Chapter 12 The Global Capital Market

a. 27%

According to a classic study by Solnik, a fully diversified US portfolio is about ______ as risky as a typical as a typical individual stock. a. 27% b. 68% c. 11% d. 51%

a. Eurodollar

Any currency banked outside of its country of origin is a Eurocurrency. Which currency makes up about two-thirds of all Eurocurrencies? a. Eurodollar b. Euro-yen c. Euro-euro d. Euro-pound

d. Limits on the amount of a firm's stock that a foreigner can own.

Capital controls can affect the correlation between the movement of stock markets in different countries. What is an example of a capital control? a. Trading options on the stock market b. Decreasing the number of employees based at a foreign subsidiary c. Borrowing money to implement a buy-out d. Limits on the amount of a firm's stock that a foreigner can own.

d. Borrow money

Capital markets match large corporations who want to invest their surplus cash with the individuals who want to _____________. a. Create a merger b. Find a job c. Invest in the stock market d. Borrow money

d. They operate largely out of existing regulatory boundaries.

How are hedge funds regulated? a. They are regulated only by individual state governments. b. They are strictly regulated the federal government. c. They are regulated through Constitutional amendment. d. They operate largely out of existing regulatory boundaries.

d. Both borrowers and investors consider it a benefit.

How do borrowers and investors view a global capital market? a. Borrowers see it as a benefit while investors see it as a detriment. b. Neither borrowers or investors consider it a benefit. c. Investors see it as a benefit, while borrowers see it as a detriment. d. Both borrowers and investors consider it a benefit.

a. The pool of investors in domestic markets is less than global markets

Interest rates in domestic markets are higher than interest rates in global markets because _________ a. The pool of investors in domestic markets is less than global markets b. The pool of investors in domestic markets is greater than global markets c. The pool of investors in domestic markets is the game as global markets d. The pool of borrowers in domestic markets are less price sensitive.

b. Hedge

Private investment funds that make "long bets" on assets they think will increase in value or "short bets" on assets they think will decline in value are called ____________ funds. a. Spot b. Hedge c. Swap d. Standard

b. There has been rapid movement toward harmonization.

Recently, what has occurred in the efforts toward harmonizing differences in national accounting standards? a. Most developed countries have harmonized standards. b. There has been rapid movement toward harmonization. c. There have been no attempts to harmonize the differences. d. Only developing countries seem interested in harmonizing the standards.

b. Decreased the costs of transactions

Technology has been a major factor in the growth of global capital markets because technology has _________________. a. Increased the cost of doing business b. Decreased the costs of transactions c. Decreased the volume of transactions d. Limited who can be involved in the markets.

a. Global

The broadest range of investment opportunities would be found in a ____________ capital market a. Global b. National c. Home-country d. Domestic

c. Accounting

The information gap that investors face is further complicated the differences in _____________ conventions, which make the analysis of cross-border investments opportunities challenging. a. Exchange rate b. Segmenting & targeting c. Accounting d. Borrowing

b. Systematic

The level of nondiversifiable risk in an economy is known as ______________ risk. a. Intentional b. Systematic c. Forward d. Exchange

b. Reduce their risk

The most significant consequence for investors of using the global capital market versus the domestic market is that investors can diversify their portfolios internationally, which allows them to __________________________________. a. Reduce their investment opportunities b. Reduce their risk c. Increase their costs d. Reduce their return

a. True

True or False: A British firm can borrow money from domestic sources or go to the global capital markets. The interest rates will probably be lower in the global capital markets because of the higher pool of funds. a. True b. False

b. False Reason: A Eurocurrency is any currency that is banked outside its country of origin, not just Europe.

True or False: A Eurocurrency is a currency that is banked only in Europe. a. True b. False

a. True

True or False: Global markets are not strongly correlated, allowing investors to reduce risk by diversifying their portfolio internationally. a. True b. False

a. True Reason: Technology connects financial centers together like never before and a "shock" is likely to spread quickly around the globe.

True or False: With the advancement of technology, when a "shock" occurs in one financial center, it tends to spread quickly around the globe. a. True b. False

d. Commercial bank

What financial institution takes cash deposits and then lends to borrowers? a. Mutual fund b. Stock brokerage c. Investment firm d. Commercial bank

a. Commercial bank

What is an example of a market maker within a capital market? a. Commercial bank b. Insurance company c. Corporation d. Individual investor

a. A financial crisis that occurs in one center spreads quickly around the globe.

What is considered the "dark side" of technological advancements in global capital markets? a. A financial crisis that occurs in one center spreads quickly around the globe. b. There are more restrictions on global trading c. Investors can gain more knowledge about a foreign financial situation. d. Investors are less willing to invest in foreign markets.

b. Lowers the borrower's cost of capital.

When a company is starting up, it likely needs to borrow startup funds. A key advantage of borrowing from global capital markets is that it _____________________. a. Lowers an investor's cost of capital. b. Lowers the borrower's cost of capital. c. Decreases the paperwork involved in borrowing money. d. Increases the borrower's cost of capital.

c. Deregulation

When the US allowed foreign banks to enter the US capital market and domestic banks to expand their operations overseas in the late 1970s, it was due to _______________________. a. Forecasting b. A subsidiary c. Deregulation d. A buy-out

d. Investment bank

Which financial institution directly connects investors and borrowers and charges a commission for performing this function? a. Commercial bank b. Credit union c. Savings & loan d. Investment bank

a. Volatile exchange rates create uncertainty which might act as a brake on the growth of the international capital market.

Which statement accurately depicts how volatile exchange rates affect the international capital market? a. Volatile exchange rates create uncertainty which might act as a brake on the growth of the international capital market. b. Volatile exchange rates foster growth and prosperity within the international capital market. c. Volatile exchange rates have no effect on the international capital market because it is smaller than the domestic market.

b. Commercial

____________ banks perform an indirect connection by taking cash deposits from investors and paying them interest, and then lending money to borrowers charging them interest. a. Trade b. Commercial c. Nonprofit d. Corporate