Chapter 11: International Banking and Money Market

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

A. Merchant banks can engage in investment banking activities.

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

A. a low marginal cost industry.

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.

A. would not have to provide deposit insurance and meet reserve requirements on foreign currency deposits.

By far the most important international finance centers are A. New York and London. B. New York, London, and Tokyo. C. New York, London, Tokyo, Paris, and Zurich. D. New York, London, Tokyo, Paris, Zurich, and Frankfurt.

B. New York, London, and Tokyo.

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

B. There may be reduced need to publish adequate financial information.

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

B. is pursuing a wholesale defensive strategy.

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

C. is pursuing a retail defensive strategy.

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.

C. managerial and marketing knowledge developed at home can be used abroad with low marginal costs.

Since international banks have the facilities to trade foreign exchange, 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

C. they generally also trade foreign exchange products for their own account.

A bank may establish a multinational operation for the reason of prestige. The underlying rationale being that 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. 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. 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.

C. very large multinational banks have high perceived prestige, liquidity, and deposit safety that can be used to attract clients abroad.

A bank may establish a multinational operation for the reason of knowledge advantage. The underlying rationale being that 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.

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.

International banks are different from domestic banks in what way(s)? A. International banks can arrange trade financing. B. International banks can arrange for foreign exchange transactions. C. International banks can assist their clients in hedging exchange rate risk. D. All of the above

D. All of the above

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

D. all of the above

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.

D. merchant banks.

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

TRUE

Edge Act banks are not prohibited from owning equity in business corporations, unlike domestic commercial banks. TRUE/FALSE

TRUE