CHAPTER 21
INTERNATIONAL FINANCIAL MARKETS AND INSTRUMENTS:
An Introduction
B. Multiple-Choice Questions
6. If a French citizen places $100,000 in an Italian bank and an Italian citizen places
$40,000 in a French bank, “international bank lending” has increased by __________.
7. The “globalization of finance” in relatively recent years
a. is an entirely new phenomenon in the world economy.
8. Which one of the following is NOT a component of international bank lending?
9. Suppose that short-term interest rates rise in the United States and, consequently, U.K.
financial investors respond by sending funds to the United States (and cover those funds
against any exchange rate change that might occur between the time of the investment
and the time of returning the funds and interest to the United Kingdom). In this situation,
which one of the following events will NOT occur?
10. Which one of the following gives rise to a new eurocurrency deposit?
a. a U.S. exporter receives payment from a U.K. importer in U.S. dollars drawn on a
11. If a French citizen places $100,000 in an Italian bank and an Italian citizen places
$40,000 in a French bank, “net international bank lending” increased by __________.
12. The increasing importance of international stock transactions most likely will
a. result in international portfolio diversification.
13. A London exporting firm’s dollar-denominated checking account in a New York bank
__________ of the eurodollar market; a London exporting firm’s dollar-denominated
checking account in a London bank __________ of the eurodollar market.
14. A surge in international bank lending could be potentially economically destabilizing
because
15. The eurodollar deposit rate would theoretically be expected to lie __________ the
domestic U.S. deposit rate, and the eurodollar lending rate would theoretically be
expected to lie __________ the U.S. domestic lending rate.
16. The growth in the last 10-30 years in international bond markets
a. should result in exactly equal interest rates on two identical assets, even though the
17. A eurodollar interest rate swap
18. An approximation to the “real” interest rate can be calculated by
19. Eurodollars __________ be borrowed by U.S. banks for use in the United States, and,
because of this fact, the conduct of effective monetary policy in the United States is
__________ than would otherwise be the case.
20. A U.S. mutual fund that purchases packages of equities that contain stocks of
corporations both in the United States and in other countries worldwide is called
21. The buyer of a eurodollar call option gets the right to __________ a eurodollar time
deposit at a specified interest rate (say 5 percent) on a specified future date. If, at that
future date, the market interest rate is above 5 percent, this individual ________ exercise
the option.
22. Global derivative instruments do NOT include which one of the following?
23. One hundred basis points in terms of dollars is equal to __________.