Global Business Chapter 12

These are international bonds, normally underwritten by an international syndicate of banks and placed in countries other than the one in whose currency the bond is denominated. a. Eurobonds b. Convertible bonds c. Foreign bonds d. Regulatory bonds

a. Eurobonds

A eurocurrency a. can be created anywhere in the world. b. should be created and banked in Europe. c. can be created only in its country of origin. d. refers to any former national currency of EU members.

a. can be created anywhere in the world.

A(n) _____ brings together those who want to invest money and those who want to borrow money. a. capital market b. high net worth investor c. consumer market d. retailer

a. capital market

Analysts who believe that the globalization of capital has serious inherent risks argue that: a. due to deregulation and reduced controls on cross-border capital flows, individual nations are becoming more vulnerable to speculative capital. b. most of the capital that moves internationally is pursuing long term gains, and it does not shift in and out of countries as quickly as conditions change. c. "hot money" is still relatively rare, primarily because although capital is free to move internationally, its owners and managers still prefer to keep most of it at home. d. the lack of short-term capital is due to the relative paucity of information that investors have about foreign investments.

a. due to deregulation and reduced controls on cross-border capital flows, individual nations are becoming more vulnerable to speculative capital.

Market makers are: a. financial service companies that connect investors and borrowers. b. those who want to borrow money including individuals, companies, and governments. c. nonbank financial institutions who want to invest money. d. high net worth individuals with surplus cash to reinvest.

a. financial service companies that connect investors and borrowers.

The cost of capital: a. is the price of borrowing money, which is the rate of return that borrowers must pay investors. b. tends to be higher in an international capital market than it is in a purely domestic market. c. in a purely domestic market implies that borrowers must pay less to persuade investors to lend them their money. d. in an international market implies that borrowers will be able to pay more to persuade investors to lend them their money.

a. is the price of borrowing money, which is the rate of return that borrowers must pay investors.

Economist Martin Feldstein argues that the lack of patient money is due to the a. relative paucity of information that investors have about foreign investments. b. relative abundance of hot money. c. restrictions on international capital movements. d. increasing trend of excessive intra-day volatility in global capital markets.

a. relative paucity of information that investors have about foreign investments.

In 1997, the stock markets of several Asian countries, including South Korea, Malaysia, Indonesia, and Thailand, lost over 50 percent of their value in response to the Asian financial crisis, while at the same time the S&P 500 increased in value by over 20 percent. This indicates that: a. relatively low correlation exists between the movement of stock markets in different countries. b. international diversification has failed in reducing the risks of global capital movement. c. capital controls result in segmentation of different stock markets. d. the integration of global capital disproportionately favors developed countries in Europe and America.

a. relatively low correlation exists between the movement of stock markets in different countries.

According to data from the Bank for International Settlements, a. by late 2008, the stocks of cross-border bank loans were significantly less as compared to those in 1990. b. international equity issues were actually higher in 2007. c. outstanding international bonds in late 2008 were down from those in 1997. d. the international capital market was in recession from the 1980s to the early 2000s.

b. international equity issues were actually higher in 2007.

According to Harvard economist Martin Feldstein _____ supports long-term cross-border capital flows. a. hot money b. patient money c. short-term capital d. investment capital

b. patient money

_____ position themselves to make "long bets" on assets that they think will increase in value, and "short bets" on assets that they think will decline in value. a. Growth funds b. Arbitrageurs c. Hedge funds d. Debt funds

c. Hedge funds

_____ refers to movements in a stock portfolio's value that are attributable to macroeconomic forces affecting all firms in an economy, rather than factors specific to an individual firm. a. Financial risk b. Portfolio risk c. Systematic risk d. Unplanned risk

c. Systematic risk

According to a study by Bruno Solnik: a. a fully diversified portfolio of international stocks is only about 75 percent as risky as a typical individual stock. b. a fully diversified portfolio of U.S. stocks is about 2 percent as risky as a typical individual stock. c. a fully diversified portfolio that contains stocks from many countries is less than half as risky as a fully diversified portfolio that contains only U.S. stocks. d. there is no relationship between international diversification and risk.

c. a fully diversified portfolio that contains stocks from many countries is less than half as risky as a fully diversified portfolio that contains only U.S. stocks.

As an investor increases the number of stocks in her portfolio, the portfolio's risk: a. increases initially. b. does not change. c. declines rapidly in the beginning. d. increases exponentially beyond a point.

c. declines rapidly in the beginning.

Which of the following is a drawback of the eurocurrency market? a. High reserve ratio requirements b. Higher cost of transaction c. Lower interest rates on deposits d. Exposure to foreign exchange risk 1

d. Exposure to foreign exchange risk

Which of the following are among the best examples of market makers? a. Individuals b. Regulatory agencies c. Governments d. Commercial banks

d. commercial banks

Companies with historic roots in one nation are broadening their stock ownership by listing their stock in the equity markets of other nations because of all of the following reasons, except: a. listing stock on a foreign market is often a prelude to issuing stock in that market to raise capital. b. they can tap into the liquidity of foreign markets, thereby increasing the funds available for investment and lowering the firm's cost of capital. c. it facilitates future acquisitions of foreign companies. d. it helps in decreasing the company's visibility with local employees, customers, suppliers, and bankers.

d. it helps in decreasing the company's visibility with local employees, customers, suppliers, and bankers.

According to the text, various studies have confirmed that despite casual observations different national stock markets appear to be: a. positively correlated. b. negatively correlated. c. strongly correlated. d. only moderately correlated.

d. only moderately correlated.

All of the following are benefits of global capital markets, except: a. they increase the supply of funds available to borrowers. b. that the risk to the investment portfolio is reduced to below what could be achieved in a purely domestic capital market. c. they provide a wider range of investment opportunities to investors. d. they have higher cost of capital as compared to purely domestic capital markets.

d. they have higher cost of capital as compared to purely domestic capital markets.