Answers to End of Chapter Questions
1. Eurocurrency refers to any deposit liability denominated in a currency other than that of the
country in which the issuing bank is located. Eurodollars are one type of Eurocurrency.
2. International banking facilities (IBFs) exist only as book entries. Organizational units, such as
3. Country risk refers to economic and political risks associated with loans to foreign entities.
4. Federal and state banking regulation in the U.S. historically limited the geographic scope and
product mix of U.S. banking organizations. Thus, there are many more of them and they are
5. Foreign lenders that may have a competitive advantage are those with large amounts of
capital who can acquire other firms readily and have the resources to enter new lines of
6.
a. Establish an export trading company
7. A bankers acceptance is a time dra? in which a bank guarantees that payment will be made
8. The prohibition against underwriting within the U.S, while allowing it outside the U.S., is
9. The spot market is the cash market where currencies are immediately exchanged. The
forward exchange market represents contracts to exchange currencies at a fixed point in
10. Covered interest arbitrage: let subscript 1 refer to the U.S. and subscript 2 refer to Japan.
Interest rate parity implies an equality for the following relationship.
so arbitrage is possible. A trader would borrow yen, convert yen to dollars in the spot
12. Commerce Bank , Poland
a. Net exposure in dollars: nexp(d) = $400 – $1,000 = -$600
Initial exchange rate is $1 = 145 zlotys; If the dollar appreciates to $1 = 152 zlotys,