FIN 3380 Exam 3
Rank the exchanges by the market capitalization of the firms traded on them as of 2015.
1.) New York Stock Exchange (NYSE) 2.) Nasdaq 3.) Japanese Exchange Group 4.) Shanghai Stock Exchange 5.) London SE Group
Approximately how many ADRs traded on US exchanges in 2015?
400
The market capitalization (that is, value of firm equity) on the 80 organized stock exchanges tracked by the World Federation of Exchanges at year-end 2015 was $_________ billion.
67106
Approximately how many major national stock markets are there?
80
What is the share of new international bonds that are Eurobonds rather than foreign bonds?
80%
The Federal Reserve Chair from 1987-2006 who admitted the mistake of lax financial regulation leading to the global financial crisis was ______.
Alan Greenspan
As measured by turnover velocity, which developing countries have had high levels of liquidity and which had low?
Argentina= Low Croatia= Low Nigeria= Low Lebanon= Low China= High India= High Taiwan= High
Why is the Eurodollar bond segment of the international bond market generally more desirable than the Yankee bond segment for issues offered in the United States? Eurodollar bonds offer the protection of SEC regulation. Yankee bonds have a 40-day restriction period on offers and sales after issue. Borrowers pay lower rate of interest for Eurodollar bond financing. Eurodollar bonds can be brought to market more quickly.
Borrowers pay lower rate of interest for Eurodollar bond financing. Eurodollar bonds can be brought to market more quickly.
Why is the Eurodollar bond segment of the international bond market generally more desirable than the Yankee bond segment for issues offered in the United States? Yankee bonds have a 40-day restriction period on offers and sales after issue. Eurodollar bonds offer the protection of SEC regulation. Borrowers pay lower rate of interest for Eurodollar bond financing. Eurodollar bonds can be brought to market more quickly.
Borrowers pay lower rate of interest for Eurodollar bond financing. Eurodollar bonds can be brought to market more quickly.
Match the bond name with its description. Bulldogs Samurai bonds Yankee bonds Euroyen bonds Eurodollar bonds Eurosterling bond
Bulldogs= Pound sterling-denominated foreign bonds sold in the U.K. Samurai bonds= Yen-denominated foreign bonds sold in Japan Yankee bonds= Dollar-denominated foreign bonds originally sold to U.S. investors Euroyen bonds= Yen-denominated foreign bonds sold outside Japan Eurodollar bonds= Dollar-denominated foreign bonds sold outside the U.S. Eurosterling bond= Pound sterling-denominated foreign bonds sold outside the U.K.
Which functions do Eurobond clearing systems typically perform? Distributing a new bond issue Financing inventory Underwriting a new bond issue Distributing coupon payments
Distributing a new bond issue Distributing coupon payments Financing inventory
An international bank that seeks Eurocurrency deposits and makes Eurocurrency loans is a(n)
Eurobank
A Chinese borrower issuing dollar-denominated bonds to investors in Jordan, Japan, and Argentina is an example of a(n) ______. dual-currency bond foreign bond Eurobond dragon bond
Eurobond dragon bond
Two major clearing systems for international bond transactions are
Euroclear and Clearstream International.
Which regions' equities does the MSCI EAFE Index seek to track?
Europe, Australasia, and the Far East
True or false: GRSs are not fully fungible, meaning a GRS purchased on one exchange cannot necessarily be sold on another.
FALSE
Match the indexes with their countries.
FTSE 100= United Kingdom S&P 500= United States Nikkei 225= Japan M-DAX= Germany Hang Seng= Hong Kong Kospi= South Korea
True or false: Branch bank loan limits are based on the capital of the branch bank, NOT the parent bank. True false question.
False
Which has been the largest issuer of international bonds?
Financial corporations
Which functions do Eurobond clearing systems typically perform? Financing inventory Underwriting a new bond issue Distributing a new bond issue Distributing coupon payments
Financing inventory Distributing a new bond issue Distributing coupon payments
The type of equity that trades globally is known by the initials
GRS
A firm can simultaneously cross-list on several national exchanges with _________________ Depository Receipts.
Global
Which are common reasons for firms to cross-list their shares? It can signal strong corporate governance. It significantly reduces administrative costs. It establishes name recognition in foreign markets. It can broaden the investor base, improve liquidity, and increase the share price.
It can signal strong corporate governance. It establishes name recognition in foreign markets. It can broaden the investor base, improve liquidity, and increase the share price.
What does the term "ex" denote in the All Country World ex USA Investable Market Index.
It does not include US shares.
What are currently the three most important financial centers?
London, New York, and Tokyo
The SEC instituted shelf registration with ________ in ______.
Rule 415; 1982
For foreign firms desiring to have their shares traded only among large institutional investors rather than listed on an exchange, less rigorous accounting and disclosure requirements apply under ______.
SEC Rule 144A
True or false: Since the beginning of the 1990s, many Latin American companies have listed their stocks on the U.S. exchanges to prime the U.S. equity market for future Yankee stock offerings.
TRUE
Why is an Edge Act bank typically located in a different state from that of its parent?
To get around the prohibition on interstate branch banking.
The 1933 law that requires full disclosure of relevant information relating to a security issue is the ______ Act.
U.S. Securities
The four currencies in which the majority of domestic and international bonds are denominated are
U.S. dollar, the euro, the pound sterling, and the yen.
The provision of the Dodd-Frank Act that limits banks' proprietary trading and their sponsorship of hedge funds and private equity funds is referred to as the ______ Rule after the former Federal Reserve Chair.
Volcker
The direct sale of new equity to US public investors is a(n) _____________ stock offering.
Yankee
Straight fixed-rate bond issues have
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.
An affiliate bank is
a locally incorporated bank that is partially owned (but not controlled) by a foreign parent.
A subsidiary bank is
a locally incorporated bank that is wholly (or majority) owned by a foreign parent.
A client's order is matched with another public order in a(n) ______ market.
agency
Possession is evidence of ownership for a(n) _____________ bond.
bearer
Possession is evidence of ownership for a(n) ______________ bond.
bearer
The profit of market makers in the secondary market is from ______.
bid-ask spreads
Cross-listing in a country with strict securities regulation limits agency problems and reduces the cost of capital according to the ________________ theory.
bonding
Financial market participants that accept buy or sell orders from market makers and then attempt to find a matching party for the other side of the trade are _______________.
brokers
A firm having its equity shares traded on one or more foreign exchanges, in addition to the home country stock exchange, is __________________-_________________.
cross-listed
In a(n) ______ market, a clients' orders are filled by ______ who buy and sell inventory for their own accounts.
dealer; dealers
A financial instrument representing a number of foreign shares that remain on deposit with the U.S. custodian in the issuer's home market is an American ____________ __________________.
depositary receipt
The Eurobond clearing systems principally transfer ownership ______. Multiple choice question.
electronically
A bond denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency is a(n) _____________ issue.
eurobond
A very large bond issue that would be difficult to sell in any one country or region of the world is termed a(n) ______.
global bond
The first ADRs began trading ________ as a means of eliminating some of the risks, delays, inconveniences, and expenses of trading the actual shares.
in 1927
Edge Act banks 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 _______________ banking activities.
international
The two segments of the ______ market are ______.
international bond; foreign bonds and Eurobonds
A market in which investors can buy and sell stocks quickly at close to the current quoted prices is said to be
liquid
An order that is executed at the best price available when the order is received is a(n) _____________ order.
market
The turnover velocity is a measure of liquidity for a stock market defined as the ratio of ______.
market transactions over a period of time divided by the stock market's market capitalization
When the proportion of the index a stock represents is determined by its proportion of the total market capitalization of all stocks in the index, the index is said to be ___________-_____________ weighted.
market-value
Research has found that when cross-listed shares trade more in the U.S., they are relatively ______ correlated with the U.S. market than the home market.
more
So-called subprime mortgages were typically
mortgages granted to borrowers with less-than-perfect credit.
The European Stock Exchange, comparable in volume to the NYSE is located in Milan. is located in London. is located in Frankfurt. none of the options
none of the options
Price discovery in the secondary stock markets
occurs due to the competitive trading between buyers and sellers, just like on eBay.
A foreign branch bank
operates like a local bank, but legally is a part of the parent bank.
In the secondary market Eurobonds are traded ______.
over-the-counter
The listing of ADRs has been found to generate _____ abnormal performance (i.e., return in excess of the expected equilibrium return).
positive
The part of the market that deals with the issuance of new bonds from borrowers to the investment public, typically via syndicates, is the ______________ market.
primary
U.S. security regulations require Yankee bonds and U.S. corporate bonds sold to U.S. citizens to be
registered bonds.
In the United States, typically foreign and domestic bonds are ______ and Eurobonds are ______.
registered; bearer
Bonds purchased in the primary market may be resold before their maturity in the _______________ market.
secondary
An ADR created by a bank at the request of the foreign company that issued the underlying security is a(n) ___________________ ADR.
sponsored
The discount from the issue price for the underwriters is referred to as the underwriting _______________.
spread
An underwriting _________________ is a group of banks that bring a bond issuance to market.
syndicate
Euronext was formed in 2000 by the merger of ___________.
the Amsterdam Exchange, the Brussels Exchange and the Paris Bourse
Generally, the higher the turnover ratio,
the more liquid the secondary stock market, indicating ease in trading.
Forward rate agreements can be used for speculative purposes. If one believes rates will be less than the agreement rate,
the sale of a FRA is the suitable position.
The sale of previously issued common stock traded between investors occurs in
the secondary market.
When banks establish multinational operations to prevent the erosion of their clientele to foreign banks seeking to service the multinational's foreign subsidiaries it is ______ defensive strategy, and when they do so to prevent the erosion of their traveler's check, tourist, and foreign business markets from foreign bank competition it is ______ defensive strategy.
wholesale; retail
A U.S.-based multinational bank
would not have to provide deposit insurance and meet reserve requirements on foreign currency deposits.
"Samurai" bonds are
yen-denominated foreign bonds originally sold in Japan.
Find the present value of a 2-year Treasury bond that pays a semi-annual coupon, has a coupon rate of 6 percent, a yield to maturity of 5 percent, and a par value of $1,000.
$1,018.81
Teltrex International can borrow $3,000,000 at LIBOR plus a lending margin of 0.75 percent per annum on a three-month rollover basis from Barclays in London. Suppose that three-month LIBOR is currently 5 17⁄32 percent. Further suppose that over the second three-month interval LIBOR falls to 5 1⁄8 percent. How much will Teltrex pay in interest to Barclays over the six-month period for the Eurodollar loan?
$91,171.88
List the countries by size of international bond notes outstanding from largest to smallest.
1.) US 2.) Euro 3.) Pound Sterling 4.) Japanese Yen 5.) Australian dollar 6.) Swiss franc
Total market capitalization for exchanges increased by about ________ percent over 2014 to 2018.
10
Investment in foreign equity markets became common practice in the
1980s
Global bond issues were first offered in
1989
When did the Asian crisis occur?
1997
The Wall Street Journal publishes daily values of yields to maturity for Japanese, German, British, and Canadian Government bonds. Bond market participants can thereby compare the yield curve of the various countries. Bond market participants can thereby compare the term structure of interest rates of the various countries. Both A and B are correct. none of the options
Both A and B are correct.
ABC International has borrowed $4,000,000 at LIBOR plus a lending margin of .65 percent per annum on a three-month rollover basis from Barclays in London. Three month LIBOR is currently 5.5 percent, but ABC is worried about an increase in three-month LIBOR 3 months from now. What could they do to hedge?
Buy a 3 × 6 FRA in the amount of $4 million.
The 2010 law that instituted broad financial regulations, rewrote the rules covering all aspects of finance, and expanded the power of the government over banking and financial markets was the ______ Act.
Dodd-Frank
Which are features of international banks and not of domestic banks? May be structured as bank holding companies so they can perform commercial and investment banking activities Frequently participate in international loan syndicates Borrow and lend in the Eurocurrency market Facilitate the imports and exports of their clients by arranging trade financing
Frequently participate in international loan syndicates Borrow and lend in the Eurocurrency market Facilitate the imports and exports of their clients by arranging trade financing
Match the bank with its country. ICBC JPMorgan Chase HSBC Holdings BNP Paribas Deutsche Bank
ICBC= China JPMorgan Chase= United States (US) HSBC Holdings= United Kingdom (UK) BNP Paribas= France Deutsche Bank= Germany
Which statements about the international debt crisis are correct? It was caused by lending to OPEC countries. It began on August 20, 1982, when Mexico asked for loan forgiveness. The crisis was effectively solved by the introduction of Baker Bonds, named after Secretary of the Treasury James Baker. The source of the crisis was the high price of oil.
It began on August 20, 1982, when Mexico asked for loan forgiveness. The source of the crisis was the high price of oil.
The group that raised oil prices in the early 1970s, leading to inflation and the higher interest rates of the international debt crisis, is known by its acronym
OPEC
The Federal Reserve's massive program of buying long-term Treasuries and mortgage-backed-securities in response to the global financial crisis is referred to as _______________ easing.
Quantitative
The preregistration of a securities issue that is held for later sale when financing is actually needed is _______________ registration.
Shelf
True or false: A correspondent bank relationship is established when two banks maintain a correspondent bank account with one another.
TRUE
The Asian crisis is said to have begun when the country _____________ devalued its currency?
Thailand
Which statements about the international debt crisis are correct? The source of the crisis was the high price of oil. The crisis was effectively solved by the introduction of Baker Bonds, named after Secretary of the Treasury James Baker. It was caused by lending to OPEC countries. It began on August 20, 1982, when Mexico asked for loan forgiveness.
The source of the crisis was the high price of oil. It began on August 20, 1982, when Mexico asked for loan forgiveness.
The rate charged by banks with excess funds is referred to as the interbank offered rate; they will accept interbank deposits at the interbank bid rate.
The spread is generally 10 - 12 basis points for most major Euro currencies.
What is true of Eurodollars? They are FDIC insured. They are often lent out at rates based on LIBOR. The bank in which the deposit is located is in the eurozone (a country that uses the euro). They are deposits of U.S. dollars in banks.
They are often lent out at rates based on LIBOR. They are deposits of U.S. dollars in banks.
A "primary" stock market is
a market where corporations issue new shares to investors.
Which are features of international banks and not of domestic banks? Multiple select question. Borrow and lend in the Eurocurrency market May be structured as bank holding companies so they can perform commercial and investment banking activities Facilitate the imports and exports of their clients by arranging trade financing Frequently participate in international loan syndicates
a. Facilitate the imports and exports of their clients by arranging trade financing b. Borrow and lend in the Eurocurrency market c. Frequently participate in international loan syndicates
A "Eurobond" issue is denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency. usually a bearer bond. for example, a Dutch borrower issuing dollar-denominated bonds to investors in the U.K., Switzerland, and the Netherlands. all of the options
all of the options
A "Eurobond" issue is denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency. usually a bearer bond. for example, a Dutch borrower issuing dollar-denominated bonds to investors in the U.K., Switzerland, and the Netherlands. all of the options
all of the options
A firm may cross-list its share to establish a broader investor base for its stock. establish name recognition in foreign capital markets, thus paving the way for the firm to source new equity and debt capital from investors in different markets. expose the firm's name to a broader investor and consumer groups. all of the options
all of the options
Advantages of cross-listing include providing their shareholders with a higher degree of protection than may be available in the home country. a possible signal of the company's commitment to shareholder rights. possibly making investors, both at home and abroad, more willing to provide capital and to increase the value of the pre-existing shares. all of the options
all of the options
Factors affecting international equity returns are macroeconomic variables that influence the overall economy. exchange rate changes. the industrial structure of the country. all of the options
all of the options
In the bond market, there are brokers and market makers. Which of the following are true? Brokers accept buy or sell orders from market makers and then attempt to find a matching party for the other side of the trade; they may also trade for their own account. Brokers charge a small commission for their services to the market maker that engaged them. Brokers do not deal directly with retail clients. all of the options
all of the options
Macroeconomic factors affecting international equity returns include exchange rate changes. interest rate differentials. changes in inflationary expectations. all of the options
all of the options
Major distinguishing features between domestic banks and international banks are the types of deposits they accept. the types of loans and investments they make. membership in loan syndicates. all of the options
all of the options
The secondary stock markets are the markets for "pre-owned" or "used" shares of stock. provide marketability to shares. provide price discovery or share valuation. all of the options
all of the options
Which of the following are principles of sound banking behavior? Avoid an undue concentration of loans to single activities. Control mismatches between assets and liabilities. Expand cautiously into unfamiliar activities. all of the options
all of the options
Which of the following are reasons why a bank may establish a multinational operation? Low marginal and transaction costs Home nation information services, and prestige Growth and risk reduction all of the options
all of the options
Floating-rate notes (FRN)
are typically medium-term bonds with coupon payments indexed to some reference rate (e.g., LIBOR), and appeal to investors with strong need to preserve the principal value of the investment should they need to liquidate prior to the maturity of the bonds.
One lesson from the credit crunch is that
bankers seem not to scrutinize credit risk as closely when they serve only as mortgage originators and then pass it on to MBS investors rather than hold the paper themselves.
Eurobonds are usually
bearer bonds
Eurobonds are usually
bearer bonds.
Investors will generally accept a lower yield on __________ than on __________ of comparable terms, making them a less costly source of funds for the issuer to service.
bearer bonds; registered bonds
A typical size of a global bond issue is about $1 ______.
billion
Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management
by listing their stocks in countries with strong investor protection.
Bonds with equity warrants
can be viewed as straight debt with a call option (technically a warrant) attached.
The correspondent banking system enables a bank's MNC client to
conduct business worldwide through his local bank or its contacts.
"Yankee" bonds are
dollar-denominated foreign bonds originally sold to U.S. investors.
"Yankee" stock offerings are
dollar-denominated shares in foreign companies originally sold to U.S. investors.
The Asian crisis
followed a period of economic expansion in the region financed by record private capital inflows.
Banks that provide a majority of international banking services are commonly known as ______ banks. full service universal commercial investment
full service universal
Studies examining the influence of industrial structure on foreign equity returns
have been inconclusive.
Many of the small foreign equity markets (e.g., Argentina, Sri Lanka)
have poor liquidity at present.
Underwriters for an international 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
in the 2 to 2.5 percent range.
Edge Act banks 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 __________________ banking activities.
international
The OTC market
is a dealer market and includes the NASDAQ in the U.S.
A representative office
is a small service facility staffed by parent bank personnel that is designed to assist MNC clients of the parent bank in dealings with the bank's correspondents.
Eurocurrency
is a time deposit of money in an international bank located in a country different from the country that issued the currency.
The Eurocurrency market
is an external banking system that runs parallel to the domestic banking system of the country that issued the currency.
A market order
is an instruction from a customer to a broker to buy or sell at the best price available when the order is received (immediately).
A liquid stock market
is one in which investors can buy and sell stocks quickly at close to the current quoted prices.
The primary activities of offshore banks
is to seek deposits and grant loans in currencies other than the currency of the host government.
The credit rating of an international borrower
is usually never higher than the rating assigned to the sovereign government of the country in which it resides.
A foreign branch bank operates like a local bank, but legally
it is a part of the parent bank, and a branch bank is subject to both the banking regulations of its home country and the country in which it operates.
A limit order is an order away from the market price that is held in a ________ until it can be executed at the desired price.
limit order book
A bank may establish a multinational operation for the reason of low marginal costs. The underlying rationale being that
managerial and marketing knowledge developed at home can be used abroad with low marginal costs.
A rationale for a bank to establish multinational operations is that the managerial and marketing knowledge developed at home may make the provision of services in an additional country inexpensive, that is, there may be low ______ costs.
marginal
A foreign branch bank operates like a local bank, but legally it is a part of the_________________ _________________ .
parent bank
Euro credits
short- to medium-term loans of Euro currency extended by Euro banks to corporations, sovereign governments, non prime banks, or international organizations.
Stock in Daimler AG, the famous German automobile manufacturer trades on both the Frankfurt Stock Exchange in Germany and on the New York Stock Exchange. On the Frankfurt bourse, Daimler closed at a price of €54.34 on Wednesday, March 5, 2008. On the same day, Daimler closed in New York at $83.55 per share. To prevent arbitrage trading between the two exchanges, the shares should trade at the same price when adjusted for the exchange rate. The $/€ exchange rate on March 5 was $1.5203/€1.00. Thus, €54.34 × $1.5203/€ = $82.61, while the closing price in New York was $83.55. The difference is easily explainable by the fact that
the New York market closes several hours after the Frankfurt exchange, and thus market prices or exchange rates had changed slightly.
The sale of new common stock by corporations to initial investors occurs in
the primary market.
A measure of liquidity for a stock market is the turnover ratio; defined as
the ratio of stock market transactions over a period of time divided by the size, or market capitalization, of the stock market.
A correspondent bank relationship is established when
two banks maintain deposits with one another.
Find the price of a 30-year zero coupon bond with a €1,000 par value that has a yield to maturity of i€ = 5 percent.
€231.38
