Académique Documents
Professionnel Documents
Culture Documents
Student: ___________________________________________________________________________
1.
Edge Act banks are not prohibited from owning equity in business corporations, unlike domestic
commercial banks.
True False
2.
An Edge Act bank is typically located in a state different from that of its parent in order to get around the
prohibition on interstate branch banking.
True False
3.
4.
Major distinguishing features between domestic banks and international banks are
A. the types of deposits they accept.
B. the types of loans and investments they make.
C. membership in loan syndicates.
D. all of the above
5.
6.
Banks that both perform traditional commercial banking functions and engage in investment banking
activities are often called
A. international service banks.
B. investment banks.
C. commercial banks.
D. merchant banks.
7.
Merchant banks are different from traditional commercial banks in what way(s)?
A. Merchant banks can engage in investment banking activities.
B. Merchant banks can arrange for foreign exchange transactions.
C. Merchant banks can assist their clients in hedging exchange rate risk.
D. All of the above
8.
9.
Multinational banks are often not subject to the same regulations as domestic banks.
A. There may be increased need to publish adequate financial information.
B. There may be reduced need to publish adequate financial information.
C. There requirements to publish adequate financial information are the same.
D. None of the above
10. A domestic bank that follows a multinational client abroad to preserve that banking relationship
A. is playing the role of the desperate housewife in this relationship.
B. is pursuing a wholesale defensive strategy.
C. is pursuing a retail defensive strategy.
D. none of the above
11. A domestic bank that becomes a multinational bank to prevent erosion by foreign banks of the traveler's
checks, touring, and foreign business market
A. is playing the role of the desperate housewife in this relationship.
B. is pursuing a wholesale defensive strategy.
C. is pursuing a retail defensive strategy.
D. none of the above
12. Banking tends to be
A. a low marginal cost industry.
B. a high marginal cost industry.
C. a constant average cost industry.
D. none of the above
13. A U.S.-based multinational bank
A. would not have to provide deposit insurance and meet reserve requirements on foreign currency
deposits.
B. would have to provide deposit insurance and meet reserve requirements on foreign currency deposits.
C. would not have to provide deposit insurance but would have to meet reserve requirements on foreign
currency deposits.
D. would have to provide deposit insurance but not meet reserve requirements on foreign currency
deposits.
14. A bank may establish a multinational operation for the reason of low marginal costs. The underlying
rationale being that
A banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign
. banks seeking to service the multinational's foreign subsidiaries.
B multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
C. managerial and marketing knowledge developed at home can be used abroad with low marginal costs.
D the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit
. investigations for use in that foreign market.
15. A bank may establish a multinational operation for the reason of knowledge advantage. The underlying
rationale being that
Alocal firms may be able to obtain from a foreign subsidiary bank operating in their country more
. complete trade and financial market information about the subsidiary's home country than they can
obtain from their own domestic banks.
Bby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and
. foreign exchange risk on currency conversion if government controls can be circumvented.
Cgreater stability of earnings is possible with international diversification. Offsetting business and
. monetary policy cycles across nations reduces the country-specific risk of any one nation.
D the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit
. investigations for use in that foreign market.
16. A bank may establish a multinational operation for the reason of prestige. The underlying rationale being
that
Alocal firms may be able to obtain from a foreign subsidiary bank operating in their country more
. complete trade and financial market information about the subsidiary's home country than they can
obtain from their own domestic banks.
B the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit
. investigations for use in that foreign market.
C.very large multinational banks have high perceived prestige, liquidity, and deposit safety that can be
used to attract clients abroad.
Dmultinational banks are often not subject to the same regulations as domestic banks. There may be
. reduced need to publish adequate financial information, lack of required deposit insurance and reserve
requirements on foreign currency deposits, and the absence of territorial restrictions.
17. A bank may establish a multinational operation for the reason of risk reduction. The underlying rationale
being that
Aby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and
. foreign exchange risk on currency conversion if government controls can be circumvented.
Bgreater stability of earnings is possible with international diversification. Offsetting business and
. monetary policy cycles across nations reduces the country-specific risk of any one nation.
Cmultinational banks are often not subject to the same regulations as domestic banks. There may be
. reduced need to publish adequate financial information, lack of required deposit insurance and reserve
requirements on foreign currency deposits, and the absence of territorial restrictions.
D multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
18. A bank may establish a multinational operation for the reason of regulatory advantage. The underlying
rationale being that
A banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign
. banks seeking to service the multinational's foreign subsidiaries.
B multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
Cby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and
. foreign exchange risk on currency conversion if government controls can be circumvented.
Dmultinational banks are often not subject to the same regulations as domestic banks. There may be
. reduced need to publish adequate financial information, lack of required deposit insurance and reserve
requirements on foreign currency deposits, and the absence of territorial restrictions.
19. Currently, the biggest bank in the world is
A. Citigroup.
B. Bank of America.
C. UBS.
D. The World Bank.
20. A bank may establish a multinational operation for the reason of retail defensive strategy. The underlying
rationale being that
A banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign
. banks seeking to service the multinational's foreign subsidiaries.
B multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
Cby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and
. foreign exchange risk on currency conversion if government controls can be circumvented.
Dmultinational banks are often not subject to the same regulations as domestic banks. There may be
. reduced need to publish adequate financial information, lack of required deposit insurance and reserve
requirements on foreign currency deposits, and the absence of territorial restrictions.
21. A bank may establish a multinational operation for the reason of wholesale defensive strategy. The
underlying rationale being that
A banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign
. banks seeking to service the multinational's foreign subsidiaries.
B multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
Cby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and
. foreign exchange risk on currency conversion if government controls can be circumvented.
Dmultinational banks are often not subject to the same regulations as domestic banks. There may be
. reduced need to publish adequate financial information, lack of required deposit insurance and reserve
requirements on foreign currency deposits, and the absence of territorial restrictions.
22. Which of the following are reasons why a bank may establish a multinational operation?
A. Low marginal and transaction costs
B. Home nation information services, and prestige
C. Growth and risk reduction
D. All of the above
23. A bank may establish a multinational operation for the reason of transaction costs. The underlying
rationale being that
A banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign
. banks seeking to service the multinational's foreign subsidiaries.
B multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
Cby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and
. foreign exchange risk on currency conversion if government controls can be circumvented.
Dmultinational banks are often not subject to the same regulations as domestic banks. There may be
. reduced need to publish adequate financial information, lack of required deposit insurance and reserve
requirements on foreign currency deposits, and the absence of territorial restrictions.
24. A bank may establish a multinational operation for the reason of growth. The rationale being that
A. growth prospects in a home nation may be limited by a market largely saturated with the services
offered by domestic banks.
Bmultinational banks are often not subject to the same regulations as domestic banks. There may be
. reduced need to publish adequate financial information, lack of required deposit insurance and reserve
requirements on foreign currency deposits, and the absence of territorial restrictions.
Cgreater stability of earnings is possible with international diversification. Offsetting business and
. monetary policy cycles across nations reduces the country-specific risk of any one nation.
Dby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and
. foreign exchange risk on currency conversion if government controls can be circumvented.
25. A bank may establish a multinational operation for the reason of home country information services. The
underlying rationale being that
Aby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and
. foreign exchange risk on currency conversion if government controls can be circumvented.
Blocal firms may be able to obtain from a foreign subsidiary bank operating in their country more
. complete trade and financial market information about the subsidiary's home country than they can
obtain from their own domestic banks.
C the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit
. investigations for use in that foreign market.
Dgreater stability of earnings is possible with international diversification. Offsetting business and
. monetary policy cycles across nations reduces the country-specific risk of any one nation.
26. A correspondent bank relationship is established when
A. two banks maintain deposits with one another.
B. two banks write to each other about the credit conditions of their countries.
C. a group of banks form a syndicate to spread out the risk and cost of a large bond offering.
D. all of the above
41. The major legislation controlling the operation of foreign banks in the U.S.
A. specifies that foreign branch banks operating in the U.S. must comply with U.S. banking regulations
just like U.S. banks.
B specifies that foreign branch banks operating in the U.S. must comply with their country-of-origin
. banking regulations just like U.S. banks operating abroad.
C. specifies that the "shell" branches are illegal for U.S. and foreign banks.
D. both a and c
42. A subsidiary bank is
A. a locally incorporated bank that is wholly owned by a foreign parent.
B. a locally incorporated bank that is majority owned by a foreign parent.
C. a locally incorporated bank that is partially owned (but not controlled) by a foreign parent.
D. both a and b
43. An affiliate bank is
A. a locally incorporated bank that is wholly owned by a foreign parent.
B. a locally incorporated bank that is majority owned by a foreign parent.
C. a locally incorporated bank that is partially owned (but not controlled) by a foreign parent.
D. both a and b
44. Both subsidiary and affiliate banks
A. operate under the banking laws of the country in which they are incorporated.
B. operate under the banking laws of the U.S.
C. can underwrite securities, but not accept dollar-denominated deposits.
D. both a and b
45. U.S. banks that establish subsidiary and affiliate banks
A. are allowed to underwrite securities.
B. must provide FDIC insurance on their foreign-currency denominated demand deposits.
C. can underwrite securities, but not accept dollar-denominated deposits.
D. both a and b
46. Foreign banks that establish subsidiary and affiliate banks in the U.S.
A. tend to locate in states that are major centers of financial activity.
B. tend to locate in the highly populous states of New York, California, Illinois, Florida, Georgia, and
Texas.
C. can underwrite securities, but not accept dollar-denominated deposits.
D. both a and b
47. Edge Act banks are so-called because
Athe are Federally chartered subsidiaries of U.S. banks that are physically located in the United States
. and are allowed to engage in a full range of international banking activities.
BSenator Walter E. Edge of New Jersey sponsored the 1919 amendment to Section 25 of the Federal
. Reserve Act to allow U.S. banks to be competitive with the services foreign banks could supply their
customers.
C. they can only be chartered in states that are on the borders of the United Stateson the "edge" of the
map.
D. none of the above
48. Edge Act banks
Acan accept foreign deposits, extend trade credit, finance foreign projects abroad, trade foreign
. currencies, and engage in investment banking activities with U.S. citizens involving foreign securities.
B are federally chartered subsidiaries of U.S. banks that are physically located in the United States and are
. allowed to engage in a full range of international banking activities.
C. can underwrite securities, but can only be located in states on the edge of the U.S.
D. both a and b
57. Eurocurrency
A. is the euro, the common currency of Europe.
B. is a time deposit of money in an international bank located in a county different from the country that
issued the currency.
C. is a demand deposit of money in an international bank located in a county different from the country
that issued the currency.
D. either b or c
58. The Eurocurrency market
A. is only in Europe.
B. is an external banking system that runs parallel to the domestic banking system of the country that
issued the currency.
C. has languished following monetary union in Europe.
D. none of the above
59. LIBOR
A. is a market rate, analogous to the U.S. Federal Funds rate.
B. is a government set rate, like the discount rate.
C. is the rate at which banks in London will accept interbank deposits.
D. none of the above
60. LIBOR
A. is the London Interbank Offered Rate.
B. is the reference rate in London for Eurodollar deposits.
C. one of several reference rates in London: there is a LIBOR for Eurodollars, Euroyen, EuroCanadian
dollars, and even euro.
D. all of the above
61. The rate charged by banks with excess funds is referred to as the interbank offered rate; they will accept
interbank deposits at the interbank bid rate.
A. The spread is generally 1/8 of 1 percent for most major Eurocurrencies.
B. The spread is generally referred to as "the TED spread".
C. The spread is generally referred to as the bid-ask commission.
D. None of the above
62. The LIBOR rate for euro
A. is EURIBOR.
B. is a government set rate.
C. is the rate at which Interbank deposits of euro are offered by one prime bank to another in the euro
zone.
D. both a and c
63. In the wholesale money market, denominations
A. are at least $10,000, but sizes of $100,000 or larger are more typical.
B. are at least $100,000, but sizes of $500,000 or larger are more typical.
C. are at least $500,000, but sizes of $1,000,000 or larger are more typical.
D. none of the above
64. Approximately ___ of wholesale Eurobank external liabilities come from fixed time deposits, the
remainder from Negotiable Certificates of Deposit.
A. 50%
B. 75%
C. 90%
D. None of the above
65. Eurodollars refers to dollar deposits when the depository bank is located in
A. Europe.
B. Europe, and the Caribbean.
C. Outside the United States.
D. United States.
66. Eurocredits
A. are credit cards that work in the euro zone.
B short- to medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign
. governments, nonprime banks, or international organizations.
C short- to medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign
. governments, nonprime banks, or international organizations.
D. none of the above
67. Eurocredits
A. are often so large that individual banks cannot handle them.
B short- to medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign
. governments, nonprime banks, or international organizations.
C. frequently require the use of a banking syndicate.
D. all of the above
68. Eurocredits feature rollover pricing.
A Rollover pricing was created on Eurocredits so that Eurobanks do not end up paying more on
. Eurocurrency time deposits than they earn from the loans.
BBecause of the rollover pricing feature, a Eurocredit may be viewed as a series of shorter-term loans,
. where at the end of each time period (generally three or six months), the loan is rolled over and the base
lending rate is repriced to current LIBOR over the next time interval of the loan.
CThe lending rate on these Eurocredits is stated as LIBOR + X percent, where X is the lending margin
. charged depending upon the creditworthiness of the borrower. LIBOR is reset according to a set
schedule.
D. All of the above are true
69. Teltrex International can borrow $3,000,000 at LIBOR plus a lending margin of .75 percent per annum
on a three-month rollover basis from Barclays in London. Suppose that three-month LIBOR is currently
5 17 32 percent. Further suppose that over the second three-month interval LIBOR falls to 5 1 8 percent.
How much will Teltrex pay in interest to Barclays over the six-month period for the Eurodollar loan?
A. $79,921.875
B. $91,171.88
C. $96,174.39
D. $364,687.52
70. A bank agrees to buy from a customer a "three against six" FRA at the market rate for such instruments.
How can the bank hedge this obligation?
AGo long a 6-month Eurodollar deposit in the amount of the FRA at the current 6-month rate financed by
. going short a 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate.
BGo short a 6-month Eurodollar deposit in the amount of the FRA at the current 6-month rate; go long a
. 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate.
C. Borrow a 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate.
D. None of the above
71. A forward rate agreement (FRA) is a contract between two banks
A. that allows the Eurobank to hedge the interest rate risk in mismatched deposits and credits.
Bin which the buyer agrees to pay the seller the increased interest cost on a notional amount if interest
. rates fall below an agreed rate, and the seller agrees to pay the buyer the increased interest cost if
interest rates increase above the agreed rate.
C. that is structured to capture the maturity mismatch in standard-length Eurodeposits and credits.
D. all of the above
72. A bank bought a "three against six" FRA. Payment is made when?
A. At the end of 3 months
B. At the end of 6 months
C. At the end of 9 months
D. None of the above
73. You are a bank and your customer asks you to quote an agreed-upon rate for a 3 9 FRA. You observe
the following rates.
77. You entered in to a 3 6 forward rate agreement that obliged you to borrow $10,000,000 at 3%. Suppose
at the maturity of the FRA, the correct interest rate is 3%. Clearly you are better off since you have the
ability to borrow $10,000,000 for 3 months at 3% instead of 3%. What is the payoff at the maturity of
the FRA?
A. Net payment of $12,391.57 to you
B. Net payment of $12,500 to you
C. Net payment of $50,000 to you
D. Net payment of $48,309.18 to you
78. A bank bought a "three against six" $5,000,000 FRA for a three-month period beginning three months
from today and ending six months from today. The reason that the bank bought the FRA was to hedge:
the bank accepted a 3-month deposit and made a six-month loan. The agreement rate with the seller is
5.0%. Assume that three months from today the settlement rate is 5.25%. Who pays whom? How much?
When? The actual number of days in the FRA is 90.
A. The bank pays $3,0084.52 at the end of 3 months
B. The bank pays $3,0084.52 at the end of 6 months
C. The counterparty pays $3,0084.52 at the end of 3 months
D. The counterparty pays $3,0084.52 at the end of 6 months
79. A bank sold a 3 9 FRA. Payment is made when?
A. At the end of 3 months
B. At the end of 6 months
C. At the end of 9 months
D. None of the above
ABC Bank (seller) has made a "three against six" Forward Rate Agreement (FRA), with XYZ Bank
(buyer).
83. Forward rate agreements can be used for speculative purposes. If one believes rates will be less than the
agreement rate,
A. take a short position in a forward rate agreement.
B. the purchase of a FRA is the suitable position.
C. the sale of a FRA is the suitable position.
D. take a long position in the spot market.
84. The most widely used futures contract for hedging short-term U.S. dollar interest rate risk is
A. the Eurodollar contract.
B. the Euroyen contract.
C. the EURIBOR contract.
D. none of the above
85. Consider the position of a treasurer of a MNC, who has $20,000,000 that his firm will not need for the
next 90 days.
A. He could borrow the $20,000,000 in the money market.
B. He could take a long position in the Eurodollar futures contract.
C. He could take a short position in the Eurodollar futures contract.
D. None of the above
86. A DECREASE in the implied three-month LIBOR yield causes Eurodollar futures price
A. to increase.
B. to decrease.
C. there is no direct or indirect relationship.
D. none of the above
87. Which of the following are principles of sound banking behavior?
A. Avoid an undue concentration of loans to single activities
B. Control mismatches between assets and liabilities
C. Expand cautiously into unfamiliar activities
D. All of the above
88. Who benefits from debt-for-equity swaps?
A. The creditor bank
B. The LDC
C. The market maker
D. All of the above
89. On September 10, 1990 the published prices (cents on the dollar) on Latin American bank debt was
quoted as follows:
Assume that the central banks of Mexico, Venezuela, and Chile redeemed their debts at 50 percent, 85
percent, and 76 percent, respectively, of face value in a debt-for-equity swap. If the three countries had
equal political risk, based purely on financial considerations, the cost of a $40,000,000 assembly plant
investment in local currency would be ranked (lowest to highest) in dollar cost as follows:
A. Venezuela first, Mexico second, Chile third
B. Venezuela first, Chile second, Mexico third
C. Chile first, Venezuela second, Mexico third
D. Mexico first, Chile second, Venezuela third
90. The Asian crisis
A. followed a period of economic recession in the region coupled with record private capital outflows.
B. followed a period of economic expansion in the region financed by record private capital inflows.
C. began in the fall of 2001 when Japan devalued the yen.
D. none of the above
102.Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank B is in New York. The
current exchange rate is 1.00 = $2.00. Show the correct balances in each account if a currency trader
employed at Bank A buys 45,000 from a currency trader at bank B for $90,000 using its correspondent
relationship with Bank B.
103.Consider the balance sheets of Bank A and Bank B. Bank A is in London, Bank B is in New York. The
current exchange rate is 1.00 = $2.00. Show the correct balances in each account if a currency trader
employed at Bank A buys 50,000 from a currency trader at bank B for $100,000 using its correspondent
relationship with Bank B.
11 Key
1.
Edge Act banks are not prohibited from owning equity in business corporations, unlike domestic
commercial banks.
TRUE
Eun - Chapter 11 #1
Topic: Edge Act Banks
2.
An Edge Act bank is typically located in a state different from that of its parent in order to get around
the prohibition on interstate branch banking.
TRUE
Eun - Chapter 11 #2
Topic: Edge Act Banks
3.
4.
Major distinguishing features between domestic banks and international banks are
A. the types of deposits they accept.
B. the types of loans and investments they make.
C. membership in loan syndicates.
D. all of the above
Eun - Chapter 11 #4
Topic: International Banking Services
5.
6.
Banks that both perform traditional commercial banking functions and engage in investment banking
activities are often called
A. international service banks.
B. investment banks.
C. commercial banks.
D. merchant banks.
Eun - Chapter 11 #6
Topic: International Banking Services
7.
Merchant banks are different from traditional commercial banks in what way(s)?
A. Merchant banks can engage in investment banking activities.
B. Merchant banks can arrange for foreign exchange transactions.
C. Merchant banks can assist their clients in hedging exchange rate risk.
D. All of the above
Eun - Chapter 11 #7
Topic: International Banking Services
8.
9.
Multinational banks are often not subject to the same regulations as domestic banks.
A. There may be increased need to publish adequate financial information.
B. There may be reduced need to publish adequate financial information.
C. There requirements to publish adequate financial information are the same.
D. None of the above
Eun - Chapter 11 #9
Topic: Reasons for International Banking
10.
A domestic bank that follows a multinational client abroad to preserve that banking relationship
A. is playing the role of the desperate housewife in this relationship.
B. is pursuing a wholesale defensive strategy.
C. is pursuing a retail defensive strategy.
D. none of the above
Eun - Chapter 11 #10
Topic: Reasons for International Banking
11.
A domestic bank that becomes a multinational bank to prevent erosion by foreign banks of the
traveler's checks, touring, and foreign business market
A. is playing the role of the desperate housewife in this relationship.
B. is pursuing a wholesale defensive strategy.
C. is pursuing a retail defensive strategy.
D. none of the above
Eun - Chapter 11 #11
Topic: Reasons for International Banking
12.
Banking tends to be
A. a low marginal cost industry.
B. a high marginal cost industry.
C. a constant average cost industry.
D. none of the above
Eun - Chapter 11 #12
Topic: Reasons for International Banking
13.
14.
A bank may establish a multinational operation for the reason of low marginal costs. The underlying
rationale being that
A banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign
. banks seeking to service the multinational's foreign subsidiaries.
B multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
C. managerial and marketing knowledge developed at home can be used abroad with low marginal
costs.
D the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit
. investigations for use in that foreign market.
Eun - Chapter 11 #14
Topic: Reasons for International Banking
15.
A bank may establish a multinational operation for the reason of knowledge advantage. The
underlying rationale being that
Alocal firms may be able to obtain from a foreign subsidiary bank operating in their country more
. complete trade and financial market information about the subsidiary's home country than they can
obtain from their own domestic banks.
Bby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs
. and foreign exchange risk on currency conversion if government controls can be circumvented.
Cgreater stability of earnings is possible with international diversification. Offsetting business and
. monetary policy cycles across nations reduces the country-specific risk of any one nation.
D the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit
. investigations for use in that foreign market.
Eun - Chapter 11 #15
Topic: Reasons for International Banking
16.
A bank may establish a multinational operation for the reason of prestige. The underlying rationale
being that
Alocal firms may be able to obtain from a foreign subsidiary bank operating in their country more
. complete trade and financial market information about the subsidiary's home country than they can
obtain from their own domestic banks.
B the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit
. investigations for use in that foreign market.
C.very large multinational banks have high perceived prestige, liquidity, and deposit safety that can be
used to attract clients abroad.
Dmultinational banks are often not subject to the same regulations as domestic banks. There may
. be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
Eun - Chapter 11 #16
Topic: Reasons for International Banking
17.
A bank may establish a multinational operation for the reason of risk reduction. The underlying
rationale being that
Aby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs
. and foreign exchange risk on currency conversion if government controls can be circumvented.
Bgreater stability of earnings is possible with international diversification. Offsetting business and
. monetary policy cycles across nations reduces the country-specific risk of any one nation.
Cmultinational banks are often not subject to the same regulations as domestic banks. There may
. be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
D multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
Eun - Chapter 11 #17
Topic: Reasons for International Banking
18.
A bank may establish a multinational operation for the reason of regulatory advantage. The underlying
rationale being that
A banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign
. banks seeking to service the multinational's foreign subsidiaries.
B multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
Cby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs
. and foreign exchange risk on currency conversion if government controls can be circumvented.
Dmultinational banks are often not subject to the same regulations as domestic banks. There may
. be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
Eun - Chapter 11 #18
Topic: Reasons for International Banking
19.
20.
A bank may establish a multinational operation for the reason of retail defensive strategy. The
underlying rationale being that
A banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign
. banks seeking to service the multinational's foreign subsidiaries.
B multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
Cby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs
. and foreign exchange risk on currency conversion if government controls can be circumvented.
Dmultinational banks are often not subject to the same regulations as domestic banks. There may
. be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
Eun - Chapter 11 #20
Topic: Reasons for International Banking
21.
A bank may establish a multinational operation for the reason of wholesale defensive strategy. The
underlying rationale being that
A banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign
. banks seeking to service the multinational's foreign subsidiaries.
B multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
Cby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs
. and foreign exchange risk on currency conversion if government controls can be circumvented.
Dmultinational banks are often not subject to the same regulations as domestic banks. There may
. be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
Eun - Chapter 11 #21
Topic: Reasons for International Banking
22.
Which of the following are reasons why a bank may establish a multinational operation?
A. Low marginal and transaction costs
B. Home nation information services, and prestige
C. Growth and risk reduction
D. All of the above
Eun - Chapter 11 #22
Topic: Reasons for International Banking
23.
A bank may establish a multinational operation for the reason of transaction costs. The underlying
rationale being that
A banks follow their multinational customers abroad to prevent the erosion of their clientele to foreign
. banks seeking to service the multinational's foreign subsidiaries.
B multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and
. foreign business markets from foreign bank competition.
Cby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs
. and foreign exchange risk on currency conversion if government controls can be circumvented.
Dmultinational banks are often not subject to the same regulations as domestic banks. There may
. be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
Eun - Chapter 11 #23
Topic: Reasons for International Banking
24.
A bank may establish a multinational operation for the reason of growth. The rationale being that
A. growth prospects in a home nation may be limited by a market largely saturated with the services
offered by domestic banks.
Bmultinational banks are often not subject to the same regulations as domestic banks. There may
. be reduced need to publish adequate financial information, lack of required deposit insurance and
reserve requirements on foreign currency deposits, and the absence of territorial restrictions.
Cgreater stability of earnings is possible with international diversification. Offsetting business and
. monetary policy cycles across nations reduces the country-specific risk of any one nation.
Dby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs
. and foreign exchange risk on currency conversion if government controls can be circumvented.
Eun - Chapter 11 #24
Topic: Reasons for International Banking
25.
A bank may establish a multinational operation for the reason of home country information services.
The underlying rationale being that
Aby maintaining foreign branches and foreign currency balances, banks may reduce transaction costs
. and foreign exchange risk on currency conversion if government controls can be circumvented.
Blocal firms may be able to obtain from a foreign subsidiary bank operating in their country more
. complete trade and financial market information about the subsidiary's home country than they can
obtain from their own domestic banks.
C the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts and credit
. investigations for use in that foreign market.
Dgreater stability of earnings is possible with international diversification. Offsetting business and
. monetary policy cycles across nations reduces the country-specific risk of any one nation.
Eun - Chapter 11 #25
Topic: Reasons for International Banking
26.
27.
28.
Consider a U.S. importer desiring to purchase merchandise from a Dutch exporter invoiced in euros,
at a cost of 160,000. The U.S. importer will contact his U.S. bank (where of course he has an account
denominated in U.S. dollars) and inquire about the exchange rate, which the bank quotes as 0.6250/
$1.00. The importer accepts this price, so his bank will proceed to ____________ the importer's
account in the amount of ____________.
A. Debit; $256,000
B. Credit; 512,100
C. Credit; $500,000
D. Debit; 100,000
Eun - Chapter 11 #28
Topic: Correspondent Bank
Topic: Types of International Banking Offices
29.
The current exchange rate is 1.00 = $2.00. Compute the correct balances in Bank A's correspondent
account(s) with bank B if a currency trader employed at Bank A buys 45,000 from a currency trader
at bank B for $90,000 using its correspondent relationship with Bank B.
A. Bank A's dollar-denominated account at B will rise by $90,000.
B. Bank B's dollar-denominated account at A will fall by $90,000.
C. Bank A's pound-denominated account at B will rise by 45,000.
D. Bank B's pound-denominated account at A will rise by 45,000.
Eun - Chapter 11 #29
Topic: Correspondent Bank
Topic: Types of International Banking Offices
30.
31.
The current exchange rate is 1.00 = $2.00. Compute the correct balances in Bank A's correspondent
account(s) with bank B if a currency trader employed at Bank A buys 45,000 from a currency trader
at bank B for $90,000 using its correspondent relationship with Bank B.
A. Bank A's dollar-denominated account at B will fall by $90,000.
B. Bank B's dollar-denominated account at A will rise by $90,000.
C. Bank A's pound-denominated account at B will rise by 45,000.
D. Bank B's pound-denominated account at A will fall by 45,000.
E. All of the above are correct
Eun - Chapter 11 #31
Topic: Correspondent Bank
Topic: Types of International Banking Offices
32.
The current exchange rate is 1.00 = $1.50. Compute the correct balances in Bank A's correspondent
account(s) with bank B if a currency trader employed at Bank A buys 100,000 from a currency trader
at bank B for $150,000 using its correspondent relationship with Bank B.
A. Bank A's dollar-denominated account at B will fall by $150,000.
B. Bank B's dollar-denominated account at A will fall by $150,000.
C. Bank A's pound-denominated account at B will fall by 100,000.
D. Bank B's pound-denominated account at A will rise by 100,000.
Eun - Chapter 11 #32
Topic: Correspondent Bank
Topic: Types of International Banking Offices
33.
A representative office
A. is what lawyers' offices are called in Mexico.
B is a small service facility staffed by parent bank personnel that is designed to assist MNC clients of
. the parent bank in dealings with the bank's correspondents.
C is a small service facility staffed by correspondent bank personnel that is designed to assist MNC
. clients of the parent bank in dealings with the bank's correspondents.
D. none of the above
Eun - Chapter 11 #33
Topic: Representative Offices
34.
A representative office
A is a way for the parent bank to provide its MNC clients with a level of service greater than that
. provided through merely a correspondent relationship.
B is a small service facility staffed by parent bank personnel that is designed to assist MNC clients of
. the parent bank in dealings with the bank's correspondents.
C. is a step up from a correspondent relationship, but below a foreign branch.
D. all of the above
Eun - Chapter 11 #34
Topic: Representative Offices
35.
36.
37.
38.
Why would a U.S. bank open a foreign branch bank instead of a foreign chartered subsidiary?
A This form of bank organization allows the bank to be able to extend a larger loan to a customer than
. a locally chartered subsidiary bank of the parent.
B. To slow down check clearing and maximize the bank's float.
C. To avoid U.S. banking regulation.
D. Both a and c
Eun - Chapter 11 #38
Topic: Foreign Branches
39.
40.
41.
The major legislation controlling the operation of foreign banks in the U.S.
A. specifies that foreign branch banks operating in the U.S. must comply with U.S. banking
regulations just like U.S. banks.
B specifies that foreign branch banks operating in the U.S. must comply with their country-of-origin
. banking regulations just like U.S. banks operating abroad.
C. specifies that the "shell" branches are illegal for U.S. and foreign banks.
D. both a and c
Eun - Chapter 11 #41
Topic: Foreign Branches
42.
A subsidiary bank is
A. a locally incorporated bank that is wholly owned by a foreign parent.
B. a locally incorporated bank that is majority owned by a foreign parent.
C. a locally incorporated bank that is partially owned (but not controlled) by a foreign parent.
D. both a and b
Eun - Chapter 11 #42
Topic: Subsidiary and Affiliate Banks
43.
An affiliate bank is
A. a locally incorporated bank that is wholly owned by a foreign parent.
B. a locally incorporated bank that is majority owned by a foreign parent.
C. a locally incorporated bank that is partially owned (but not controlled) by a foreign parent.
D. both a and b
Eun - Chapter 11 #43
Topic: Subsidiary and Affiliate Banks
44.
45.
46.
Foreign banks that establish subsidiary and affiliate banks in the U.S.
A. tend to locate in states that are major centers of financial activity.
B. tend to locate in the highly populous states of New York, California, Illinois, Florida, Georgia, and
Texas.
C. can underwrite securities, but not accept dollar-denominated deposits.
D. both a and b
Eun - Chapter 11 #46
Topic: Subsidiary and Affiliate Banks
47.
48.
49.
50.
51.
Offshore banks
A. are frequently located on old oil drilling platforms located in international waters.
B. are often located in "pariah" countries like North Korea and Iran.
C. operate as branches or subsidiaries of the parent bank.
D. none of the above
Eun - Chapter 11 #51
Topic: Offshore Banking Centers
52.
53.
54.
55.
56.
57.
Eurocurrency
A. is the euro, the common currency of Europe.
B. is a time deposit of money in an international bank located in a county different from the country
that issued the currency.
C. is a demand deposit of money in an international bank located in a county different from the
country that issued the currency.
D. either b or c
Eun - Chapter 11 #57
Topic: International Money Market
58.
59.
LIBOR
A. is a market rate, analogous to the U.S. Federal Funds rate.
B. is a government set rate, like the discount rate.
C. is the rate at which banks in London will accept interbank deposits.
D. none of the above
Eun - Chapter 11 #59
Topic: International Money Market
60.
LIBOR
A. is the London Interbank Offered Rate.
B. is the reference rate in London for Eurodollar deposits.
C. one of several reference rates in London: there is a LIBOR for Eurodollars, Euroyen, Euro
Canadian dollars, and even euro.
D. all of the above
Eun - Chapter 11 #60
Topic: International Money Market
61.
The rate charged by banks with excess funds is referred to as the interbank offered rate; they will
accept interbank deposits at the interbank bid rate.
A. The spread is generally 1/8 of 1 percent for most major Eurocurrencies.
B. The spread is generally referred to as "the TED spread".
C. The spread is generally referred to as the bid-ask commission.
D. None of the above
Eun - Chapter 11 #61
Topic: International Money Market
62.
63.
64.
Approximately ___ of wholesale Eurobank external liabilities come from fixed time deposits, the
remainder from Negotiable Certificates of Deposit.
A. 50%
B. 75%
C. 90%
D. None of the above
Eun - Chapter 11 #64
Topic: Eurocurrency Market
65.
66.
Eurocredits
A. are credit cards that work in the euro zone.
B short- to medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign
. governments, nonprime banks, or international organizations.
C short- to medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign
. governments, nonprime banks, or international organizations.
D. none of the above
Eun - Chapter 11 #66
Topic: Eurocredits
67.
Eurocredits
A. are often so large that individual banks cannot handle them.
B short- to medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign
. governments, nonprime banks, or international organizations.
C. frequently require the use of a banking syndicate.
D. all of the above
Eun - Chapter 11 #67
Topic: Eurocredits
68.
69.
Teltrex International can borrow $3,000,000 at LIBOR plus a lending margin of .75 percent per
annum on a three-month rollover basis from Barclays in London. Suppose that three-month LIBOR
is currently 5 17 32 percent. Further suppose that over the second three-month interval LIBOR falls
to 5 1 8 percent. How much will Teltrex pay in interest to Barclays over the six-month period for the
Eurodollar loan?
A. $79,921.875
B. $91,171.88
C. $96,174.39
D. $364,687.52
Eun - Chapter 11 #69
Topic: Eurocredits
70.
A bank agrees to buy from a customer a "three against six" FRA at the market rate for such
instruments. How can the bank hedge this obligation?
AGo long a 6-month Eurodollar deposit in the amount of the FRA at the current 6-month rate financed
. by going short a 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate.
B Go short a 6-month Eurodollar deposit in the amount of the FRA at the current 6-month rate; go
. long a 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate.
C. Borrow a 3-month Eurodollar deposit in the amount of the FRA at the current 3-month rate.
D. None of the above
Eun - Chapter 11 #70
Topic: Forward Rate Agreements
71.
72.
73.
You are a bank and your customer asks you to quote an agreed-upon rate for a 3 9 FRA. You
observe the following rates.
74.
You are a bank and your customer asks you to quote an agreed-upon rate for a 3 6 FRA. You
observe the following rates:
75.
ABC International has borrowed $4,000,000 at LIBOR plus a lending margin of .65 percent per
annum on a three-month rollover basis from Barclays in London. Three month LIBOR is currently
5.5 percent, but ABC is worried about an increase in three-month LIBOR 3 months from now. What
could they do to hedge?
A. Buy a 3 6 FRA in the amount of $4 million.
B. Sell a 3 6 FRA in the amount of $4 million.
C. Buy a 3 3 FRA in the amount of $4 million.
D. Buy a 3 9 FRA in the amount of $4 million.
Eun - Chapter 11 #75
Topic: Forward Rate Agreements
76.
ABC International can borrow $4,000,000 at LIBOR plus a lending margin of .65 percent per annum
on a three-month rollover basis from Barclays in London. Three month LIBOR is currently 5.5
percent. Suppose that over the second three-month interval LIBOR falls to 5.0 percent. How much
will ABC pay in interest to Barclays over the six-month period for the Eurodollar loan?
A. $50,000
B. $100,000
C. $118,000
D. $120,000
Eun - Chapter 11 #76
Topic: Forward Rate Agreements
77.
You entered in to a 3 6 forward rate agreement that obliged you to borrow $10,000,000 at 3%.
Suppose at the maturity of the FRA, the correct interest rate is 3%. Clearly you are better off since
you have the ability to borrow $10,000,000 for 3 months at 3% instead of 3%. What is the payoff at
the maturity of the FRA?
A. Net payment of $12,391.57 to you
B. Net payment of $12,500 to you
C. Net payment of $50,000 to you
D. Net payment of $48,309.18 to you
Eun - Chapter 11 #77
Topic: Forward Rate Agreements
78.
A bank bought a "three against six" $5,000,000 FRA for a three-month period beginning three months
from today and ending six months from today. The reason that the bank bought the FRA was to hedge:
the bank accepted a 3-month deposit and made a six-month loan. The agreement rate with the seller
is 5.0%. Assume that three months from today the settlement rate is 5.25%. Who pays whom? How
much? When? The actual number of days in the FRA is 90.
A. The bank pays $3,0084.52 at the end of 3 months
B. The bank pays $3,0084.52 at the end of 6 months
C. The counterparty pays $3,0084.52 at the end of 3 months
D. The counterparty pays $3,0084.52 at the end of 6 months
Eun - Chapter 11 #78
Topic: Forward Rate Agreements
79.
ABC Bank (seller) has made a "three against six" Forward Rate Agreement (FRA), with XYZ Bank
(buyer).
Eun - Chapter 11
80.
81.
82.
83.
Forward rate agreements can be used for speculative purposes. If one believes rates will be less than
the agreement rate,
A. take a short position in a forward rate agreement.
B. the purchase of a FRA is the suitable position.
C. the sale of a FRA is the suitable position.
D. take a long position in the spot market.
Eun - Chapter 11 #83
Topic: Forward Rate Agreements
84.
The most widely used futures contract for hedging short-term U.S. dollar interest rate risk is
A. the Eurodollar contract.
B. the Euroyen contract.
C. the EURIBOR contract.
D. none of the above
Eun - Chapter 11 #84
Topic: Eurodollar Interest Rate Futures Contracts
85.
Consider the position of a treasurer of a MNC, who has $20,000,000 that his firm will not need for the
next 90 days.
A. He could borrow the $20,000,000 in the money market.
B. He could take a long position in the Eurodollar futures contract.
C. He could take a short position in the Eurodollar futures contract.
D. None of the above
Eun - Chapter 11 #85
Topic: Eurodollar Interest Rate Futures Contracts
86.
A DECREASE in the implied three-month LIBOR yield causes Eurodollar futures price
A. to increase.
B. to decrease.
C. there is no direct or indirect relationship.
D. none of the above
Eun - Chapter 11 #86
Topic: Eurodollar Interest Rate Futures Contracts
87.
88.
89.
On September 10, 1990 the published prices (cents on the dollar) on Latin American bank debt was
quoted as follows:
Assume that the central banks of Mexico, Venezuela, and Chile redeemed their debts at 50 percent,
85 percent, and 76 percent, respectively, of face value in a debt-for-equity swap. If the three countries
had equal political risk, based purely on financial considerations, the cost of a $40,000,000 assembly
plant investment in local currency would be ranked (lowest to highest) in dollar cost as follows:
A. Venezuela first, Mexico second, Chile third
B. Venezuela first, Chile second, Mexico third
C. Chile first, Venezuela second, Mexico third
D. Mexico first, Chile second, Venezuela third
Eun - Chapter 11 #89
Topic: The Solution: Brady Bonds
90.
91.
92.
93.
94.
95.
96.
The models that the credit rating firms (e.g. Moody's, S&P, and Fitch) used to evaluate the risk of
the various tranches of MBS debt and thereby assign a credit rating (e.g. AAA, AA-BB, or unrated)
were
A. right on target, but only in the aggregate.
B. poorly specified.
C. superfluous, since the CDOs turned out to be backed by the full faith and credit of the U.S.
Treasury.
D supermodels, and while as a group they were not so good at evaluating credit risk, they made up for
. it with their good looks and impeccable fashion sense.
Eun - Chapter 11 #96
Topic: Global Financial Crisis
97.
98.
99.
100.