ib ch 12

A Eurocurrency is any currency: A. banked outside of its country of origin. B. that is traded in European countries. C. that originates in European countries. D. used to buy gold and related commodities.

a

An integrated international capital market is _____ compared to a nonintegrated market. A. highly volatile B. more shock-proof C. less volatile D. less resistant to change

a

Foreign bonds sold in the United States are called _____. A. Yankee bonds B. Uncle Sam's bonds C. Bulldogs D. Eagles

a

In a(n) _____, the limited pool of investors implies that borrowers must pay more to persuade investors to lend them their money. A. purely domestic market B. mixed market C. international market D. purely Euro market

a

Investors are able to reduce risks by diversifying an investment portfolio internationally, and the risk reduction effects would be greater if not for: A. volatile exchange rates associated with the current floating exchange risk regime. B. the different kinds of tax regimes in different countries. C. the inaccessibility of foreign stock exchanges to most investors. D. the poor quality of many stocks in international start-up firms.

a

Market makers are the financial service companies that connect investors and borrowers. Those who want to borrow money typically include: A. governments B. corporations with surplus cash C. pension funds D. insurance companies

a

Market makers are: A. financial service companies that connect investors and borrowers. B. nonbank financial institutions who want to invest money. C. high net worth individuals with surplus cash to reinvest. D. those who want to borrow money including individuals, companies, and governments.

a

Systematic risk refers to movements in a stock portfolio's value that are: A. attributable to macroeconomic forces affecting an economy. B. specific to the firm or individuals who invest in a portfolio. C. attributable to factors pertaining to an individual firm. D. specific to the company that facilitates the investment portfolio.

a

Systematic risk refers to: A. movements in a stock portfolio's value that are attributable to macroeconomic forces affecting all firms in an economy. B. the level of diversifiable risk in an economy. C. movements in a stock portfolio's value that are attributable to microeconomic forces affecting the specific firms invested in. D. the microeconomic forces that affect rates of return on investments.

a

The cost of capital is: A. higher in a purely domestic capital market than in a global market. B. lower in a domestic capital market than in an international market. C. higher in a global market than in a purely domestic capital market. D. the same in either a global market or a purely domestic capital market.

a

The element of risk into investing in foreign assets is more with _____ exchange rates. A. floating B. pegged C. fixed D. managed

a

United States sells bonds that are denominated in dollars in Europe. This is an example of a(n) _____ bond. A. foreign B. Euro C. micro D. regulatory

a

Which of the following is a disadvantage of global capital market? A. Foreign investments may be driven by speculative flows in the market. B. A truly global market reduces the liquidity of investments. C. The availability of capital is low in a global capital market. D. The cost of capital is more in a global market than a domestic market.

a

_____ can inject risk into foreign currency borrowing. A. Movements in exchange rates B. Use of fixed-exchange rates C. Issue of domestic bonds D. Use of pegged exchange rates

a

_____ is characterized by lack of government regulation. A. The Eurocurrency market B. A money market fund C. The New Your Stock Exchange D. A hedge fund

a

_____ separated national equity markets from each other historically. A. Substantial regulatory barriers B. Fixed exchange rates C. Financial similarities D. Desire for high levels of profit

a

A _____ benefits investors by providing a wider range of investment opportunities, thereby allowing them to build portfolios of international investments that diversify their risks. A. foreign exchange market B. global capital market C. domestic exchange market D. domestic capital market

b

A purely domestic capital market faces the problem of _____. A. foreign exchange risk B. limited liquidity C. lack of regulation D. deregulated markets

b

According to some analysts, deregulation and reduced controls on cross-border capital flows are: A. having a stabilizing effect on national economies. B. making individual nations more vulnerable to speculative capital flows. C. making investors nervous and causing them to pull their money out of foreign nations. D. allowing undeveloped nations to enter the global market.

b

An Italian corporation issues a bond denominated in dollars. This is an example of a _____. A. foreign bond B. Eurobond C. micro bond D. regulatory bond

b

Analysts who believe globalization of capital has serious risks argue that: A. capital does not shift in and out of countries as quickly as conditions change. B. individual nations are becoming more vulnerable to speculative capital. C. deregulation of trade is helpful for the economic growth in a country. D. most of the capital that moves internationally is pursuing long term gains.

b

Banks offer higher interest rates on Eurocurrency deposits than on deposits made in the home currency because Eurocurrency deposits: A. are funded by the European union. B. lack government regulations. C. are associated with low risk. D. have minimum foreign exchange risk.

b

Eurobonds are: A. denominated in the currency of the country in which they are issued. B. normally underwritten by an international syndicate of banks. C. denominated in a currency that is accepted by the European Union. D. sold outside the borrower's county with reference to the originating currency.

b

Hedge funds position themselves to make: A. "long bets" on assets that they think will weather a volatile market. B. "long bets" on assets that they think will increase in value. C. "short bets" on assets that they think will weather a volatile market. D. "short bets" on assets that they think will increase in value.

b

The cost of capital is the: A. interest received on investments made by the company. B. price of borrowing money. C. difference between cost of inputs and outputs. D. total value of raw materials that a company uses.

b

The main factor that makes the Eurocurrency market attractive to both depositors and borrowers is that it: A. is separated from the foreign exchange market. B. lacks government regulation. C. is associated with low-risk. D. gives high levels of investor protection.

b

The risk associated with a portfolio: A. declines exponentially as the number of stocks purchased increases and continues to decline until a point of zero risk is reached. B. decreases as the investor increases the number of stocks in her portfolio. C. grows exponentially with the number of stocks purchased. D. increases as the investor increases the number of stocks in her portfolio.

b

When using the Euromarkets, companies: A. have funds that lack liquidity. B. pay less for the loans. C. attract low interest rates. D. are secured from foreign exchange risks.

b

Which of the following is a drawback of the Eurocurrency market? A. Borrowing funds within their home country can expose a company to foreign exchange risk. B. The probability of a bank failure that would cause depositors to lose their money is greater. C. The system is over-regulated and, therefore, more costly. D. The higher interest rate received on home-country deposits reflects the costs of insuring against bank failure.

b

Which of the following is a reason why the global capital market is increasingly becoming speculative? A. A global market reduces the liquidity of investments and increases the chances of incurring losses. B. Investments in the global capital market are faced with a lack of quality information. C. Investments in the global capital market are not conducive to diversification. D. The cost of capital is more in a global market and this increases the level of risk associated with it.

b

Which of the following is true of fixed-rate bonds? A. Returns from fixed-rate bonds are dependent on the profitability of the issuing company. B. Investors get back the face value of the bond at maturity of fixed-rate bonds. C. Fixed-rate bonds issue cash payoffs only at maturity of fixed-rate bonds. D. Investors get a share of the company's profit when using fixed-rate bonds.

b

Which of the following statements is true of debt loans? A. Management has the discretion in paying the amount to investors. B. Debt loans should be repaid at regular intervals. C. Returns from debt loans are variable in nature. D. Corporations need not pay back the debt loans if they incur losses.

b

Which of the following statements is true of the use of information technology in financial services? A. Information technology prevents the spread of financial crises. B. Financial services are an information-intensive industry. C. Financial services do not use decisions making systems. D. It does not require to process large volumes of information.

b

_____ are normally underwritten by an international syndicate of banks. A. Samurai bonds B. Eurobonds C. Yankee bonds D. Foreign bonds

b

_____ deposits are regulated in most industrialized countries. A. U.S. currency B. Domestic currency C. Foreign currency D. Eurocurrency

b

_____ perform a direct connection function in capital markets. A. Insurance brokers B. Investment banks C. Pension fund managers D. Commercial banks

b

A Eurocurrency is: A. the currency used by the countries of the European Union. B. the currency formerly used in many European countries before the formation of the European Union and the institution of the euro. C. any currency banked outside of its country of origin. D. any currency banked within a European country.

c

A(n) _____ requires a corporation to repay a predetermined portion of the loan amount at regular intervals regardless of how much profit it is making. A. equity loan B. stock loan C. debt loan D. bonded loan

c

ABB Bank is a financial corporation located in England and uses euro as its official currency. The company borrows 1 million U.S. dollars from a bank based in United States. ABB will be at a disadvantage if the: A. Euro appreciates against all currencies. B. U.S. dollar appreciates against the euro. C. U.S. dollar depreciates against the euro. D. fixed exchange rates are used for the transaction.

c

An equity loan is made when: A. a corporation pledge equities or other assets to borrow money. B. corporations avail cash loans from individuals. C. a corporation sells stock to investors. D. corporations issue bonds to individual investors.

c

Borrowers can hedge against foreign exchange risks by entering into a _____ contract. A. hedge fund insurance B. prevailing exchange rate C. forward D. global capital market

c

Companies receive a _____ when using the Eurocurrency market. A. lower interest rate on deposits and pay more for loans B. tax incentives C. higher interest rate on deposits and pay less for loans D. liquid asset reserve waiver

c

Eurodollars: A. refer to the exchange value of dollar with Euro. B. are used to pay for imports from Europe. C. are dollars banked outside of the United States. D. refer to the exchange buffer that Euro has against dollar.

c

Harvard economist Martin Feldstein argues that the lack of patient money is due to: A. the flood of information, due to the internet, that investors receive about current events in other countries. B. money owners and managers preferring to keep their money "home." C. the relative paucity of information that investors have about foreign investments. D. money owners and managers preferring to place their money in foreign investments.

c

The relatively low correlation between the movement of stock markets in different countries indicates that: A. diversifying a portfolio will increase the risk of investing. B. most countries face similar economic conditions. C. countries pursue different macroeconomic policies. D. different stock markets are not segmented from each other.

c

When an investor purchases a corporate bond, he purchases the right to receive a: A. share of the overall revenues that the company generates. B. part of the title for the assets that the corporate holds. C. specified fixed stream of income from the corporation. D. share of the profits that the company generates through operations.

c

When the value of U.S. dollars goes down: A. bonds that are denominated in dollar will produce more returns. B. foreign depositors in the U.S will benefit. C. foreign borrowers will garner benefits. D. investors tend to favor bonds that are denominated in dollar.

c

Which of the following is a disadvantage of the integration facilitated by technology? A. Segregated international capital markets will emerge as a result of technology. B. Complexity in processing large volumes of data will increase. C. Shocks that occur in one financial center will spread globally. D. Systems integration hinders real-time data transfer across different countries.

c

Which of the following is a factor that makes Eurobonds more attractive than most major domestic bonds? A. Presence of a regulatory interference B. Strong disclosure requirements C. Favorable tax status D. Protection from exchange risks

c

Which of the following is true of the Eurobond market? A. There is a great deal of regulatory interference. B. Government limitations are generally more stringent for securities denominated in foreign currencies. C. There are less stringent disclosure requirements than in most domestic bond markets. D. They have an unfavorable tax status.

c

Which of the following statements is true of Eurocurrency? A. Eurocurrency market is a relatively high-cost source of funds. B. It is produced and banked within European countries. C. Eurocurrency can be created anywhere in the world. D. It is used only for internal transactions within European Union.

c

Which of the following statements is true of the deregulation of financial industry? A. Countries can strengthen the global capital market by encouraging strict regulations. B. Financial services have historically been the most deregulated of all industries. C. Deregulation helped the development of an international capital market. D. Deregulation compels financial services companies to remain as domestic companies.

c

_____ are international bonds, normally underwritten by an international syndicate of banks and placed in countries other than the one in whose currency the bond is denominated. A. Micro bonds B. Foreign bonds C. Eurobonds D. Regulatory bonds

c

_____ are sold outside of the borrower's country and are denominated in the currency of the country in which they are issued. A. Micro bonds B. Eurobonds C. Foreign bonds D. Regulatory bonds

c

_____ refers to the movements in a stock portfolio's value that are attributable to macroeconomic forces affecting all firms in an economy. A. Diversification B. Capital flow C. Systematic risk D. Correlation movement

c

A _____ brings together those who want to invest money and those who want to borrow money. A. consumer market B. value chain C. supply chain D. capital market

d

A factor that makes the Eurocurrency market attractive to both depositors and borrowers is: A. it allows fair trade within the European Union. B. its strong government regulations and safeguards. C. its commitment to economic growth in underdeveloped nations. D. its lack of government regulation.

d

A(n) _____ is made when a corporation sells stock to investors. A. corporate bond sale B. debt loan C. Eurobond investment D. equity loan

d

An important drawback of a purely domestic capital market is that the: A. investment does not receive protection from governments. B. investments are riskier than in global capital markets. C. market lacks a strong regulatory mechanism. D. cost of capital tends to be higher than it is in a global market.

d

As investors increase the number of stocks in their portfolio, the portfolio's risk: A. increases initially and declines later. B. declines slowly and steadily. C. increases exponentially. D. declines rapidly in the beginning.

d

Entering into a forward contract will: A. increase the risk involved in a transaction. B. lower the borrower's cost of capital. C. benefit the borrower because their interest rate will be lower. D. raise the borrower's cost of capital.

d

Hedge funds: A. are public investment funds that invest in corporate bonds and shares. B. make long bets rather than short bets. C. are investment funds managed by the government. D. make short bets on assets that they think will decline in value.

d

Investors who purchase a fixed-rate bond receive: A. incremental payouts until the bonded money runs out. B. cash payoffs only at maturity. C. a full cash payoff on demand. D. a fixed set of cash payoffs.

d

The liquidity of the market is _____ in a purely domestic capital market. A. held in reserves B. unlimited C. based upon the stock market D. limited

d

The systematic risk is the: A. movement in a stock portfolio's value that is attributable to the individual selections made for that portfolio. B. level of diversifiable risk in an economy. C. movement of the economy of a country. D. level of non-diversifiable risk in an economy.

d

Which of the following is a drawback of the Eurocurrency market? A. Increased governmental controls B. High reserve ratio requirements C. Low interest rates on deposits D. Exposure to foreign exchange risk

d

Which of the following is an advantage that banks have when they deal with foreign currencies? A. Interest payments to customers are low when dealing with foreign currencies. B. Accounts need not be maintained when dealing with foreign currencies. C. Risks that investors face are low when dealing with foreign currencies. D. Governments give banks more freedom when dealing with foreign currencies.

d

Which of the following statements is true of foreign bonds? A. Such bonds must be underwritten by an international syndicate of banks. B. Foreign bonds are placed only in the originating country. C. Foreign bonds are issued by governments rather than corporations. D. Such bonds are denominated in the issuing country's currency.

d

Which of the following statements is true of market makers? A. Commercial banks are not allowed to function as market makers. B. Market makers are large investors who drive an economy. C. Market makers facilitate only equity based loans. D. Market makers connect investors and borrowers in a capital market.

d

_____ account for about two-thirds of all Eurocurrencies. A. Euro-yen B. Euro-pound C. Euro-Euro D. Euro-dollars

d