IB Chapter 9 Final

Which of the following factors is responsible for growth in the international equity market?

A) Advent of cybermarkets

In a quoted exchange rate of $1.69/British pound, the British pound is called the _____.

A) Base currency

Company debt normally takes the form of ____.

A) Bonds

Which of the following terms refers to a stock market with no central geographic location?

A) Cybermarket

The rate at which one currency is interchanged for another is called the _____.

A) Exchange rate

The exchange rate at which two parties agree to exchange currencies on a specified future date is called a _____ rate.

A) Forward

The practice of insuring against potential losses that result from adverse changes in exchange rates is called currency ____.

A) Hedging

Rates that the world's largest banks charge one another for loans are called ____.

A) Interbank interest rates

_____ dominates the foreign exchange market.

A) London

_____ refers to the most commonly quoted interest rate that London banks charge other large banks that borrow Eurocurrency.

A) London Interbank Offer Rate (LIBOR)

Which of the following represents a country or territory whose financial sector features very few regulations and few, if any, taxes?

A) Offshore financial center

An expanded money supply _____.

A) Reduces the cot of borriwing

_____ in the foreign exchange market specialize in currency and options transactions.

A) Securities exchanges

_____ refers to shares of ownership in a company's assets that give shareholders a claim on the company's future cash flows.

A) Stock

The absence of government regulations in the Eurobond market _____.

A) Substantially reduces the cost of issuing a bond

An exchange rate of Y117.87/$ indicates _____.

A) That 117.87 yen buys one dollar

The exchange rate between the euro and the dollar 0.8461/$. Which of the following is correct direct quote on the dollar?

B) $1.1819

While designating an exchange rate, the _____ is always the denominator.

B) Base currency

Which of the following is a debt instrument that specifies the timing of principal and interest payments?

B) Bond

The exchange rate at which a bank will purchase a currency is called a ____ rate.

B) Buy

______ is the instantaneous purchase and sale of a currency in different markets for profit.

B) Currency arbitrage

A(n) _____ is a right to exchange a specific amount of currency on a specific date at a specific rate.

B) Currency option

Investors use the foreign exchange market for ____.

B) Currency speculation

Bonds sold outside the borrower's country and denominated in the currency of the country in which they are sold are called ____.

B) Foreign bonds

One of the major forces responsible for the rapid growth rate of the international capital market is _____.

B) Information technology

_____ is a prominent operational center.

B) London

The international bond market consists of all bonds sold by issuing companies, governments, or other organizations _____.

B) Outside their own countries

Which of the following is an exchange rate that requires delivery of the traded currency within two business days?

B) Spot rate

A currency used as an intermediary to convert funds between two other currencies in the foreign exchange market is called a _____.

B) Vehicle currency

Foreign bonds issued in the U.S. are called ____.

B) Yankee bonds

_____ are usually located on small island nations or territories with favorable tax and/or secrecy laws.

C) Booking centers

A(n) ______ is a system that allocates financial resources in the form of debt and equity according to their most efficient uses.

C) Capital market

An exchange rate calculated using two other exchange rates is called a(n) _____.

C) Cross rate

The purchase or sale of a currency with the expectation that its value will change and generate a profit is called _____.

C) Currency speculation

______ is the simultaneous purchase and sale of foreign exchange for two different dates.

C) Currency swap

The bid-ask spread in the foreign exchange market is the _____.

C) Difference between the bid and ask quotes for a currency

A bond issued by a Venezuelan company, denominated in U.S. dollars, and sold in Britain, France, and Germany is an example of a _____.

C) Eurobond

The market consisting of all the world's currencies that are banked outside their countries of origin is called the _____.

C) Eurocurrency market

British pounds of a British trading company that are deposited in a bank are called _____.

C) Europounds

An offshore financial center is usually characterized by _____.

C) Excellent telecommunications

Eurobonds are popular because _____.

C) Governments of nations in which they are sold do not regulare them

______ is traded freely in the foreign exchange market, with its price determined by the forces of demand and supply.

C) Hard currency

The world's largest banks exchange currencies at spot and forward rates in the _____.

C) Interbank

The profit-motivated purchase and sale of interest-paying securities denominated in different currencies is called _____.

C) Interest arbitrage

Banks in the interbank market ____.

C) Offer advice on trading strategies

Governments impose currency restrictions in their countries to _____.

C) Protect currencies from speculators

While designating an exchange rate, the numerator indicates the ____.

C) Quoted currency

Which of the following is a major purpose of the international capital market?

C) To reduce risk for lenders

The world's three most important financial centers are ____.

C) Tokyo, London, and New York

The _____ is the currency that dominates the foreign exchange market.

C) U.S. dollar

In the interbank market, the process of aggregating the currencies that one bank owes another and then carrying out that transaction is called _____.

D) Clearing

A loan is which the borrower promises to repay the borrowed amount plus a predetermined rate of interest is called a(n) ______.

D) Debt

Foreign bonds issued and traded in Asia outside Japan and normally denominated in dollars are called ____.

D) Dragon bonds

The market in which currencies are bought and sold and their prices determined is called the _____.

D) Foreign exchange market

The ease with which bondholders and shareholders may convert their investments into cash is called ____.

D) Liquidity

Which of the following is used by governments for the convertibility of currencies in their countries?

D) OTC market

_______ is the decentralized exchange encompassing a global computer network of foreign exchange traders and other market participants,

D) Over-the-counter market

The unbundling and repackaging of hard-to-trade financial assets into more liquid, negotiable, and marketable financial instruments is called ____.

D) Securitization

Currency speculation is the purchase or sale of a currency with the expectation that its value will remain constant.

False

True or False, A convertible currency is traded freely in the foreign exchange market with its price determined by London banks.

False

True or False, All of Europe's currencies combined are referred to as Eurocurrency.

False

True or False, An exchange rate requiring delivery of the traded currency within two business days is called a cross rate.

False

True or False, If an individual is traveling to another country and wants to exchange currencies at his bank before departing, he will be quoted the spot rate since he is exchanging on the spot.

False

True or False, Increased regulation of national capital markets has been instrumental in the expansion of the international capital market.

False

True or False, Investors increase risk by holding international securities whose prices move independently.

False

True or False, Major financial activities take place in booking centers.

False

True or False, The London Interbank Bid Rate (LIBID) is the interest rate that London banks charge other large banks for borrowing Eurocurrency.

False

True or False, The international bond market consists of all bonds sold by issuing companies outside their own countries.

False

True or False, The practice of insuring against potential losses that result from adverse changes in exchange rates is called currency arbitrage.

False

The process of aggregating the currencies that one bank owes another and then carrying out the transaction is called clearing.

True

True or False, All foreign exchange transactions can be performed in the over-the-counter (OTC) market.

True

True or False, An excess money supply creates a borrower's market, forcing down interest rates and the cost of borrowing.

True

True or False, An offshore financial center is a territory whose financial sector features very few regulations and few, if any, taxes.

True

True or False, Booking centers are usually located on small territories with favorable tax and/or secrecy laws.

True

True or False, Exchange rate risk is the risk of adverse changes in exchange rates.

True

True or False, Forward rates represent the expectations of currency traders and bankers regarding a currency's future spot rate.

True

True or False, In any exchange rate, the quoted currency is always the numerator.

True

True or False, Interest arbitrage is the profit-motivated purchase and sale of interest-paying securities denominated in different currencies.

True

True or False, International transactions between two currencies other than the U.S. dollar often use the dollar as a vehicle currency.

True

True or False, Liquidity refers to the easy with which bondholders and shareholders may convert their investments to cash.

True

True or False, One goal of currency restrictions is to preserve hard currencies to pay for imports and to finance trade deficits.

True

True or False, Securitization is the unbundling and repackaging of hard-to-trade financial assets into liquid financial instruments.

True

True or False, The forces of supply and demand determine currency prices.

True

True or False, The spread of privatization encourages the growth of the international equity market.

True

True or False, With the help of microfinance, low-income entrepreneurs can borrow money at competitive rates without having to put anything up as collateral.

True