Professional Documents
Culture Documents
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:
A) about 4.44%.
B) about 4.26%.
C) about 4.03%.
D) about 4.17%.
ANSWER: B
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:
A) about 4.99%.
B) about 4.88%.
C) about 4.65%.
D) about 4.43%.
ANSWER: C
3. The bid/ask spread for small retail transactions is commonly in the range of _______ percent; the
bid/ask spread for wholesale transactions is commonly in the range of _______ percent.
A) 3 to 7; .01 to .03
B) 2 to 5; 1 to 2
C) 10 to 15; .01 to .03
D) 1 to 2; .05 to .07
ANSWER: A
ANSWER: D
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ANSWER: A
6. 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:
A) obtain a 90-day forward purchase contract on euros.
B) obtain a 90-day forward sale contract on euros.
C) purchase euros 90 days from now at the spot rate.
D) sell euros 90 days from now at the spot rate.
ANSWER: B
7. 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:
A) obtain a 90-day forward purchase contract on Canadian dollars.
B) obtain a 90-day forward sale contract on Canadian dollars.
C) purchase Canadian dollars 90 days from now at the spot rate.
D) sell Canadian dollars 90 days from now at the spot rate.
ANSWER: A
8. 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:
A) about .3621 Canadian dollars.
B) about .3977 Canadian dollars.
C) about 2.36 Canadian dollars.
D) about 2.51 Canadian dollars.
ANSWER: B
9. Which of the following is not true with respect to spot market liquidity?
A) The more willing buyers and sellers there are, the more liquid a market is.
B) The spot markets for heavily traded currencies such as the Japanese yen are very liquid.
C) A currency’s liquidity affects the ease with which an MNC can obtain or sell that currency.
D) If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a
reasonable exchange rate.
ANSWER: D
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ANSWER: B
11. A forward contract can be used to lock in the _______ of a specified currency for a future point in
time.
A) purchase price
B) sale price
C) purchase price or sale price
D) none of these
ANSWER: C
ANSWER: C
13. _______ is not a bank characteristic important to customers in need of foreign exchange.
A) Quote competitiveness
B) Speed of execution
C) Forecasting advice
D) Advice about current market conditions
E) All of these are important bank characteristics to customers in need of foreign exchange.
ANSWER: E
ANSWER: D
ANSWER: A
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ANSWER: B
ANSWER: C
ANSWER: A
ANSWER: D
ANSWER: C
21. International money market transactions normally represent the equivalent of:
A) $1 million or more.
B) $1,000 to $10,000.
C) $10,000 and $100,000.
D) $100,000 and $200,000.
ANSWER: A
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22. From 1944 to 1971, the exchange rate between any two currencies was typically:
A) fixed within narrow boundaries.
B) floating, but subject to central bank intervention.
C) floating, and not subject to central bank intervention.
D) nonexistent; that is, currencies were not exchanged, but gold was used to pay for all foreign
transactions.
ANSWER: A
ANSWER: C
24. According to the text, the average foreign exchange trading around the world _______ per day.
A) equals about $200 billion
B) equals about $400 billion
C) equals about $700 billion
D) exceeds $1 trillion
ANSWER: D
25. 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.
A) depreciate; buying
B) depreciate; selling
C) appreciate; selling
D) appreciate; buying
ANSWER: B
26. Loans of one year or longer extended by banks in Europe are called:
A) Eurocurrency loans.
B) Eurocredit loans.
C) Eurobond loans.
D) parallel loans.
ANSWER: B
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27. Futures contracts are typically _______; forward contracts are typically _______.
A) sold on an exchange; sold on an exchange
B) offered by commercial banks; sold on an exchange
C) sold on an exchange; offered by commercial banks
D) offered by commercial banks; offered by commercial banks
ANSWER: C
28. Eurobonds:
A) are usually issued in bearer form.
B) typically carry several protective covenants.
C) cannot contain call provisions.
D) are usually issued in bearer form AND typically carry several protective covenants.
ANSWER: A
ANSWER: C
30. Eurobonds:
A) can be issued only by European firms.
B) can be sold only to European investors.
C) can be issued only by European firms AND can be sold only to European investors.
D) none of these.
ANSWER: D
ANSWER: C
32. When the foreign exchange market opens in the U.S. each morning, the opening exchange rate
quotations will be:
A) based on the closing prices in the U.S. during the previous day.
B) based on the closing prices in Canada during the previous day.
C) based on the prevailing prices in locations where the foreign exchange markets have been
open.
D) officially set by central banks before the U.S. market opens.
ANSWER: C
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33. The U.S. dollar is not ever used as a medium of exchange in:
A) industrialized countries outside the U.S.
B) any Latin American countries.
C) Eastern European countries where foreign exchange restrictions exist.
D) none of these.
ANSWER: D
34. Which of the following is not true regarding the Bretton Woods Agreement?
A) It called for fixed exchange rates between currencies.
B) Governments intervened to prevent exchange rates from moving more than 1 percent above or
below their initially established levels.
C) The agreement lasted from 1944 until 1971.
D) Each country used gold to back its currency.
E) All of these are true regarding the Bretton Woods Agreement.
ANSWER: D
35. 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)?
A) 73.75.
B) 125.
C) 1.69.
D) 0.014.
E) none of these.
ANSWER: D
36. 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:
A) $13.64.
B) $15.00.
C) $16.50.
D) 16.50 euros.
E) none of these.
ANSWER: C
37. 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:
A) $48.90.
B) $146.70.
C) $55.21.
D) none of these.
ANSWER: B
38. In general, stock markets allow for more price efficiency and attract more investors when they
have all of the following except:
A) more voting rights for shareholders.
B) more legal protection.
C) more enforcement of the laws.
D) less stringent accounting requirements.
ANSWER: D
39. 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.
A) derivative
B) long-term credit
C) money
D) foreign exchange
ANSWER: B
40. A put option is the amount or percentage by which the existing spot rate exceeds the forward
rate.
A) true.
B) false.
ANSWER: B
41. The forward rate is the exchange rate used for immediate exchange of currencies.
A) true.
B) false.
ANSWER: B
42. The ask quote is the price for which a bank offers to sell a currency.
A) true.
B) false.
ANSWER: A
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43. The existence of imperfect markets has prevented the internationalization of financial markets.
A) true.
B) false.
ANSWER: B
44. 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.
A) true.
B) false.
ANSWER: A
45. 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.
A) true.
B) false.
ANSWER: B
46. The Single European Act and the Basel Accord prevented a trend toward increased
globalization in the banking industry.
A) true.
B) false.
ANSWER: B
47. A cross exchange rate expresses the amount of one foreign currency per unit of another
foreign currency.
A) true.
B) false.
ANSWER: A
48. 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.
A) true.
B) false.
ANSWER: B
ANSWER: B
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50. The interest rate commonly charged for loans between banks is called the cross rate.
A) true.
B) false.
ANSWER: B
51. The Bretton Woods Agreement is a 1988 accord between 12 countries to standardize banks’
capital requirements across countries; the resulting capital ratios are computed using risk-
weighted assets.
A) true.
B) false.
ANSWER: B
52. The Basel Accord is a 1987 agreement among the major European countries to make
regulations more uniform across European countries and to reduce taxes on goods traded between
these countries.
A) true.
B) false.
ANSWER: B
ANSWER: A
ANSWER: B
55. 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.
A) true.
B) false.
ANSWER: A
56. 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.
A) true.
B) false.
ANSWER: B
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57. 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.
A) true.
B) false.
ANSWER: B
58. 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.
A) true.
B) false.
ANSWER: A
59. The term “eurobor” is widely used to reflect the interbank offer rate on euros.
A) true.
B) false.
ANSWER: A
60. 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.
A) true.
B) false.
ANSWER: B
61. Institutional investors such as commercial banks, mutual funds, insurance companies, and pension
funds from many countries are major participants in the international bond market.
A) true.
B) false.
ANSWER: A
62. 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.
A) true.
B) false.
ANSWER: B
63. Global regulations require that shareholders in all countries have the same rights wherever there
are stock markets.
A) true.
B) false.
ANSWER: B
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64. Shareholders have more voting power in some countries than others.
A) true.
B) false.
ANSWER: A
65. Shareholders can have influence on a wider variety of management issues in some countries.
A) true.
B) false.
ANSWER: A
ANSWER: B
67. Shareholders in some countries may have more power to effectively sue publicly-traded firms if
their executives or directors commit financial fraud.
A) true.
B) false.
ANSWER: A
68. 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.
A) true.
B) false.
ANSWER: A
ANSWER: A
70. The degree of financial information that must be provided by public companies is the same among
all countries.
A) true.
B) false.
ANSWER: B
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71. In general, companies are attracted to the stock market in which there are very limited voting
rights for shareholders.
A) true.
B) false.
ANSWER: B