International Financial Management, Abridged 12th Edition by Madura – Test Bank
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Sample Test
Chapter 3—International Financial Markets
1. Assume
that a bank’s bid rate on Swiss francs is $.45 and its ask rate is $.47. Its
bid-ask percentage spread is:
2. about
4.44%.
3. about
4.26%.
4. about
4.03%.
5. about
4.17%.
ANS: B
SOLUTION:
Bid-ask percentage spread = ($.47 -
$.45)/$.47 = 4.26%
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
2. Assume
that a bank’s bid rate on Japanese yen is $.0041 and its ask rate is $.0043.
Its bid-ask percentage spread is:
3. about
4.99%.
4. about
4.88%.
5. about
4.65%.
6. about
4.43%.
ANS: C
SOLUTION:
Bid-ask percentage spread = ($.0043 -
$.0041)/$.0043 = 4.65%
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03 STA:
DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
3. The
bid/ask spread for small retail transactions is commonly in the range of ____
percent.
4. 3 to
7
5. .01
to .03
6. 10 to
15
7. .5 to
1
ANS:
A
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
4. ____
is not a factor that affects the bid/ask spread.
5. Order
costs
6. Inventory
costs
7. Volume
8. All
of the above factors affect the bid/ask spread
ANS:
D
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
5. The forward
rate is the exchange rate used for immediate exchange of currencies.
6. True
7. False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
6. The
ask quote is the price for which a bank offers to sell a currency.
7. True
8. False
ANS:
T
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
7. According
to the text, the forward rate is commonly used for:
8. hedging.
9. immediate
transactions.
10.
previous transactions.
11.
bond transactions.
ANS:
A PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
8. If a
U.S. firm desires to avoid the risk from exchange rate fluctuations, and it is
receiving 100,000 in 90 days, it could:
9. obtain
a 90-day forward purchase contract on euros.
10.
obtain a 90-day forward sale contract on euros.
11.
purchase euros 90 days from now at the spot rate.
12.
sell euros 90 days from now at the spot rate.
ANS:
B
PTS:
1
DIF: Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
9. If a
U.S. firm desires to avoid the risk from exchange rate fluctuations, and it
will need C$200,000 in 90 days to make payment on imports from Canada, it
could:
10.
obtain a 90-day forward purchase contract on Canadian dollars.
11.
obtain a 90-day forward sale contract on Canadian dollars.
12.
purchase Canadian dollars 90 days from now at the spot rate.
13.
sell Canadian dollars 90 days from now at the spot rate.
ANS:
A
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03 STA:
DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
10.
Assume the Canadian dollar is equal to $.88 and the Peruvian Sol
is equal to $.35. The value of the Peruvian Sol in Canadian dollars is:
11.
about .3621 Canadian dollars.
12.
about .3977 Canadian dollars.
13.
about 2.36 Canadian dollars.
14.
about 2.51 Canadian dollars.
ANS: B
SOLUTION:
$.35/$.88 = .3977
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.01
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
11.
Which of the following is not true with respect to spot market
liquidity?
12.
The more willing buyers and sellers there are, the more liquid a
market is.
13.
The spot markets for heavily traded currencies such as the
Japanese yen are very liquid.
14.
A currency’s liquidity affects the ease with which an MNC can
obtain or sell that currency.
15.
If a currency is illiquid, an MNC is typically able to quickly
purchase that currency at a reasonable exchange rate.
ANS:
D
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Comprehension
12.
Forward markets for currencies of developing countries are:
13.
prohibited.
14.
less liquid than markets for developed countries.
15.
more liquid than markets for developed countries.
16.
only available for use by government agencies.
ANS:
B PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
13.
A forward contract can be used to lock in the ____ of a
specified currency for a future point in time.
14.
purchase price
15.
sale price
16.
A or B
17.
none of the above
ANS:
C
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
14.
The forward market:
15.
for euros is very illiquid.
16.
for Eastern European countries is very liquid.
17.
does not exist for some currencies.
18.
none of the above
ANS:
C
PTS:
1
DIF: Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
15.
____ is not a bank characteristic important to customers in need
of foreign exchange.
16.
Quote competitiveness
17.
Speed of execution
18.
Forecasting advice
19.
Advice about current market conditions
20.
All of the above are important bank characteristics to customers
in need of foreign exchange.
ANS:
E
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
16.
The Basel II accord is focused on eliminating inconsistencies in
____ across countries.
17.
capital requirements
18.
deposit rates
19.
deposit insurance
20.
bank failure policies
ANS:
A
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.03
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
17.
The international money market primarily concentrates on:
18.
short-term lending (one year or less).
19.
medium-term lending.
20.
long-term lending.
21.
placing bonds with investors.
22.
placing newly issued stock in foreign markets.
ANS:
A
PTS: 1
DIF:
Easy
OBJ: INFM.MADU.15.03.02
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
18.
The international credit market primarily concentrates on:
19.
short-term lending (less than one year).
20.
medium-term lending.
21.
long-term lending.
22.
providing an exchange of foreign currencies for firms who need
them.
23.
placing newly issued stock in foreign markets.
ANS:
B
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.03
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
19.
The main participants in the international money market are:
20.
consumers.
21.
small firms.
22.
large corporations.
23.
small European firms needing European currencies for
international trade.
ANS:
C
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.02
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
20.
LIBOR is:
21.
the interest rate commonly charged for loans between banks.
22.
the average inflation rate in European countries.
23.
the maximum loan rate ceiling on loans in the international
money market.
24.
the maximum deposit rate ceiling on deposits in the
international money market.
25.
the maximum interest rate offered on bonds that are issued in
London.
ANS:
A
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.02
NAT:
BUSPROG.INFM.MADU.15.03 STA:
DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
21.
A syndicated loan:
22.
represents a loan by a single bank to a syndicate of
corporations.
23.
represents a loan by a single bank to a syndicate of country
governments.
24.
represents a direct loan by a syndicate of oil-producing
exporters to a less developed country.
25.
represents a loan by a group of banks to a borrower.
26.
A and B
ANS:
D
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.03
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
22.
The international money market is primarily served by:
23.
the governments of European countries, which directly intervene
in foreign currency markets.
24.
government agencies such as the International Monetary Fund that
enhance development of countries.
25.
several large banks that accept deposits and provide loans in
various currencies.
26.
small banks that convert foreign currency for tourists and
business visitors.
ANS:
C
PTS:
1
DIF:
Moderate OBJ:
INFM.MADU.15.03.02
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
23.
International money market transactions normally represent:
24.
the equivalent of $1 million or more.
25.
the equivalent of $1,000 to $10,000.
26.
the equivalent of between $10,000 and $100,000.
27.
the equivalent of between $100,000 and $200,000.
ANS:
A
PTS:
1
DIF: Easy
OBJ: INFM.MADU.15.03.02
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
24.
A put option is the amount or percentage by which the existing
spot rate exceeds the forward rate.
25.
True
26.
False
ANS:
F
PTS:
1
DIF: Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
25.
From 1944 to 1971, the exchange rate between any two currencies
was typically:
26.
fixed within narrow boundaries.
27.
floating, but subject to central bank intervention.
28.
floating, and not subject to central bank intervention.
29.
nonexistent; that is currencies were not exchanged, but gold was
used to pay for all foreign transactions.
ANS:
A
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
26.
As a result of the Smithsonian Agreement, the U.S. dollar was:
27.
the currency to be used by all countries as a medium of exchange
for international trade.
28.
forced to be freely floating relative to all currencies without
any boundaries.
29.
devalued relative to major currencies.
30.
revalued (upward) relative to major currencies.
ANS:
C
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
27.
According to the text, the average foreign exchange trading
around the world ____ per day.
28.
equals about $200 billion
29.
equals about $400 billion
30.
equals about $700 billion
31.
exceeds $1 trillion
ANS:
D
PTS:
1
DIF: Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
28.
Assume a Japanese firm invoices exports to the U.S. in U.S.
dollars. Assume that the forward rate and spot rate of the Japanese yen are
equal. If the Japanese firm expects the U.S. dollar to ____ against the yen, it
would likely wish to hedge. It could hedge by ____ dollars forward.
29.
depreciate; buying
30.
depreciate; selling
31.
appreciate; selling
32.
appreciate; buying
ANS:
B
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
29.
The bid-ask spread on an exchange rate can be used to directly
determine:
30.
how an exchange rate will change.
31.
the transaction cost of foreign exchange.
32.
the forward premium.
33.
the currency option premium.
ANS:
B
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
30.
Futures contracts are typically ____; forward contracts are
typically ____.
31.
sold on an exchange; sold on an exchange
32.
offered by commercial banks; sold on an exchange
33.
sold on an exchange; offered by commercial banks
34.
offered by commercial banks; offered by commercial banks
ANS:
C
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.01
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
31.
Eurobonds:
32.
are usually issued in bearer form.
33.
typically carry several protective covenants.
34.
cannot contain call provisions.
35.
A and B
ANS:
A
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.04
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
32.
Which of the following is true?
33.
Non-U.S. firms may desire to issue bonds in the U.S. due to less
regulations in the U.S.
34.
U.S. firms may desire to issue bonds in the U.S. due to less
regulations in the U.S.
35.
U.S. firms may desire to issue bonds in the non-U.S. markets due
to less regulations in non-U.S. countries.
36.
A and B
ANS:
C
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.04
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
33.
Eurobonds:
34.
can be issued only by European firms.
35.
can be sold only to European investors.
36.
A and B
37.
none of the above
ANS:
D
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.04
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
34.
Which currency is used the most to denominate Eurobonds?
35.
the British pound.
36.
the Japanese yen.
37.
the U.S. dollar.
38.
the Swiss franc.
ANS:
C
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.04
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
35.
When the foreign exchange market opens in the U.S. each morning,
the opening exchange rate quotations will be based on the:
36.
closing prices in the U.S. during the previous day.
37.
closing prices in Canada during the previous day.
38.
prevailing prices in locations where the foreign exchange
markets have been open.
39.
officially set by central banks before the U.S. market opens.
ANS:
C
PTS:
1
DIF:
Easy OBJ:
INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
36.
The U.S. dollar is not ever used as a medium of exchange in:
37.
industrialized countries outside the U.S.
38.
in any Latin American countries.
39.
in Eastern European countries where foreign exchange
restrictions exist.
40.
none of the above
ANS:
D
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
37.
Which of the following is not true regarding the Bretton Woods
Agreement?
38.
It called for fixed exchange rates between currencies.
39.
Governments intervened to prevent exchange rates from moving
more than 1 percent above or below their initially established levels.
40.
The agreement lasted from 1944 until 1971.
41.
Each country used gold to back its currency.
42.
All of the above are true regarding the Bretton Woods Agreement.
ANS:
D
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
38.
A Japanese yen is worth $.0080, and a Fijian dollar (F$) is
worth $.5900. What is the value of the yen in Fijian dollars (i.e., how many
Fijian dollars do you need to buy a yen)?
39.
73.75.
40.
125.
41.
1.69.
42.
0.014.
43.
none of the above
ANS: D
SOLUTION: ($.008/$.59)
= F$.014/¥
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
39.
The existence of imperfect markets has prevented the
internationalization of financial markets.
40.
True
41.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
40.
Under the gold standard, each currency was convertible into gold
at a specified rate, and the exchange rate between two currencies was
determined by their relative convertibility rates per ounce of gold.
41.
True
42.
False
ANS: T
PTS:
1
DIF: Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
41.
An investor engaging in a transaction whereby he or she contracts
to purchase British pounds one year from now is an example of a spot market
transaction.
42.
True
43.
False
ANS:
F
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03 STA:
DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
42.
The Single European Act prevented a trend toward increased
globalization in the banking industry.
43.
True
44.
False
ANS:
F
PTS:
1
DIF: Easy
OBJ: INFM.MADU.15.03.03
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
43.
A cross exchange rate expresses the amount of one foreign
currency per unit of another foreign currency.
44.
True
45.
False
ANS:
T
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
44.
A currency put option provides the right, but not the
obligation, to buy a specific currency at a specific price within a specific
period of time.
45.
True
46.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
45.
The strike price is also known as the premium price.
46.
True
47.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
46.
The interest rate commonly charged for loans between banks is
called the cross rate.
47.
True
48.
False
ANS:
F
PTS: 1
DIF:
Moderate
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
47.
The Bretton Woods Agreement is an agreement to standardize
banks’ capital requirements across countries; the resulting capital ratios are
computed using risk-weighted assets.
48.
True
49.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03 STA:
DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
48.
The Basel Accord is an agreement among the major European
countries to make regulations more uniform across European countries and to
reduce taxes on goods traded between these countries.
49.
True
50.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.03
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
49.
A futures contract is a contract specifying a standard volume of
a particular currency to be exchanged on a specific settlement date.
50.
True
51.
False
ANS:
T
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03 STA:
DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
50.
Eurobonds are certificates representing bundles of stock.
51.
True
52.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.04
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
51.
A share of the ADR of a Dutch firm represents one share of that
firm’s stock that is traded on a Dutch stock exchange. The share price of the
firm was 15 euros when the Dutch market closed. As the U.S. market opens, the
euro is worth $1.10. Thus, the price of the ADR should be ____.
52.
$13.64
53.
$15.00
54.
$16.50
55.
16.50 euros
56.
none of the above
ANS: C
SOLUTION: 15 ´ $1.10 = $16.50
PTS: 1
DIF:
Moderate
OBJ: INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
52.
The ADR of a British firm is convertible into 3 shares of stock.
The share price of the firm was 30 pounds when the British market closed. When
the U.S. market opens, the pound is worth $1.63. The price of this ADR should
be $____.
53.
48.90
54.
146.70
55.
55.21
56.
none of the above
ANS: B
SOLUTION: 3 ´ 30 ´ $1.63 = $146.70
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
53.
If there is a large supply of savings relative to the demand for
short-term funds, the interest rate for that country will be relatively low.
54.
True
55.
False
ANS:
T
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.02
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
54.
If there is a strong demand to borrow a currency, and a low
supply of savings in that currency, the interest rate will be relatively low.
55.
True
56.
False
ANS:
F
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.02
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
55.
The preferences of corporations and governments to borrow in
foreign currencies and of investors to make short-term investments in foreign
currencies resulted in the creation of the international bond market.
56.
True
57.
False
ANS:
F
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.04
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
56.
Large commercial banks play a major role in the international
money market by accepting short-term deposits in large amounts (such as the
equivalent of $1 million or more) and in various currencies, and channeling the
money to corporations and government agencies that need to borrow those
short-term funds in the desired currencies.
57.
True
58.
False
ANS:
T
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
57.
The term “eurobor” is widely used to reflect the interbank offer
rate on euros.
58.
True
59.
False
ANS:
T
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.02
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
58.
The term “eurobor” is widely used to reflect the total amount of
euros borrowed by the firms in Europe per month to finance their growth.
59.
True
60.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.02
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
59.
Institutional investors such as commercial banks, mutual funds,
insurance companies, and pension funds from many countries are major
participants in the international bond market.
60.
True
61.
False
ANS:
T
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.04
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
60.
In response to the Sarbanes-Oxley Act, the reporting costs were
reduced, and many non-U.S. firms that issued new shares of stock decided to
place their stock in the United States.
61.
True
62.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.05
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
61.
Global regulations require that shareholders in all countries
have the same rights wherever there are stock markets.
62.
True
63.
False
ANS: F
PTS:
1
DIF: Easy
OBJ: INFM.MADU.15.03.03
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
62.
Shareholders have more voting power in some countries than others.
63.
True
64.
False
ANS:
T
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
63.
Shareholders can have influence on a wider variety of management
issues in some countries.
64.
True
65.
False
ANS:
T
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
64.
The legal protection of shareholders is the same among
countries.
65.
True
66.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.05
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
65.
Shareholders in some countries may have more power to
effectively sue publicly-traded firms if their executives or directors commit
financial fraud.
66.
True
67.
False
ANS: T
PTS:
1
DIF: Easy
OBJ: INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
66.
In general, common law countries such as the U.S., Canada, and
the United Kingdom allow for more legal protection than French civil law
countries such as France or Italy.
67.
True
68.
False
ANS:
T
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.05
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
67.
The government enforcement of securities laws varies among
countries.
68.
True
69.
False
ANS:
T
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
68.
The degree of financial information that must be provided by
public companies is the same among countries.
69.
True
70.
False
ANS: F
PTS:
1
DIF: Easy
OBJ: INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
69.
In general, stock markets allow for more price efficiency and
attract more investors when they have all of the following except:
70.
more voting rights for shareholders.
71.
more legal protection.
72.
more enforcement of the laws.
73.
less stringent accounting requirements.
ANS:
D
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
70.
In general, companies are attracted to the stock market in which
there are very limited voting rights for shareholders.
71.
True
72.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
71.
If companies can rely on stock markets to obtain funds, they
will have to rely more heavily on the ____ market to raise long-term funds.
72.
derivative
73.
long-term credit
74.
money
75.
foreign exchange
ANS:
B
PTS:
1
DIF:
Easy OBJ:
INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
72.
The strike price on a currency option is also known as an
exercise price.
73.
True
74.
False
ANS:
T
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.02
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
73.
Assume that the bank’s bid quote of Mexican peso is $.126 and
ask price is $.129. If you have Mexican pesos, what is the amount of pesos that
you need to purchase $100,000?
74.
12,600
75.
775,194
76.
793,651
77.
12,900
ANS:
C
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.01
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
74.
When receiving quotations on a currency’s exchange rate, the
bank’s bid quote is the rate at which the bank is willing to sell currency.
75.
True
76.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Comprehension
75.
An obligation to purchase a specific amount of currency at a
future point in time is called a:
76.
call option
77.
spot contract
78.
put option
79.
forward contract
80.
both B and D
ANS:
D
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.02
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
76.
Which of the following is not a method that can be used to
invest internationally?
77.
Investment in MNC stocks
78.
American depository receipts (ADRs)
79.
World Equity benchmark Shares (WEBS)
80.
International mutual funds
81.
All of the above are methods that can be used to invest
internationally.
ANS:
E
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.App.
NAT:
BUSPROG.INFM.MADU.15.03 STA:
DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
77.
The interest rate in developing countries is usually very low.
78.
True
79.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.02
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
78.
Assume that $1 is equal to .85 Euros and 98 yen. The value of
yen in euros is
79.
.01
80.
118
81.
1.18
82.
.0087
ANS:
D
PTS:
1
DIF: Moderate
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
79.
When obtaining a loan, the risk premium paid above LIBOR depends
on the:
80.
risk-free interest rate of the borrower.
81.
credit risk of the borrower.
82.
borrower’s stock price.
83.
lender’s stock price.
ANS:
B
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.02
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Comprehension
80.
The largest global exchange is:
81.
NASDAQ
82.
Tokyo Stock Exchange
83.
NYSE Euronext
84.
London Stock Exchange
ANS:
C
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
81.
Which of the following is not true about syndicated loans?
82.
A borrower that receives a syndicated loan incurs various fees
besides the interest rate.
83.
The loans are only denominated in U.S. dollars.
84.
The loans are provided by a group of banks to a borrower.
85.
The loans are usually formed in 6 weeks or less.
ANS:
B
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.03
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Comprehension
82.
The interest rate on the syndicated loan depends on the:
83.
currency denominating the loan.
84.
maturity of the loan.
85.
creditworthiness of the borrower.
86.
interbank lending rate.
87.
all of the above.
ANS:
E
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.03
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
83.
Assume a U.S. firm has to pay for Korean imports in 60 days. It
expects that Korean won will depreciate, but it still wants to hedge its risk.
What type of hedging is more appropriate in this situation:
84.
Buy dollars forward
85.
Sell dollars forward
86.
Purchase call option
87.
Purchase put option
ANS:
C
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
84.
Certificates representing bundles of stock of non-U.S. firms are
called:
85.
Eurobonds
86.
ADRs
87.
FRNs
88.
Eurobor
ANS:
B
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.05
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
85.
Assume that the spot rate of the Singapore dollar is $.664. The
ADR of a Singapore firm is convertible into 3 shares of stock. The price of an
ADR is $20. What is the share price of the firm in Singapore dollars?
86.
10
87.
13.28
88.
30.12
89.
39.84
ANS:
A
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.05
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
86.
Which of the following is not true regarding ADRs?
87.
ADRs are denominated in the currency of the stock’s home
country.
88.
ADRs enable U.S. investors to avoid cross-border transactions
89.
ADRs allow non-U.S. firms to tap into U.S. market for funds.
90.
ADRs sometimes allow for arbitrage opportunities.
ANS:
A
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.05
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Comprehension
87.
The more intense the competition for the traded currency, the
larger the bid/ask spread.
88.
True
89.
False
ANS:
F
PTS:
1
DIF: Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
88.
Banks charge larger bid/ask spreads than they would on less
liquid, less traded currencies.
89.
True
90.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
89.
At any given point in time, a bank’s bid quote will be greater
than its ask quote.
90.
True
91.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
90.
An MNC with receivables in Japanese Yen purchases yen forward to
hedge its exposure to exchange rate fluctuations.
91.
True
92.
False
ANS:
F
PTS:
1
DIF:
Easy
OBJ: INFM.MADU.15.03.01
NAT: BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
91.
A currency put option provides the right, but not the
obligation, to buy a specific currency at a specific price within a specific
period of time.
92.
True
93.
False
ANS:
F
PTS:
1
DIF:
Easy OBJ:
INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
92.
The LIBOR varies among currencies because the market supply of
and demand for funds vary among currencies.
93.
True
94.
False
ANS:
T
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.02
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Comprehension
93.
The international money market is frequently accessed by MNCs
for short-term investment and financing decisions, while longer term financing
decisions are made in the international credit market or the international bond
market and in international stock markets.
94.
True
95.
False
ANS:
T
PTS:
1
DIF:
Moderate
OBJ: INFM.MADU.15.03.06
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Knowledge
94.
Which of the following is not a possible bid/ask quotation for
the Barbados dollar?
95.
$.50/$.51
96.
$.49/$.50
97.
$.52/$.51
98.
$.51/$.52
99.
All of the above are possible bid/ask quotations.
ANS:
C
PTS:
1
DIF: Moderate
OBJ: INFM.MADU.15.03.01
NAT:
BUSPROG.INFM.MADU.15.03
STA: DISC.INFM.MADU.15.02
KEY: Bloom’s: Application
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