FIN 423 Final Practice Questions

"Bulldog" bonds are ______ A) dollar-denominated foreign bonds originally sold to U.S. investors. B) yen-denominated foreign bonds originally sold in Japan. C) pound sterling-denominated foreign bonds originally sold in the U.K. D) none of the options

C

A "bearer bond" is one that ______ A) shows the owner's name on the bond. B) the owner's name is recorded by the issuer. C) possession is evidence of ownership. D) shows the owner's name on the bond, and the owner's name is recorded by the issuer.

C

Transactions in shares of the iShares Funds will typically generate tax consequences. This is because A) iShares Funds are obliged to distribute portfolio gains to shareholders. B) iShares Funds are not allowed to be held in tax-qualified accounts such as IRAs. C) iShares Funds feature daily resettlement. D) none of the options

A

"Yankee" bonds are _________ A) dollar-denominated foreign bonds originally sold to U.S. investors. B) yen-denominated foreign bonds originally sold in Japan. C) pound sterling-denominated foreign bonds originally sold in the U.K. D) none of the options

A

A decrease in the implied three-month LIBOR yield causes Eurodollar futures price A) to increase. B) to decrease. C) there is no direct or indirect relationship. D) none of the options

A

The vast majority of new international bond offerings A) are straight fixed-rate notes. B) are callable and convertible. C) are convertible adjustable rate. D) are adjustable rate, with interest rate caps and collars.

A

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? A) Buy a 3 × 6 FRA in the amount of $4 million. B) Sell a 3 × 6 FRA in the amount of $4 million. C) Buy a 3 × 3 FRA in the amount of $4 million. D) Buy a 3 × 9 FRA in the amount of $4 million.

A

An offshore banking center is A) a country whose banking system is organized to permit external accounts beyond the normal economic activity of the country. B) is external to any government, frequently located on old oil drilling platforms located in international waters. C) a country like North Korea. D) none of the options

A

Edge Act banks A) are not prohibited from owning equity in business corporations. B) are prohibited from owning equity in business corporations. C) could be prohibited (or not) from owning equity in business corporations. D) none of the options

A

Eurobonds are usually ______ A) bearer bonds. B) registered bonds. C) bulldog bonds. D) foreign currency bonds.

A

The core of the international money market is A) the Eurocurrency market. B) the market for foreign exchange. C) the futures forwards and options markets on foreign exchange. D) none of the options

A

Unlike a bond issue, in which the entire issue is brought to market at once, __________ is partially sold on a continuous basis through an issuance facility that allows the borrower to obtain funds only as needed on a flexible basis. A) a Euro-medium term note issue B) bearer bond C) a Euro-long term note issue D) a Euro-short term note issue

A

What is the primary reason a U.S. bank would open a foreign branch bank? A) Because this form of bank organization can allow a U.S. bank to provide a fuller range of services for its MNC customers than it can through a representative office. B) To avoid U.S. banking regulation on transactions routed through that foreign country. C) Because this form of organization allows the bank to service MNC clients at low cost and without the need of having bank personnel located in the country. D) Because this form of bank organization can allow a U.S. bank to provide a fuller range of services for its MNC customers than it can through a representative office, and to avoid U.S. banking regulation on transactions routed through that foreign country.

A

Which banks cannot accept foreign deposits? A) Domestic banks located in the U.S. B) Edge Act banks located in the U.S. C) Subsidiary banks located overseas D) Foreign branches located overseas

A

Why would a U.S. bank open a foreign branch bank instead of a foreign chartered subsidiary? A) This form of bank organization allows the bank to be able to extend a larger loan to a customer than a locally chartered subsidiary bank of the parent. B) To slow down check clearing and maximize the bank's float. C) To avoid U.S. banking regulation. D) This form of bank organization allows the bank to be able to extend a larger loan to a customer than a locally chartered subsidiary bank of the parent, as well as avoid U.S. banking regulation.

A

iShares MSCI are A) exchange traded funds that are subject to U.S. SEC and IRS diversification requirements. B) open-end mutual funds sold OTC. C) exchange traded funds that are NOT subject to U.S. SEC and IRS diversification requirements. D) none of the options

A

Bank A entered into a long "3 against 6" forward rate agreement on a notional amount of $10,000,000 at an agreement rate of 3 percent. Suppose at the settlement date of the FRA, the settlement rate is 3.5 percent. What is the cash settlement of the FRA, assuming 90 days in FRA perdiod? A) Net payment of $12,391.57 to Bank A B) Net payment of $12,500 to Bank A C) Net payment of $50,000 from Bank A to the counterparty D) Net payment of $48,309.18 from Bank A to the counterparty

A [$10,000,000 × (0.035 − 0.03)× (90/360)] / [1 + (0.035 × 90/360)] = $12,391.57

"Dragon" bonds are _____ A) dollar-denominated foreign bonds originally sold to U.S. investors. B) dollar-denominated bonds originally sold in Asia with non-Japanese issuers. C) pound sterling-denominated foreign bonds originally sold in the U.K. D) none of the options

B

"Investment grade" ratings are in these categories. A) Moody's: AAA to BBB and S&P Global Ratings: Aaa to Baa B) Moody's: Aaa to Baa and S&P Global Ratings: AAA to BBB C) Moody's: AAA to A and S&P Global Ratings: Aaa to A D) Moody's: Aaa to A and S&P Global Ratings: AAA to A

B

"Samurai" bonds are ______ A) dollar-denominated foreign bonds originally sold to U.S. investors. B) yen-denominated foreign bonds originally sold in Japan. C) pound sterling-denominated foreign bonds originally sold in the U.K. D) none of the options

B

"Yankee" stock offerings are A) shares in foreign companies originally sold to U.S. investors. B) dollar-denominated shares in foreign companies originally sold to U.S. investors. C) U.S. stocks held abroad. D) none of the options

B

A "global bond" issue __________ A) is a very large international bond offering by several borrowers pooled together. B) is a very large international bond offering by a single borrower that is simultaneously sold in several national bond markets. C) has higher yields for the purchasers. D) has a lower liquidity.

B

A foreign branch bank A) 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. B) operates like a local bank, but legally is a part of the parent bank. C) is subject to domestic regulation only. D) all of the options

B

Consider the position of a treasurer of a MNC, who will receive $20,000,000 that his firm will not need for the next 90 days. To hedge against an interest rate decline A) He could borrow the $20,000,000 in the money market. B) He could take a long position in Eurodollar futures contracts. C) He could take a short position in Eurodollar futures contracts. D) none of the options

B

Eurocurrency A) is the euro, the common currency of Europe. B) is a time deposit of money in an international bank located in a country different from the country that issued the currency. C) is a demand deposit of money in an international bank located in a country different from the country that issued the currency. D) is either a time deposit of money in an international bank located in a country different from the country that issued the currency or a demand deposit of money in an international bank located in a country different from the country that issued the currency.

B

In reference to Basel Accord minimum bank capital adequacy requirements, risk-weighted assets A) refers to traditional bank loans. B) refers to a "risk-focused" approach to determining adequate bank capital. C) provides a level of confidence measure of the probability of the maximum loss that can occur during a period of time. D) none of the options.

B

The Eurocurrency market A) is only in Europe. B) is an external banking system that runs parallel to the domestic banking system of the country that issued the currency. C) has languished following monetary union in Europe. D) none of the options

B

The primary activities of offshore banks A) include money laundering where banking secrecy laws are strict. B) is to seek deposits and grant loans in currencies other than the currency of the host government. C) involve check clearing of large bags of checks. D) none of the options

B

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? A) $79,921.875 B) $91,171.88 C) $96,174.39 D) $364,687.52

B $3,000,000 × (0.0553125 + 0.0075)/4 + $3,000,000 × (0.05125 + 0.0075)/4 = $47,109.38 + $44,062.50 = $91,171.88.

A global bond issue denominated in U.S. dollars and issued by U.S. corporations ______ A) trade as Eurobonds overseas. B) trade as domestic bonds in the U.S. domestic market. C) trade as Eurobonds overseas and trade as domestic bonds in the U.S. domestic market. D) none of the options

C

Euro credits A) are credit cards that work in the euro zone. B) are denominated in currencies that are the same as the home currency of the Euro bank. C) short- to medium-term loans of Euro currency extended by Euro banks to corporations, sovereign governments, non prime banks, or international organizations. D) none of the options

C

A "Eurobond" issue is ___ A) denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency. B) usually a bearer bond. C) for example, a Dutch borrower issuing dollar-denominated bonds to investors in the U.K., Switzerland, and the Netherlands. D) all of the options

D

A forward rate agreement (FRA) is a contract between two banks A) that allows the Euro bank to hedge the interest rate risk in mismatched deposits and credits. B) in which the buyer agrees to pay the seller the increased interest cost on a notional amount if interest rates fall below an agreed rate, and the seller agrees to pay the buyer the increased interest cost if interest rates increase above the agreed rate. C) that is structured to capture the maturity mismatch in standard-length Euro deposits and credits. D) all of the options

D

Edge Act banks A) can accept foreign deposits, extend trade credit, finance foreign projects abroad, trade foreign currencies, and engage in investment banking activities with U.S. citizens involving foreign securities. B) 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 international banking activities. C) can underwrite securities, but can only be located in states on the edge of the U.S. D) Both A and B are correct.

D

Euro credits A) are often so large that individual banks cannot handle them. B) short- to medium-term loans of Euro currency extended by Euro banks to corporations, sovereign governments, non prime banks, or international organizations. C) frequently require the use of a banking syndicate. D) all of the options

D

The LIBOR rate for euro A) is EURIBOR. B) is a government set rate. C) is the rate at which Interbank deposits of euro are offered by one prime bank to another in the euro zone. D) is the rate at which Interbank deposits of euro are offered by one prime bank to another in the London Eurocurrency market.

D

Yankee stocks A) never trade as ADRs and have higher risks than trading the actual shares. B) often trade as ADRs and have lower risks than trading the actual shares. C) are bank receipts representing a multiple of foreign shares deposited in a U.S. bank. D) often trade as ADRs, have lower risks than trading the actual shares, and are bank receipts representing a multiple of domestic shares deposited in a foreign bank.

D

U.S. corporations ________ A) are allowed to issue bearer bonds to non-U.S. citizens. B) are not allowed to issue bearer bonds. C) are allowed to issue treasury bonds but not T-bills. D) none of the options

A

In the London market, Rolls-Royce stock closed at £0.875 per share. On the same day, the British Pound sterling to the U.S. dollar spot exchange rate was £0.6366/$1.00. Rolls Royce trades as an ADR in the OTC market in the United States. Five underlying Rolls-Royce shares are packaged into one ADR. If the Rolls Royce ADRs were trading at $5.75 when the underlying shares were trading in London at £0.875, ignoring transaction costs, the arbitrage trading profit would be A) $0.00. B) $1.12. C) $2.12. D) $3.12

B

American Depository Receipt (ADRs) represent foreign stocks A) denominated in U.S. dollars that trade on European stock exchanges. B) denominated in U.S. dollars that trade on a U.S. stock exchange. C) denominated in a foreign currency that trade on a U.S. stock exchange. D) non-registered (bearer) securities.

B

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management A) by moving to a better country. B) by listing their stocks in countries with strong investor protection. C) by voluntarily complying with the provisions of the U.S. Sarbanes-Oxley Act. D) by having a press conference and promising to be nice to their investors.

B

Cross-correlations among major stock markets are A) relatively high. B) relatively low. C) essentially perfect. D) practically zero.

B

During the 1980s, cross-border equity investment was largely confined to the equity markets of A) developing countries. B) developed countries. C) both developing and developed countries. D) none of the options

B

Edge Act banks are so-called because A) they 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 international banking activities. B) Senator Walter E. Edge of New Jersey sponsored the 1919 amendment to Section 25 of the Federal Reserve Act to allow U.S. banks to be competitive with the services foreign banks could supply their customers. C) they can only be chartered in states that are on the borders of the United States—on the "edge" of the map. D) none of the options

B

Generally, the higher the turnover ratio, A) the less liquid the secondary stock market, indicating ease in trading. B) the more liquid the secondary stock market, indicating ease in trading. C) the more liquid the primary stock market, indicating ease in trading. D) the more efficient the stock market is.

B

Global bond issues were first offered in _____ A) 1889. B) 1989. C) 1999. D) 2007.

B

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 options

D

Macroeconomic factors affecting international equity returns include A) exchange rate changes. B) interest rate differentials. C) changes in inflationary expectations. D) all of the options

D

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 options

D

Market makers in the secondary bond market A) stand ready to buy or sell for their own account. B) quote bid and ask spreads. C) trade directly with one another, through a broker or with retail customers. D) all of the options

D

One of the five main sovereign rating factors, institutional assessment, comprises an analysis of how a government's institutions and policymaking affect a sovereign's credit fundamentals by A) delivering sustainable public finances. B) promoting balanced economic growth. C) responding to economic or political shocks. D) all of the options

D

Purchasers of global bonds are ___________ A) mainly institutional investors to date. B) desirous of the increased liquidity of the issues. C) have been willing to accept lower yields. D) all of the options

D

Sponsored ADRs A) are created by a bank at the request of the foreign company that issued the underlying security. B) can trade on the NASDAQ. C) can trade on the NYSE. D) all of the options

D

The Eurobond segment of the international bond market A) is roughly four times the size of the foreign bond segment. B) has considerably less regulatory hurdles than the foreign bond segment. C) typically has a lower rate of interest that borrowers pay in comparison to Yankee bond financing. D) all of the options

D

The first ADRs began trading ________ as a means of eliminating some of the risks, delays, inconveniences, and expenses of trading the actual shares. A) in 1997 B) in 1987 C) in 2017 D) in 1927

D

A market-value index A) is calculated such that the proportion of the index a stock represents is determined by its proportion of the total market capitalization of all stocks in the index. B) is calculated as the average price of all the stocks in the index that trade that day, one example is the NASDAQ. C) is calculated like the DJIA. D) none of the options

A

ADR trades A) clear in three days, just like trades in U.S. shares. B) settle only after the trade in the underlying stocks clear, which can take time depending on the clearing practices of the national market. C) are priced in the currency of the underlying security. D) all of the options

A

As of 2020, the biggest bank in the world by total assets is A) ICBC. B) Bank of America. C) JP Morgan Chase. D) The World Bank.

A

At the end of 2018, there were how many DR programs representing issuers from around the world trading on the world's exchanges according to the DR market review by BNY Mellon A) 3,049 B) 40,390 C) 34,090 D) 4,309,000

A

At year-end 2018, total market capitalization of 80 organized stock exchanges tracked by the World Federation of Exchanges stood at A) $74,667 billion. B) $74,667 trillion. C) $67,125 billion. D) $67,125 trillion.

A

Because __________ do not have to meet national security regulations, name recognition of the issuer is an extremely important factor in being able to source funds in the international capital market. A) Eurobonds B) Foreign bonds C) Bearer bonds D) Registered bonds

A

Domestic bonds account for the largest share of outstanding bonds, equaling approximately what percent of the total? A) 78 percent B) 45 percent C) 25 percent\ D) 15 percent

A

Euro-medium term notes ___________ A) are typically fixed-rate corporate notes issued with maturities ranging from less than a year to about ten years. B) are typically fixed-rate corporate notes issued with maturities ranging from three years to about ten years. C) are sold just like bonds in the primary market. D) none of the options

A

In 1990, the SEC instituted Rule 144A which ________ A) allows qualified institutional buyers in the U.S. to trade in private placement issues that do not have to meet the strict information disclosure requirements of publicly traded issues. B) was designed to make the U.S. capital markets more competitive with the Eurobond market. C) issues are non-registered and make only trade among qualified institutional buyers. D) all of the above.

A

Investment in foreign equity markets became common practice in the 1980s as investors became aware of the benefits of A) international portfolio diversification. B) debt forgiveness. C) international portfolio diversification and debt forgiveness. D) none of the options

A

Investors in corporate bonds would still be interested in sovereign credit ratings A) because the sovereign credit rating usually represents a ceiling on corporate credit ratings within that country. B) because they might play the TED spread. C) because they are the rating assigned by the country's regulators. D) none of the options

A

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. A) bearer bonds; registered bonds B) registered bonds; bearer bonds C) Eurobonds; domestic bonds D) domestic bonds; Eurobonds

A

Many of the small foreign equity markets (e.g., Argentina, Sri Lanka) A) have poor liquidity at present. B) are very liquid stock markets. C) have fairly high turnover ratios indicating strong liquidity. D) none of the options

A

Only in the 1990s did world investors start to invest sizable amounts in the emerging equity markets, as A) the economic growth and prospects of the developing countries improved. B) the economic growth and prospects of the developing countries declined. C) the economic growth and prospects of the developed countries stagnated. D) none of the options

A

Private placement bond issues ___________ A) do not have to meet the strict information disclosure requirements of publicly traded issues. B) have auditing requirements that do not adhere to publicly traded issues. C) meet the strict information disclosure requirements of publicly traded issues, but have larger minimum denominations. D) none of the options

A

Relatively low turnover ratios indicate A) poor liquidity. B) good liquidity. C) strong investment performance. D) low market concentration.

A

Solnik (1984) examined the effect of exchange rate changes, interest rate differentials, the level of the domestic interest rate, and changes in domestic inflation expectations. He found that A) international monetary variables had only weak influence on equity returns in comparison to domestic variables. B) international monetary variables had a stronger influence on equity returns in comparison to domestic variables. C) international monetary variables had no influence at all on equity returns. D) none of the options

A

The first floating-rate notes (FRN) were introduced in A) 1970 B) 1980 C) 1985 D) 1975

A

The most popular way for a U.S. bank to expand overseas is A) branch banks. B) representative offices. C) subsidiary banks. D) affiliate banks.

A

The secondary market for Eurobonds __________ A) is an over-the-counter market. B) is an organized exchange. C) has never developed—there is only a primary market for Eurobonds. D) none of the options

A

Two major clearing systems for international bond transactions are A) Euroclear and Clearstream International. B) Euroclear and Clearasil. C) Deutsche Börse Clearing and Cedel International. D) none of the options

A

U.S. banks that establish subsidiary and affiliate banks A) are allowed to underwrite securities. B) must provide FDIC insurance on their foreign-currency denominated demand deposits. C) can underwrite securities, but not accept dollar-denominated deposits. D) are allowed to underwrite securities and must provide FDIC insurance on their foreign- currency denominated demand deposits.

A

The four currencies in which the majority of domestic and international bonds are denominated are ____ A) U.S. dollar, the euro, the Indian rupee, and the Chinese yuan. B) U.S. dollar, the euro, the pound sterling, and the Swiss franc. C) U.S. dollar, the euro, the Swiss franc, and the yen. D) U.S. dollar, the euro, the pound sterling, and the yen.

D

A bank may establish a multinational operation for the reason of risk reduction. The underlying rationale being that A) 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. B) 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. C) 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. D) multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and foreign business markets from foreign bank competition.

B

A measure of "liquidity" for a stock market is A) the times interest earned ratio. B) the ratio of stock market transactions over a period of time divided by the size, or market capitalization, of the stock market. C) the LIBOR rate. D) the ratio of the market capitalization of the largest ten companies divided by the total market capitalization.

B

S&P Global Ratings has, for years, provided credit ratings on international bonds. A) The ratings reflect the safety of principal for a U.S. investor. B) Their ratings reflect the creditworthiness of the borrower and not exchange rate uncertainty. C) Their ratings reflect creditworthiness of the lender and predict the exchange rate expected to prevail at maturity. D) The ratings are biased since 40 percent of Eurobond issues are rated AAA and 30 percent are AA.

B

Studies examining the influence of industrial structure on foreign equity returns A) conclusively show a connection. B) have been inconclusive. C) show that industrialized economies outperform lesser developed economies. D) none of the options

B

The major legislation controlling the operation of foreign banks in the U.S. A) specifies that foreign branch banks operating in the U.S. must comply with their country-of-origin banking regulations just like U.S. banks operating abroad. B) specifies that foreign branch banks operating in the U.S. must comply with U.S. banking regulations just like U.S. banks. C) specifies that foreign branch banks operating in the U.S. must comply with U.S. banking regulations just like U.S. banks, and also specifies that the "shell" branches are illegal for U.S. and foreign banks. D) specifies that the "shell" branches are illegal for U.S. and foreign banks.

B

U.S. security regulations require Yankee bonds and U.S. corporate bonds sold to U.S. citizens to be __________ A) municipal bonds. B) registered bonds. C) bearer bonds. D) none of the options

B

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 _____ A) in the 1 to 1.5 percent range. \ B) in the 2 to 2.5 percent range. C) in the 3 to 3.5 percent range. D) in the 4 to 4.5 percent range.

B

The role of an underwriter is to ___________ A) help negotiate terms with the borrower. B) ascertain market conditions. C) manage the issuance. D) all of the options

D

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

Six-month U.S. dollar LIBOR is currently 4.25 percent; your firm issued floating-rate notes indexed to six-month U.S. dollar LIBOR plus 50 basis points. What is the amount of the next semi-annual coupon payment per U.S. $1,000 of face value? A) $43.75 B) $47.50 C) $23.75 D) $46.875

C 0.5x(.0425+.005)x$1,000 = $23.75

A five-year floating-rate note has coupons referenced to six-month dollar LIBOR, and pays coupon interest semiannually. Assume that the current six-month LIBOR is 6 percent. If the risk premium above LIBOR that the issuer must pay is 1/8 percent, the next period's coupon rate on a $1,000 face value FRN will be _________ A) $29.375 B) $30,000 C) $30.625 D) $61.250

C 0.5x(.06+.00125)x$1,000 = $30.625

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

An affiliate bank is A) a locally incorporated bank that is wholly owned by a foreign parent. B) a locally incorporated bank that is majority owned by a foreign parent. C) a locally incorporated bank that is partially owned (but not controlled) by a foreign parent. D) a locally incorporated bank that is wholly (or majority) owned by a foreign parent.

C

As of 2020, the biggest bank in the world by market capitalization is A) ICBC. B) Bank of America. C) JP Morgan Chase. D) The World Bank.

C

Following the monetary union and the advent of the euro: A) The countries of the European Union have enacted common securities regulation. B) A pan-European stock exchange has developed in London, similar to the NYSE in scope and trading practices. C) Development of a common securities regulations, even among the countries of the European Union, has not yet occurred. D) none of the options

C

In the London market, Rolls-Royce stock closed at £0.875 per share. On the same day, the British Pound sterling to the U.S. dollar spot exchange rate was £0.6366/$1.00. Rolls Royce trades as an ADR in the OTC market in the United States. Five underlying Rolls-Royce shares are packaged into one ADR. The no-arbitrage U.S. price of one ADR is A) $4.87. B) $5.87. C) $6.87. D) $7.87.

C

Investment in foreign equity markets became common practice in the A) 1960s. B) 1970s. C) 1980s. D) none of the options

C

Many of the larger emerging equity markets (e.g., China, India) A) have poor liquidity at present. B) are more liquid stock markets than the developed world. C) have high turnover ratios. D) none of the options

C

Only in the ________ did world investors start to invest sizable amounts in the emerging equity markets. A) 1970s B) 1980s C) 1990s D) none of the options

C

The turnover velocity percentages for 74 of the stock exchanges for 2018 were measured. Over 40 percent of the exchanges, in most years, had in excess of ___ A) 15 percent turnover per month. B) 25 percent turnover per month. C) 30 percent turnover per month. D) 75 percent turnover per month.

C

There are two types of equity related bonds: A) convertible bonds and dual currency bonds. B) convertible bonds and kitchen sink bonds. C) convertible bonds and bonds with equity warrants. D) callable bonds and exchangeable bonds.

C

Universal banks A) may engage in investment banking activities. B) may arrange for foreign exchange transactions. C) may assist their clients in hedging exchange rate risk. D) all of the options

D

Which of the following are reasons why a bank may establish a multinational operation? A) Low marginal and transaction costs B) Home nation information services, and prestige C) Growth and risk reduction D) all of the options

D

A "foreign bond" issue is __________ A) one denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency. B) one offered by a foreign borrower to investors in a national market and denominated in another nation's currency. C) for example, a German MNC issuing euro-denominated bonds to U.S. investors. D) one offered by a foreign borrower to investors in a national market and denominated in that nation's currency (e.g., a German MNC issuing dollar-denominated bonds to U.S. investors).

D

A "registered bond" is one that _______ A) shows the owner's name on the bond. B) the owner's name is recorded by the issuer. C) the owner's name is assigned to a bond serial number recorded by the issuer. D) all of the options

D

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

A disproportionate share of Eurobonds have high credit ratings in comparison to domestic and foreign bonds. (Approximately 40 percent of Eurobond issues are rated AAA and 30 percent are AA). Explanations for this include A) the issuers receiving low credit ratings invoke their publication rights and have had them withdrawn prior to dissemination. B) the Eurobond market is accessible only to firms that have good credit ratings and name recognition to begin with; hence, they are rated highly. C) there is "grade inflation" on the part of the bond rating agencies which are paid by the issuers and have to compete for business. D) Both A and B

D

A firm may cross-list its share to \ A) establish a broader investor base for its stock. B) 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. C) expose the firm's name to a broader investor and consumer groups. D) all of the options

D

A representative office A) is a way for the parent bank to provide its MNC clients with a level of service greater than that provided through merely a correspondent relationship. B) 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. C) is a step up from a correspondent relationship, but below a foreign branch. D) all of the options

D

A subsidiary bank is A) a locally incorporated bank that is wholly owned by a foreign parent. B) a locally incorporated bank that is majority owned by a foreign parent. C) a locally incorporated bank that is partially owned (but not controlled) by a foreign parent. D) a locally incorporated bank that is wholly (or majority) owned by a foreign parent.

D

Adler and Simon (1986) examined the exposure of a sample of foreign equity and bond index returns to exchange rate changes. They found that A) changes in exchange rates generally explained a smaller portion of the variability of foreign bond indexes than foreign equity indexes. B) changes in exchange rates generally explained none of the variability of foreign bond indexes but completely explained the variability in foreign equity indexes. C) changes in exchange rates generally explained a larger portion of the variability of foreign equity indexes than foreign bond indexes. D) changes in exchange rates generally explained a larger portion of the variability of foreign bond indexes than foreign equity indexes.

D

Advantages of cross-listing include A) providing their shareholders with a higher degree of protection than may be available in the home country. B) a possible signal of the company's commitment to shareholder rights. C) possibly making investors, both at home and abroad, more willing to provide capital and to increase the value of the pre-existing shares. D) all of the options

D

Bonds with equity warrants A) are really the same as convertible bonds if the stated price of exercising the warrant is the par value of the bond. B) can be viewed as straight debt with a call option (technically a warrant) attached. C) can only be exercised on coupon dates. D) typically are convertible as well.

D

Changes in exchange rates A) explain a larger portion of the variability foreign bond indexes than foreign equity indexes. B) do not affect all foreign equity markets equally. C) affect dollar-denominated foreign equity returns, but this risk can be hedged. D) all of the options

D

Correspondent bank relationships can be beneficial A) because a bank can service its MNC clients at a very low cost. B) because a bank can service its MNC clients without the need to have personnel in many different countries. C) because a bank can service its MNC clients without developing its own foreign facilities to service its clients. D) all of the options

D

Eurobond market makers and dealers are members of the __________, a self-regulatory body based in Zurich. A) International Currency Market Association (ICMA) B) International Bond Marketers Association (IBMA) C) International Bond Regulators Association (IBRA) D) International Capital Market Association (ICMA)

D

Foreign banks that establish subsidiary and affiliate banks in the U.S. A) tend to avoid states that are major centers of financial activity. B) tend to avoid the highly populous states such as New York, California, Florida, Georgia, and Texas. C) can underwrite securities, but not accept dollar-denominated deposits. D) tend to locate in states that are major centers of financial activity, as well as the highly populous states such as New York, California, Florida, Georgia, and Texas.

D

Global Registered Shares A) are created when a MNC issues shares globally. B) purchased on one exchange (say NYSE) is fully fungible with shares purchased on another exchange (e.g., Frankfurt Stock Exchange). C) can trade in multiple currencies. D) all of the options

D

Which of the following statements regarding shelf registration is not true? A) has eliminated the time delay in bringing a foreign bond issue to market in the United States. B) allows an issuer to preregister a securities issue, and then "shelve" the securities for later sale. C) has not eliminated the information disclosure that many foreign borrowers find too expensive. D) eliminates the information disclosure that many foreign firms found objectionable in the foreign bond market.

D

With regard to clearing procedures for bond transactions A) it is a system for transferring ownership of bonds. B) it is a system for ensuring payment from buyers to sellers. C) most Eurobond trades clear through two major clearing systems. D) all of the options

D