Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 1
Indicate whether the statement is true or false.
1. A cross exchange rate expresses the amount of one foreign currency per unit of another foreign currency.
a.
True
b.
False
2. 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
3. The more intense the competition for a traded currency, the larger the bid/ask spread.
a.
True
b.
False
4. 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
5. Shareholders can have influence on a wider variety of management issues in some countries than in others.
a.
True
b.
False
6. Under the gold standard, each currency was convertible into gold at a specified rate, and the exchange rate between two
currencies was determined by their relative convertibility rates per ounce of gold.
a.
True
b.
False
7. A currency futures contract is a contract specifying a standard volume of a particular currency to be exchanged on a
specific settlement date.
a.
True
b.
False
8. The interest rate in developing countries is usually very low.
a.
True
b.
False
9. 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
10. The ask quote is the price at which a bank offers to sell a currency.
a.
True
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 2
b.
False
11. 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
12. In general, investors are attracted to stock markets in countries that allow very limited voting rights for shareholders.
a.
True
b.
False
13. Between 2014 and 2017, U.S.-based MNCs issued large quantities of Eurobonds to take advantage of low interest
rates in the eurozone.
a.
True
b.
False
14. The international credit crisis that began in 2008 originated in the credit markets in the eurozone when the
governments of some of the eurozone countries were unable to make interest payments on their debt.
a.
True
b.
False
15. 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
16. The degree of financial information that must be provided by public companies is the same in all countries.
a.
True
b.
False
17. Global regulations prevent the internationalization of money markets.
a.
True
b.
False
18. 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
19. 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
20. The LIBOR varies among currencies because the market supply of and the demand for funds vary among currencies.
a.
True
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 3
b.
False
21. 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
22. 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
23. An MNC with receivables in Japanese yen purchases yen forward to hedge its exposure to exchange rate fluctuations.
a.
True
b.
False
24. Contagion effects represent a decline in a country’s stock market and the effects are isolated in that market.
a.
True
b.
False
25. The interest rate commonly charged for loans between banks is called the cross rate.
a.
True
b.
False
26. Eurobonds are certificates representing bundles of stock.
a.
True
b.
False
27. A put option is the amount or percentage by which the existing spot rate exceeds the forward rate.
a.
True
b.
False
28. Global regulations require that shareholders in all countries have the same rights wherever there are stock markets.
a.
True
b.
False
29. The strike price is also known as the premium price.
a.
True
b.
False
30. Shareholders have more voting power in some countries than in others.
a.
True
b.
False
31. The government enforcement of securities laws varies among countries.
a.
True
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 4
b.
False
32. 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
33. The term LIBOR refers to international bonds that were issued in London.
a.
True
b.
False
34. An investor engaging in a transaction whereby he or she contracts to purchase British pounds one year from now is an
example of a spot market transaction.
a.
True
b.
False
35. 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
36. The Greek crisis that began in 2010 occurred because Greece was unable to obtain loans from any banks or
governments.
a.
True
b.
False
37. The strike price on a currency option is also known as the exercise price.
a.
True
b.
False
38. The legal protection of shareholders is the same among countries.
a.
True
b.
False
39. At any given point in time, a bank’s bid quote will be greater than its ask quote.
a.
True
b.
False
40. The bid/ask spreads quoted on more liquid, heavily traded currencies are larger than the spreads on less liquid, less
traded currencies.
a.
True
b.
False
41. 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
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 5
b.
False
42. The largest stock exchanges by market capitalization are located in China.
a.
True
b.
False
43. The forward rate is the exchange rate used for immediate exchange of currencies.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
44. Eurobonds:
a.
can be issued only by European firms.
b.
can be sold only to European investors.
c.
can be issued only by European firms AND can be sold only to European investors.
d.
None of these are correct.
45. 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
46. According to the text, the forward rate is commonly used for:
a.
hedging.
b.
immediate transactions.
c.
previous transactions.
d.
bond transactions.
47. The international credit market primarily concentrates on:
a.
short-term lending (less than one year).
b.
medium-term lending.
c.
credit cards for individuals.
d.
providing an exchange of foreign currencies for firms that need them.
e.
placing newly issued stock in foreign markets.
48. As a result of the Smithsonian Agreement, the U.S. dollar was:
a.
the currency to be used by all countries as a medium of exchange for international trade.
b.
forced to be freely floating relative to all currencies without any boundaries.
c.
devalued relative to major currencies.
d.
revalued (upward) relative to major currencies.
49. Which of the following is probably not an example of the use of forward contracts by an MNC?
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 6
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 these are examples of using forward contracts.
50. Assume the Canadian dollar is equal to $.88 and the Peruvian nuevo sol is equal to $.35. The value of the Peruvian
nuevosol in Canadian dollars is:
a.
about .3621 Canadian dollars.
b.
about .3977 Canadian dollars.
c.
about 2.36 Canadian dollars.
d.
about 2.51 Canadian dollars.
51. 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
52. 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 spot contract AND forward contract
53. 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 these are possible bid/ask quotations.
54. Which of the following is not a factor that affects the bid/ask spread?
a.
order costs
b.
inventory costs
c.
volume
d.
All of these factors affect the bid/ask spread.
55. 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.
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 7
b.
Sell dollars forward.
c.
Purchase call option.
d.
Purchase put option.
56. Futures contracts are typically ____; forward contracts are typically ____.
a.
sold on an exchange; sold on an exchange
b.
sold in an over-the-counter market; sold on an exchange
c.
sold on an exchange; sold in an over-the-counter market
d.
offered by commercial banks; offered by commercial banks
57. Eurodollar deposits are:
a.
dollar-denominated revenues of oil-producing countries deposited in European banks.
b.
deposits of euros in U.S. banks.
c.
deposits of U.S. dollars in banks in Europe (and elsewhere).
d.
deposits of euros in European banks that are readily convertible into dollars.
58. A forward contract can be used to lock in the ____ of a specified currency at a future point in time.
a.
purchase price
b.
sale price
c.
purchase price or sale price
d.
None of these are correct.
59. Certificates representing bundles of the stock of a non-U.S. firm are called:
a.
Eurobonds.
b.
ADRs.
c.
FRNs.
d.
LIBOR certificates.
60. 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 these are true.
61. Which currency is used the most to denominate Eurobonds?
a.
the British pound
b.
the Japanese yen
c.
the U.S. dollar
d.
the Swiss franc
62. If a U.S. firm will need C$200,000 in 90 days to pay for imports from Canada and it wishes to avoid the risk from
exchange rate fluctuations, it could:
a.
purchase a 90-day forward contract on Canadian dollars.
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 8
b.
sell a 90-day forward contract on Canadian dollars.
c.
purchase Canadian dollars 90 days from now at the spot rate.
d.
sell Canadian dollars 90 days from now at the spot rate.
63. Assume that a bank’s bid rate on Japanese yen is $.0041 and its ask rate is $.0043. Its bid/ask percentage spread is:
a.
about 4.99%.
b.
about 4.88%.
c.
about 4.65%.
d.
about 4.43%.
64. According to the text, the average foreign exchange trading around the world ____ per day.
a.
equals about $200 billion
b.
equals about $400 billion
c.
equals about $700 billion
d.
exceeds $5 trillion
65. The ADR of a British firm is convertible into 3 shares of stock. The share price of the firm was 30 pounds when the
British market closed. When the U.S. market opens, the pound is worth $1.63. The price of this ADR should be $____.
a.
48.90
b.
146.70
c.
55.21
d.
None of these are correct.
66. The international money market is primarily served by:
a.
the governments of European countries, which directly intervene in foreign currency markets.
b.
government agencies such as the International Monetary Fund that promote development of countries.
c.
several large banks that accept deposits and provide loans in various currencies.
d.
small banks that convert foreign currency for tourists and business visitors.
67. The bid/ask spread on an exchange rate can be used to directly determine:
a.
how an exchange rate will change.
b.
the transaction cost of foreign exchange.
c.
the forward premium.
d.
the currency option premium.
68. In general, stock markets allow for more governance and attract more investors when they have all of the following
except:
a.
more voting rights for shareholders.
b.
more legal protection for shareholders.
c.
more enforcement of the laws.
d.
less stringent accounting requirements.
69. The bid/ask spread for small retail transactions is commonly in the range of ____ percent.
a.
3 to 7
b.
.01 to .03
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 9
c.
10 to 15
d.
.5 to 1
70. Forward markets for currencies of developing countries are:
a.
prohibited.
b.
less liquid than markets for currencies of developed countries.
c.
more liquid than markets for currencies of developed countries.
d.
only available for use by government agencies.
71. ____ is not a bank characteristic important to customers in need of foreign exchange.
a.
Quote competitiveness
b.
Speed of execution
c.
Forecasting advice
d.
Advice about current market conditions
e.
All of these are important bank characteristics to customers in need of foreign exchange.
72. 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
73. Which of the following is true?
a.
Non-U.S. firms may desire to issue bonds in the United States due to less regulation there.
b.
U.S. firms may desire to issue bonds in the United States due to less regulation there.
c.
U.S. firms may desire to issue bonds in non-U.S. markets due to less regulation in some other countries.
d.
Non-U.S. firms may desire to issue bonds in the United States due to less regulation there AND U.S. firms
may desire to issue bonds in the United States due to less regulation there.
74. If companies cannot rely on stock markets to obtain funds, they will have to rely more heavily on the ____ market to
raise long-term funds.
a.
derivative
b.
Bond
c.
money
d.
foreign exchange
75. From 1944 to 1971, the exchange rate between any two currencies was typically:
a.
fixed within narrow boundaries.
b.
floating, but subject to central bank intervention.
c.
floating, and not subject to central bank intervention.
d.
nonexistent; that is, currencies were not exchanged, but gold was used to pay for all foreign transactions.
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 10
76. If a U.S. firm is receiving 100,000 euros in 90 days and wishes to avoid the risk from exchange rate fluctuations, it
could:
a.
purchase a 90-day forward contract on euros.
b.
sell a 90-day forward contract on euros.
c.
purchase euros 90 days from now at the spot rate.
d.
sell euros 90 days from now at the spot rate.
77. 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 these can be used to invest internationally.
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. Which of the following is not true regarding the Bretton Woods Agreement?
a.
It called for fixed exchange rates between currencies.
b.
Governments intervened to prevent exchange rates from moving more than 1 percent above or below their
initially established levels.
c.
The agreement lasted from 1944 until 1971.
d.
Each country used gold to back its currency.
e.
All of these are true regarding the Bretton Woods Agreement.
80. The forward market:
a.
for euros is very illiquid.
b.
for currencies of Eastern European countries is very liquid.
c.
does not exist for some currencies.
d.
None of these are correct.
81. 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.
82. A share of the ADR of a Dutch firm represents one share of that firm’s stock that is traded on a Dutch stock exchange.
The share price of the firm was 15 euros when the Dutch market closed. As the U.S. market opens, the euro is worth
$1.10. Thus, the price of the ADR should be ____.
a.
$13.64
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 11
b.
$15.00
c.
$16.50
d.
16.50 euros
e.
None of these are correct.
83. 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.
84. The interest rate on a 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.
85. 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 must be denominated in U.S. dollars.
c.
The loans are provided by a group of banks to a borrower.
d.
All of these are true.
86. A Japanese yen is worth $.0080, and a Fijian dollar (F$) is worth $.5900. What is the value of the yen in Fijian dollars
(i.e., how many Fijian dollars do you need to buy a yen)?
a.
73.75.
b.
125.
c.
1.69.
d.
0.014.
e.
None of these are correct.
87. The international money market primarily concentrates on:
a.
short-term lending (one year or less).
b.
medium-term lending.
c.
long-term lending.
d.
placing bonds with investors.
e.
placing newly issued stock in foreign markets.
88. 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
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 12
89. 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
90. When the foreign exchange market opens in the United States each morning, the opening exchange rate quotations
will be based on the:
a.
closing prices in the United States during the previous day.
b.
closing prices in Canada during the previous day.
c.
prevailing prices in locations where the foreign exchange markets are already open.
d.
officially set by central banks before the U.S. market opens.
91. The U.S. dollar is not accepted as a medium of exchange in:
a.
industrialized countries outside the United States.
b.
in any Latin American countries.
c.
in Eastern European countries where foreign exchange restrictions exist.
d.
None of these are correct.
92. Assume a Japanese firm invoices exports to the United States in U.S. dollars. Assume that the forward rate and spot
rate of the Japanese yen are equal. If the Japanese firm expects the U.S. dollar to ____ against the yen, it would likely
wish to hedge. It could hedge by ____ dollars forward.
a.
depreciate; buying
b.
depreciate; selling
c.
appreciate; selling
d.
appreciate; buying
93. The main participants in the international money market are:
a.
consumers.
b.
small firms.
c.
large corporations.
d.
small European firms needing European currencies for international trade.
94. 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
95. Which of the following is probably not appropriate for an MNC wishing to reduce its exposure to British pound
payables?
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 13
a.
Purchase pounds forward.
b.
Buy a pound futures contract.
c.
Buy a pound put option.
d.
Buy a pound call option.
96. A syndicated loan:
a.
represents a loan by a single bank to a syndicate of corporations.
b.
represents a loan by a single bank to a syndicate of country governments.
c.
represents a direct loan by a syndicate of oil-producing exporters to a less developed country.
d.
represents a loan by a group of banks to a borrower.
e.
represents a loan by a single bank to a syndicate of corporations AND represents a loan by a single bank to a
syndicate of country governments.
97. Which of the following is true of international money market securities?
a.
The securities may be exposed to exchange rate risk.
b.
The securities are perceived to be very risky.
c.
The securities issued by corporations are not subject to credit (default) risk.
d.
The securities have a maturity of one to five years.
98. Which of the following is not true with respect to spot market liquidity?
a.
The more willing buyers and sellers there are, the more liquid a market is.
b.
The spot markets for heavily traded currencies such as the Japanese yen are very liquid.
c.
A currency’s liquidity affects the ease with which an MNC can obtain or sell that currency.
d.
If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange
rate.
99. 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.
100. Eurobonds:
a.
are usually issued in bearer form.
b.
typically carry several protective covenants.
c.
cannot contain call provisions.
d.
are usually issued in bearer form AND typically carry several protective covenants.
101. Assume that a bank’s bid rate on Swiss francs is $.45 and its ask rate is $.47. Its bid/ask percentage spread is:
a.
about 4.44%.
b.
about 4.26%.
c.
about 4.03%.
d.
about 4.17%.
102. LIBOR is:
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 14
a.
the interest rate commonly charged for loans between banks.
b.
the average inflation rate in European countries.
c.
the maximum loan rate ceiling on loans in the international money market.
d.
the maximum deposit rate ceiling on deposits in the international money market.
e.
the maximum interest rate offered on bonds that are issued in London.
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 15
Name:
Class:
Date:
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 17
52. d
53. c
54. d
55. c
56. c
57. c
58. c
59. b
60. a
61. c
62. a
63. c
64. d
65. b
66. c
67. b
68. d
69. a
70. b
71. e
72. d
73. c
74. b
75. a
76. b
Name:
Class:
Date:
Name:
Class:
Date:
Copyright Cengage Learning. Powered by Cognero.
Page 19