Chapter 9 Quiz

Which one of the following is a system that allocates financial resources in the form of debt and equity according to their most efficient​ uses? A. A capital market B. A bond C. Liquidity D. An equity E. A stock

A. A capital market

Which one of the following is a source of deposits for the Eurocurrency​ market? A. International companies with excess cash B. Small​ companies, banks, and governments C. Extremely wealthy countries D. Commercial banks on behalf of exporters and importers E. Governments that need to borrow funds

A. International companies with excess cash

A(n) ________ is a country or territory whose financial sector features very few regulations and​ few, if​ any, taxes. A. offshore financial center B. booking center C. securitization D. deregulation E. operational center

A. offshore financial center

Which one of the following is a function of the foreign exchange​ market? A. Savings at interest B. Currency conversion C. Equity financing D. Interbank interest rates E. Making microloans

B. Currency conversion

Which one of the following is a purpose of the international capital​ market? A. Maximizing dividends to stockholders B. Expanding the money supply C. Increasing the cost of consumer loans D. Reducing return on investment E. Offering loans to borrowers in developing nations

B. Expanding the money supply

Which one of the following is a characteristic of​ microfinance? A. Most borrowers are women. B. Microfinance lends money to​ low-income entrepreneurs at high interest rates. C. Loans must be at least​ $50,000. D. Microloans are illegal in developed countries. E. Microloans require collateral equal to the amount of the loan.

B. Microfinance lends money to​ low-income entrepreneurs at high interest rates.

Which one of the following is a goal for government imposing currency​ restrictions? A. Preserving a​ country's hard currencies B. To control domestic inflation C. Protecting a currency from depreciation D. Preserving hard currencies to pay for infrastructure improvements E. Permitting convertibility of currency

B. To control domestic inflation

Companies can be better skilled at managing foreign exchange by doing which one of the​ following? A. Matching cash inflows with expenses B. Using more futures options C. Increasing deposits to​ interest-bearing savings accounts D. Using​ telephones, e-mails, or faxes E. Working with major banks

B. Using more futures options

Which government policy restricts currency​ convertibility? A. Requirement of export licenses B. Implementing a single exchange rate C. Approval by a​ country's central bank D. Preventing export to certain countries E. Countertrade

C. Approval by a​ country's central bank

Which one of the following is responsible for growth in the international equity​ market? A. Interest rates B. Economic growth in developed countries C. Spread of privatization D. Activity of commercial banks E. Activity in commodity markets

C. Spread of privatization

Which one of the following fulfills the purpose of a national capital​ market? A. To provide a mechanism to invest money efficiently B. To allow lenders to write off bad debts on their tax returns C. To provide services across national borders D. To enable lenders to take advantage of bankruptcy laws E. To minimize the risk of financial losses to lenders due to poor management decisions

C. To provide services across national borders

If an exchange rate quotes the number of Japanese yen needed to buy one U.S. dollar​ (¥/$), the yen is the​ ________ and the dollar is the ​________. A. spot​ rate, spot market B. ​supply, demand C. quoted​ currency, base currency D. ​denominator, numerator E. ​exchange-rate risk, cross rate

C. quoted​ currency, base currency

Which of the following statements about forward rates is​ TRUE? A. It is an exchange rate at which two parties agree to exchange currencies on a future date. B. The foreign currency exchange handles transactions at forward rates. C. Forward rates reflect a​ country's gross domestic product. D. Forward rates show the expectations of investors and borrowers regarding a​ currency's future spot rate. E. The forward rate shows a​ nation's present and future debt ratings.

D. Forward rates show the expectations of investors and borrowers regarding a​ currency's future spot rate.

Which one of the following is a function of the spot​ market? A. Exchanging currencies at a local bank for travel B. Converting funds into the currency of an international supplier C. Converting funds into the currency of a country with a lower tax rate D. Providing currency for the microfinance markets E. Converting income figures shown on an income statement into the currency of the​ investors' country

D. Providing currency for the microfinance markets

Equity normally takes the form of​ ________, or shares of ownership in a​ company's assets. A. bonds B. liquidity C. debt D. stock E. derivative

D. stock

Which one of the following is an appeal of the Eurocurrency​ market? A. Lower risk of default B. Access to foreign stock markets C. Complete absence of regulation D. Greater risk E. Lower taxes for banks and investors

E. Lower taxes for banks and investors

The exchange rate depends on which one of the​ following? A. Prevailing interest rates B. Stock market prices C. Trade agreements between the two countries involved D. The size of the transaction E. The securities exchange

E. The securities exchange

As many countries abandoned central planning and​ socialist-style economics, the pace of privatization​ ________ worldwide. A. increased only slightly B. fell C. declined D. plummeted E. accelerated

E. accelerated

One simple form of countertrade is​ ________, in which goods are exchanged for others of equal value. A. liquidity B. spot rates C. hard currency D. multiple exchange rates E. barter

E. barter

The practice of insuring against potential losses that result from adverse changes in exchange rates is called​ ________. A. currency speculation B. currency conversion C. interest arbitrage D. currency arbitrage E. currency hedging

E. currency hedging

The U.S. dollar is​ a(n) ________, a currency used to convert funds between two other currencies. A. spot market B. speculation C. securities exchange D. ​over-the-counter market E. vehicle currency

E. vehicle currency

Which one of the following currency instruments is used in the forward​ market? A. Marginal options B. Corporate bonds C. Clearing D. Currency swaps E. Spot contracts

E. Spot contracts - is a contract that involves the purchase or sale of a commodity, security, or currency for immediate delivery and payment on the spot date, which is normally two business days after the trade date.