Question 1 (1 point)
Question 1 Unsaved
LIBOR
Question 1 options:
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
Question 2 (1 point)
Question 2 Unsaved
Which of the following are reasons why a bank may establish a multinational operation?
Question 2 options:
a) Low marginal and transaction costs
b) Home nation information services, and prestige
c) Growth and risk reduction
d) All of the above
Question 3 (1 point)
Question 3 Unsaved
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.
Question 3 options:
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.
Question 4 (1 point)
Question 4 Unsaved
Edge Act banks
Question 4 options:
a) can 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)
Question 5 (1 point)
Question 5 Unsaved
A bank may establish a multinational operation for the reason of knowledge advantage. The underlying rationale being that
Question 5 options:
a) local 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) by 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.
c) greater 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.
Question 6 (1 point)
Question 6 Unsaved
A bank may establish a multinational operation for the reason of retail defensive strategy. The underlying rationale being that
Question 6 options:
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) by 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.
d) multinational 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.
Question 7 (1 point)
Question 7 Unsaved
A bank sold a 3×9 FRA. Payment is made when?
Question 7 options:
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
Question 8 (1 point)
Question 8 Unsaved
LIBOR
Question 8 options:
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
Question 9 (1 point)
Question 9 Unsaved
Since international banks have the facilities to trade foreign exchange,
Question 9 options:
a) they generally also make a market as a dealer in foreign exchange.
b) they generally also make a market as a dealer in foreign exchange derivatives.
c) they generally also trade foreign exchange products for their own account.
d) none of the above
Question 10 (1 point)
Question 10 Unsaved
A U.S.-based multinational bank
Question 10 options:
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.
Question 11 (1 point)
Question 11 Unsaved
U.S. banks that establish subsidiary and affiliate banks
Question 11 options:
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)
Question 12 (1 point)
Question 12 Unsaved
Both subsidiary and affiliate banks
Question 12 options:
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)
Question 13 (1 point)
Question 13 Unsaved
Currently, the biggest bank in the world is
Question 13 options:
a) Citigroup.
b) Bank of America.
c) UBS.
d) The World Bank.
Question 14 (1 point)
Question 14 Unsaved
Why would a U.S. bank open a foreign branch bank instead of a foreign chartered subsidiary?
Question 14 options:
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)
Question 15 (1 point)
Question 15 Unsaved
Major distinguishing features between domestic banks and international banks are
Question 15 options:
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
Question 16 (1 point)
Question 16 Unsaved
Global bond issues
Question 16 options:
a) can save U.S. issuers 20 basis points relative to domestic bonds, all else equal.
b) tend to have increased liquidity relative to Eurobonds or domestic bonds.
c) have been partially facilitated by rule 144A.
d) all of the above
Question 17 (1 point)
Question 17 Unsaved
Consider a bond with an equity warrant. The warrant entitles the bondholder to buy 25 shares of the issuer at €50 per share for the lifetime of the bond. The bond is a 30-year zero coupon bond with a €1,000 par value that has a yield to maturity of i€ = 5 percent. The price of the bond is €500. What is the value of the warrant?
Question 17 options:
a) €231.38
b) €268.62
c) €500
d) none of the above
Question 18 (1 point)
Question 18 Unsaved
The vast majority of new international bond offerings
Question 18 options:
a) make annual coupon payments.
b) have fixed coupon payments.
c) have a fixed maturity.
d) all of the above
Question 19 (1 point)
Question 19 Unsaved
Your firm has just issued five-year floating-rate notes indexed to six-month U.S. dollar LIBOR plus 1/4 percent. What is the amount of the first coupon payment your firm will pay per U.S. $1,000 of face value, if six-month LIBOR is currently 7.2 percent?
Question 19 options:
a) $36.00
b) $37.25
c) $74.50
d) None of the above
Question 20 (1 point)
Question 20 Unsaved
Two major clearing systems for international bond transactions are
Question 20 options:
a) Euroclear and Clearstream International.
b) Euroclear and Clearasil.
c) Deutsche Börse Clearing and Cedel International.
d) None of the above
Question 21 (1 point)
Question 21 Unsaved
Because __________ do not have to meet national security regulations, name recognition of the issuer is an extremely important factor in being able to source funds in the international capital market.
Question 21 options:
a) Eurobonds
b) Foreign bonds
c) Bearer bonds
d) Registered bonds
Question 22 (1 point)
Question 22 Unsaved
Zero-coupon bonds issued in 2006 are due in 2016. If they were originally sold at 55 percent of face value, the implied yield to maturity at issuance is
Question 22 options:
a) 1.062%.
b) 6.16%.
c) 8.31%.
d) cannot be determined, need more information.
Question 23 (1 point)
Question 23 Unsaved
Underwriters for a domestic bond issue will commit their own capital to buy the issue from the borrower at a discount from the issue price. The discount, or underwriting spread, is typically
Question 23 options:
a) in the 1 to 1.5 percent range.
b) in the 2 to 2.5 percent range.
c) in the 3 to 3.5 percent range.
d) in the 4 to 4.5 percent range.
Question 24 (1 point)
Question 24 Unsaved
Eurobonds are usually
Question 24 options:
a) registered bonds.
b) bearer bonds.
c) floating-rate, callable and convertible.
d) denominated in the currency of the country that they are sold in.
Question 25 (1 point)
Question 25 Unsaved
A convertible bond pays interest annually at a coupon rate of 5% on a par value of $1,000. The bond has 10 years maturity remaining and the discount rate on otherwise identical non-convertible debt is 6.5%. The bond is convertible into shares of common stock at a conversion price of $25 per share (i.e. the bond is exchangeable for 40 shares). Today's closing stock price was $20. What is the floor value of this bond?
Question 25 options:
a) $800.00
b) $892.17
c) $1,250
d) None of the above
Question 26 (1 point)
Question 26 Unsaved
Straight fixed-rate bond issues have
Question 26 options:
a) a designated maturity date at which the principal of the bond issue is promised to be repaid. During the life of the bond, fixed coupon payments, which are a percentage of the face value, are paid as interest to the bondholders.
b) a designated maturity date at which the principal of the bond issue is promised to be repaid. During the life of the bond, coupon payments, which are a percentage of the face value, are computed according to a fixed formula.
c) a fixed payment, which amortizes the debt, like a house payment or car payment.
d) none of the above
Question 27 (1 point)
Question 27 Unsaved
Eurobonds are usually
Question 27 options:
a) bearer bonds.
b) registered bonds.
c) bulldog bonds.
d) foreign currency bonds.
Question 28 (1 point)
Question 28 Unsaved
The J.P. Morgan and Company Global Government Bond Index is __________ representation of the individual country government bond indexes.
Question 28 options:
a) a value weighted
b) a price weighted
c) an unweighted
Question 29 (1 point)
Question 29 Unsaved
In any given year, about what percent of outstanding bonds are likely to be international rather than domestic bonds?
Question 29 options:
a) 70%
b) 50%
c) 30%
d) 5%
Question 30 (1 point)
Question 30 Unsaved
With regard to clearing procedures for bond transactions
Question 30 options:
a) it is a system for transferring ownership of bonds.
b) it is a system for ensuring payment from buyers to sellers.
c) most Eurobond trades clear through two major clearing systems.
d) all of the above
Question 31 (1 point)
Question 31 Unsaved
A measure of liquidity for a stock market is the turnover ratio; defined as
Question 31 options:
a) the ratio of stock market transactions over a period of time divided by the size, or market capitalization, of the stock market.
b) the ratio of the size, or market capitalization, of the stock market divided by the value of the stock market transactions over a period of time.
c) the ratio of aggregate company sales over a period of time divided by the size, or market capitalization, of the stock market.
d) none of the above
Question 32 (1 point)
Question 32 Unsaved
In the London market, Rolls-Royce stock closed at £0.875 per share. On the same day, the British Pound sterling to the U.S. dollar spot exchange rate was £0.6366/$1.00. Rolls Royce trades as an ADR in the OTC market in the United States. Five underlying Rolls-Royce shares are packaged into one ADR. If the Rolls Royce ADRs were trading at $5.75 when the underlying shares were trading in London at £0.875, ignoring transaction costs, the arbitrage trading profit would be:
Question 32 options:
a) $0.00
b) $1.12
c) $2.12
d) $3.12
Question 33 (1 point)
Question 33 Unsaved
Macroeconomic factors affecting international equity returns include
Question 33 options:
a) exchange rate changes.
b) interest rate differentials.
c) changes in inflationary expectations.
d) all of the above
Question 34 (1 point)
Question 34 Unsaved
Factors affecting international equity returns are
Question 34 options:
a) macroeconomic variables that influence the overall economy.
b) exchange rate changes.
c) the industrial structure of the country.
d) all of the above
Question 35 (1 point)
Question 35 Unsaved
Decompose the return an American would have if he had bought a German stock at €100 per share and sold it one year later at €120. The spot exchange rate one year ago was $1.50 = €1 and the spot rate prevailing at the end of the year was $1.55 = €1.
Question 35 options:
a) 24% total return; 20% asset return; 4% attributable to exchange rate changes
b) 20% total return; 16.77% asset return; 3.23% attributable to exchange rate changes
c) 24% total return; 20% asset return; 3.33% attributable to exchange rate changes
d) None of the above
Question 36 (1 point)
Question 36 Unsaved
In an agency market, the broker takes the client's order through the agent, who matches it with another public order. The agent can be viewed as
Question 36 options:
a) a dealer.
b) a specialist.
c) a broker's broker.
d) none of the above
Question 37 (1 point)
Question 37 Unsaved
A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a limit order. Once the stop price is touched in the market, the stop-limit order becomes a limit order to buy or to sell at the limit price. Which of the following are true?
Question 37 options:
a) The benefit of a stop-limit order is that the investor can control the price at which the trade will get executed.
b) A stop-limit order may never get filled if the stock's price never reaches the specified limit price. This may happen especially in fast-moving markets where prices fluctuate wildly.
c) The use of stop limit orders is much more frequent for stocks that trade on an exchange than in the over-the-counter (OTC) market.
d) In addition, your broker-dealer may not allow you to place a stop limit order on some securities or accept a stop limit order for OTC stocks.
e) All of the above are true
Question 38 (1 point)
Question 38 Unsaved
The turnover ratio percentages for 36 equity markets of emerging markets for the five years beginning with 2002 were measured. Many of the small equity markets in each region (e.g., Peru, Venezuela, Sri Lanka, Slovak Republic, Croatia, and Zimbabwe) have relatively low turnover ratios,
Question 38 options:
a) indicating poor liquidity at present.
b) indicating good liquidity at present.
c) indicating strong investment performance over the period.
d) none of the above
Question 39 (1 point)
Question 39 Unsaved
In a dealer market, the broker takes the trade through the dealer, who participates in trades as a principal by buying and selling the security for his own account.
Question 39 options:
a) True
b) False
Question 40 (1 point)
Question 40 Unsaved
The OTC market
Question 40 options:
a) does not accept credit—the dealers "only take cash".
b) is a dealer market.
c) includes the NASDAQ in the U.S.
d) both b) and c)
Question 41 (1 point)
Question 41 Unsaved
Many of the larger emerging equity markets (e.g. Korea, India)
Question 41 options:
a) have poor liquidity at present.
b) are more liquid stock markets than the developed world, since the poor people living in the developing world are eager to sell their securities.
c) have high turnover ratios.
d) none of the above
Question 42 (1 point)
Question 42 Unsaved
A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the specified price is reached, your stop order becomes a market order, The advantage of a stop order is
Question 42 options:
a) you don't have to monitor how a stock is performing on a daily basis.
b) the stop price can be activated by a short-term fluctuation in a stock's price.
c) once your stop price is reached, your stop order becomes a market order and the price you receive may be much different from the stop price, especially in a fast-moving market where stock prices can change rapidly.
d) all of the above are advantages
Question 43 (1 point)
Question 43 Unsaved
The Paris Bourse was traditionally a call market. In a call market, an agent of the exchange accumulates, over a period of time, a batch of orders that are periodically executed by written or verbal auction throughout the trading day. Both market and limit orders are handled in this way. The major disadvantage of a call market is that
Question 43 options:
a) traders are not certain about the price at which their orders will transact because bid and ask quotations are not available prior to the call.
b) traders are not certain about how many shares will be able to sell or buy at the price they quote because order volume is not available prior to the call.
c) there is a lack of liquidity intercall.
d) none of the above
Question 44 (1 point)
Question 44 Unsaved
On the Paris bourse, shares of Avionelle trade at €45. The spot exchange rate is $1.40 = €1.00. What is the no-arbitrage U.S. dollar price of an Avionelle ADR? Assume that transactions costs are negligible.
Question 44 options:
a) $63
b) $32.14
c) $45
d) $45.50
Question 45 (1 point)
Question 45 Unsaved
The sale of previously issued common stock traded between investors occurs in
Question 45 options:
a) the primary market.
b) the secondary market.
c) the on-the-run market.
d) the dealer market.
Question 46 (1 point)
Question 46 Unsaved
When a swap bank serves as a dealer:
Question 46 options:
a) The swap bank stands willing to accept either side of a swap.
b) The swap bank matches counterparties but does not assume any risk of the swap.
c) The swap bank receives a commission for matching buyers and sellers.
d) None of the above
Question 47 (1 point)
Question 47 Unsaved
In an interest-only currency swap
Question 47 options:
a) the counterparties must raise the actual notational principal in their home markets; then exchange it for the foreign currency they desire. They must also hedge with forward contracts on the currency.
b) the counterparties periodically exchange the amortized portions of the notational principals.
c) both a) and b)
d) none of the above
Question 48 (1 point)
Question 48 Unsaved
With regard to a swap bank acting as a dealer in swap transactions, interest rate risk refers to
Question 48 options:
a) The risk that arises from the situation in which the floating-rates of the two counterparties are not pegged to the same index.
b) The risk that interest rates changing unfavorably before the swap bank can lay off to an opposing counterparty on the other side of an interest rate swap entered into with the first counterparty.
c) The risk the swap bank faces from fluctuating exchange rates during the time it takes for the bank to lay off a swap it undertakes with one counterparty with an opposing transaction.
d) The risk that a counterparty will default.
Question 49 (1 point)
Question 49 Unsaved
Examples of "single-currency interest rate swap" and "cross-currency interest rate swap" are:
Question 49 options:
a) fixed-for-floating rate interest rate swap, where one counterparty exchanges the interest payments of a floating- rate debt obligations for fixed-rate interest payments of the other counter party.
b) fixed-for-fixed rate debt service (currency swap), where one counterparty exchanges the debt service obligations of a bond denominated in one currency for the debt service obligations of the other counter party denominated in another currency.
c) both a) and b)
d) none of the above
Question 50 (1 point)
Question 50 Unsaved
You are the debt manager for a U.S.-based multinational. You need to borrow €100,000,000 for five years. You can either borrow the €100,000,000 directly in Germany or borrow dollars in the U.S. and enter into a combined interest rate and currency swap with a swap bank. One risk that you face by using the swap that you do not face by borrowing euros directly is
Question 50 options:
a) exchange rate risk.
b) sovereign risk.
c) credit risk.
d) interest rate risk.
Question 51 (1 point)
Question 51 Unsaved
Amortizing currency swaps
Question 51 options:
a) the debt service exchanges decrease periodically through time as the hypothetical notational principal is amortized.
b) incorporate an amortization feature in which periodically the amortized portions of the notational principals are re-exchanged.
c) both a) and b)
d) none of the above
Question 52 (1 point)
Question 52 Unsaved
Consider a fixed for fixed currency swap. The Dow Corporation is a U.S.-based multinational. The Jones Corporation is a U.K.-based multinational. Dow wants to finance a £2 million expansion in Great Britain. Jones wants to finance a $4 million expansion in the U.S. The spot exchange rate is £1.00 = $2.00. Dow can borrow dollars at $10% and pounds sterling at 12%. Jones can borrow dollars at 9% and pounds sterling at 10%. Assuming that the swap bank is willing to take on exchange rate risk, but the other counterparties are not, which of the following swaps is mutually beneficial to each party and meets their financing needs?
Question 52 options:
a) Dow should borrow $4 million in dollars externally at $10%; pay £11¾% in pounds to the swap bank on a notational principal of £2 million; receive $10% from the swap bank on a notational principal of $4million. Jones, borrows £2 million pounds externally at £10%; pays $8¾% to the swap bank on a notational principal of $4 million and receives £10% in pounds from the swap bank on a notational principal of £2 million.
b) Dow should borrow $4 million in dollars externally at $10%; pay £11½% in pounds to the swap bank on a notational principal of £2 million; receive $10% from the swap bank on a notational principal of $4million. Jones, borrows £2 million pounds externally at £10%; pays $8½% to the swap bank on a notational principal of $4 million and receives £10% in pounds from the swap bank on a notational principal of £2 million.
c) Dow should borrow $4 million in dollars externally at $10%; pay £11% in pounds to the swap bank on a notational principal of £2 million; receive $8% from the swap bank on a notational principal of $4million. Jones, borrows £2 million pounds externally at £10%; pays $10% to the swap bank on a notational principal of $4 million and receives £11% in pounds from the swap bank on a notational principal of £2 million.
d) There is no swap that is possible.
Question 53 (1 point)
Question 53 Unsaved
Suppose the quote for a five-year swap with semiannual payments is 8.50—8.60 percent in dollars and 6.60—6.80 percent in euro against six-month dollar LIBOR. This means
Question 53 options:
a) the swap bank will enter into a currency swap in which it would pay semiannual fixed-rate dollar payments of 8.50 percent against receiving semiannual fixed-rate euro payments of 6.80.
b) the swap bank will enter into a currency swap in which it would pay semiannual fixed-rate euro payments of 6.60 percent against receiving semiannual fixed-rate dollar payments of 8.60.
c) both a) and b)
d) none of the above
Question 54 (1 point)
Question 54 Unsaved
An interest-only single currency interest rate swap
Question 54 options:
a) is also known as a plain vanilla swap.
b) is also known as an interest rate swap.
c) is about as simple as swaps can get.
d) all of the above
Question 55 (1 point)
Question 55 Unsaved
When a swap bank serves as a broker:
Question 55 options:
a) The swap bank stands willing to accept either side of a swap.
b) The swap bank matches counterparties but does not assume any risk of the swap.
c) The swap bank receives a commission for matching buyers and sellers.
d) None of the above
Question 56 (1 point)
Question 56 Unsaved
In an efficient market without barriers to capital flows, the cost-savings argument of the QSD is difficult to accept, because
Question 56 options:
a) it implies that an arbitrage opportunity exists because of some mispricing of the default risk premiums on different types of debt instruments.
b) it implies that an arbitrage opportunity exists because of some mispricing of the exchange rates on different maturities of forward contracts.
c) none of the above
Question 57 (1 point)
Question 57 Unsaved
Suppose the quote for a five-year swap with semiannual payments is 8.50—8.60 percent. This means
Question 57 options:
a) the swap bank will pay semiannual fixed-rate dollar payments of 8.50 percent against receiving six-month dollar LIBOR.
b) the swap bank will receive semiannual fixed-rate dollar payments of 8.60 percent against paying six-month dollar LIBOR.
c) both a) and b)
d) none of the above
Question 58 (1 point)
Question 58 Unsaved
A major risk faced by a swap dealer is exchange rate risk. This is
Question 58 options:
a) the probability that a foreign counterparty will default in a currency swap.
b) the probability that either counterparty defaults in a currency swap.
c) the probability exchange rates will move against the dealer.
d) none of the above
Question 59 (1 point)
Question 59 Unsaved
A major that can be eliminated through a swap is exchange rate risk.
Question 59 options:
a) But only to the extent that a foreign counterparty will NOT default in a currency swap.
b) But only if the bid-ask spreads are wide.
c) But swaps can be less efficient in this than just trading at the expected spot exchange rates each year.
d) None of the above
Question 60 (1 point)
Question 60 Unsaved
Floating for floating currency swaps
Question 60 options:
a) the reference rates are different for the different currencies: e.g. dollar LIBOR versus euro LIBOR.
b) do not exist.
c) offer the swap bank a built-in hedge.
d) none of the above
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