22
78) Debt loans include cash loans from banks and funds raised from the sale of corporate
bonds to investors.
⊚ true
⊚ false
79) The cost of capital is the difference between cost of inputs and outputs.
⊚ true
⊚ false
80) By using the global capital market, investors have a much wider range of investment
opportunities than in a purely domestic capital market.
⊚ true
⊚ false
81) Investors can reduce the level of risk by diversifying a portfolio internationally.
⊚ true
⊚ false
82) The relatively low correlation between the movements of stock markets in different
countries indicates that countries face different economic conditions.
⊚ true
⊚ false
83) Using floating exchange rates will help countries reduce the risk of investing in foreign
assets.
Version 1 23
⊚ true
⊚ false
84) Financial services is an information-intensive industry.
⊚ true
⊚ false
85) The cost of recording, transmitting, and processing information has doubled with
advancements in technology since 1964.
⊚ true
⊚ false
86) Financial services has historically been the most tightly regulated of all industries.
⊚ true
⊚ false
87) The Eurocurrency market has been one cause of a decrease in global financial
regulations.
⊚ true
⊚ false
88) The globalization of capital has been universally seen as a positive development.
⊚ true
⊚ false
Version 1 24
89) Economist Martin Feldstein has coined the term “hot money” to pertain to long-term
capital flows.
⊚ true
⊚ false
90) The global capital market often lacks information about the fundamental quality of
foreign investments.
⊚ true
⊚ false
91) If the international capital market continues to grow, financial intermediaries likely will
provide less quality information about foreign investment opportunities.
⊚ true
⊚ false
92) Any currency can become a Eurocurrency.
⊚ true
⊚ false
93) Banks charge borrowers a lower interest rate on Eurocurrency borrowings than for
borrowings in the home currency.
⊚ true
⊚ false
94) The spread between the Eurocurrency deposit rate and the Eurocurrency lending rate is
more than the spread between the domestic deposit and lending rates.
Version 1 25
⊚ true
⊚ false
95) Governments give banks less freedom when they deal in foreign currencies.
⊚ true
⊚ false
96) Depositors are not protected against bank failures in the Eurocurrency market.
⊚ true
⊚ false
97) Foreign bonds are sold within the borrower’s country and are denominated in the
currency of the country in which they are issued.
⊚ true
⊚ false
98) Eurobonds are usually offered to residents of the country in whose currency they are
denominated.
⊚ true
⊚ false
99) Government limitations are more severe for securities denominated in foreign currencies
than for domestic securities.
⊚ true
⊚ false
Version 1 26
100) Eurobonds fall within the regulatory domain of the European Economic Community.
⊚ true
⊚ false
101) Historically, regulatory barriers have made national equity markets work together.
⊚ true
⊚ false
102) A Chinese firm borrows 1 million U.S. dollars from an American bank. The cost of this
loan will be less if the U.S. dollar appreciates against the Chinese currency.
⊚ true
⊚ false
103) The forward exchange market does not provide adequate coverage for long-term
borrowings.
⊚ true
⊚ false
Answer Key
Test name: chapter 12
Version 1 30