Intro to Int'l Bus Quiz 9

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

A

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

A

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

A

The relatively low correlation between the movement of stock markets in different countries indicates that A) countries pursue different macroeconomic policies B) most countries face similar economic conditions C) diversifying a portfolio will increase the risk of investing. D) most stock markets are highly segmented from each other.

A

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

A

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

A

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

B

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

B

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

B

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

B

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

B

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

B

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

C

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

C

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

C

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

D

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

D

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

D

Economist Martin Feldstein has coined the term "hot money" to pertain to long-term capital flows.

False

Governments give banks less freedom when they deal in foreign currencies.

False

If the international capital market continues to grow, financial intermediaries likely will provide less quality information about foreign investment opportunities.

False

The cost of capital is the difference between cost of inputs and outputs.

False

The cost of recording, transmitting, and processing information has doubled with advancements in technology since 1964.

False

The globalization of capital has been universally seen as a positive development.

False

The spread between the Eurocurrency deposit rate and the Eurocurrency lending rate is more than the spread between the domestic deposit and lending rates.

False

Using floating exchange rates will help countries reduce the risk of investing in foreign assets.

False

A capital market brings together those who want to invest money and those who want to borrow money.

True

Banks charge borrowers a lower interest rate on Eurocurrency borrowings than for borrowings in the home currency.

True

By using the global capital market, investors have a much wider range of investment opportunities than in a purely domestic capital market.

True

Debt loans include cash loans from banks and funds raised from the sale of corporate bonds to investors.

True

Eurocurrency can be created anywhere in the world.

True

Financial services has historically been the most tightly regulated of all industries.

True

Financial services is an information-intensive industry.

True

Investors can reduce the level of risk by diversifying a portfolio internationally.

True

The Eurocurrency market has been one cause of a decrease in global financial regulations.

True

The global capital market often lacks information about the fundamental quality of foreign investments.

True

The relatively low correlation between the movements of stock markets in different countries indicates that countries face different economic conditions.

True