3. International banks are different from domestic banks in what way(s)?

A. International banks can arrange trade financing.

B. International banks can arrange for foreign exchange transactions.
C. International banks can assist their clients in hedging exchange rate risk.
D. All of the above

Topic: International Banking Services

4. Major distinguishing features between domestic banks and international banks are

A. the types of deposits they accept.

B. the types of loans and investments they make.
C. membership in loan syndicates.
D. all of the above

Topic: International Banking Services

5. Since international banks have the facilities to trade foreign exchange,

A. they generally also make a market as a dealer in foreign exchange.

B. they generally also make a market as a dealer in foreign exchange derivatives.
C. they generally also trade foreign exchange products for their own account.
D. none of the above

Topic: International Banking Services

6. Banks that both perform traditional commercial banking functions and engage in investment
banking activities are often called

A. international service banks.

B. investment banks.
C. commercial banks.
D. merchant banks.

Topic: International Banking Services

7. Merchant banks are different from traditional commercial banks in what way(s)?

A. Merchant banks can engage in investment banking activities.

B. Merchant banks can arrange for foreign exchange transactions.
C. Merchant banks can assist their clients in hedging exchange rate risk.
D. All of the above

Topic: International Banking Services

8. By far the most important international finance centers are

A. New York and London.

B. New York, London, and Tokyo.
C. New York, London, Tokyo, Paris, and Zurich.
D. New York, London, Tokyo, Paris, Zurich, and Frankfurt.

Topic: The World's Largest Banks

9. Multinational banks are often not subject to the same regulations as domestic banks.

A. There may be increased need to publish adequate financial information.

B. There may be reduced need to publish adequate financial information.
C. There requirements to publish adequate financial information are the same.
D. None of the above

Topic: Reasons for International Banking

10. A domestic bank that follows a multinational client abroad to preserve that banking relationship

A. is playing the role of the desperate housewife in this relationship.

B. is pursuing a wholesale defensive strategy.
C. is pursuing a retail defensive strategy.
D. none of the above

Topic: Reasons for International Banking

11. A domestic bank that becomes a multinational bank to prevent erosion by foreign banks of the
traveler's checks, touring, and foreign business market

A. is playing the role of the desperate housewife in this relationship.

B. is pursuing a wholesale defensive strategy.
C. is pursuing a retail defensive strategy.
D. none of the above

Topic: Reasons for International Banking

12. Banking tends to be

A. a low marginal cost industry.

B. a high marginal cost industry.
C. a constant average cost industry.
D. none of the above

Topic: Reasons for International Banking

13. A U.S.-based multinational bank

A. would not have to provide deposit insurance and meet reserve requirements on foreign
currency deposits.
B. would have to provide deposit insurance and meet reserve requirements on foreign currency
deposits.
C. would not have to provide deposit insurance but would have to meet reserve requirements
on foreign currency deposits.
D. would have to provide deposit insurance but not meet reserve requirements on foreign
currency deposits.

Topic: Reasons for International Banking

14. A bank may establish a multinational operation for the reason of low marginal costs. The
underlying rationale being that

A. banks follow their multinational customers abroad to prevent the erosion of their clientele to
foreign banks seeking to service the multinational's foreign subsidiaries.
B. multinational banking operations help a bank prevent the erosion of its traveler's check,
tourist, and foreign business markets from foreign bank competition.
C. managerial and marketing knowledge developed at home can be used abroad with low
marginal costs.
D. the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts
and credit investigations for use in that foreign market.

Topic: Reasons for International Banking

15. A bank may establish a multinational operation for the reason of knowledge advantage. The
underlying rationale being that

A. local firms may be able to obtain from a foreign subsidiary bank operating in their country
more complete trade and financial market information about the subsidiary's home country
than they can obtain from their own domestic banks.
B. by maintaining foreign branches and foreign currency balances, banks may reduce
transaction costs and foreign exchange risk on currency conversion if government controls
can be circumvented.
C. greater stability of earnings is possible with international diversification. Offsetting business
and monetary policy cycles across nations reduces the country-specific risk of any one
nation.
D. the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts
and credit investigations for use in that foreign market.

Topic: Reasons for International Banking

16. A bank may establish a multinational operation for the reason of prestige. The underlying
rationale being that

A. local firms may be able to obtain from a foreign subsidiary bank operating in their country
more complete trade and financial market information about the subsidiary's home country
than they can obtain from their own domestic banks.
B. the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts
and credit investigations for use in that foreign market.
C. very large multinational banks have high perceived prestige, liquidity, and deposit safety
that can be used to attract clients abroad.
D. multinational banks are often not subject to the same regulations as domestic banks. There
may be reduced need to publish adequate financial information, lack of required deposit
insurance and reserve requirements on foreign currency deposits, and the absence of
territorial restrictions.

Topic: Reasons for International Banking

17. A bank may establish a multinational operation for the reason of risk reduction. The underlying
rationale being that

A. by maintaining foreign branches and foreign currency balances, banks may reduce
transaction costs and foreign exchange risk on currency conversion if government controls
can be circumvented.
B. greater stability of earnings is possible with international diversification. Offsetting business
and monetary policy cycles across nations reduces the country-specific risk of any one
nation.
C. multinational banks are often not subject to the same regulations as domestic banks. There
may be reduced need to publish adequate financial information, lack of required deposit
insurance and reserve requirements on foreign currency deposits, and the absence of
territorial restrictions.
D. multinational banking operations help a bank prevent the erosion of its traveler's check,
tourist, and foreign business markets from foreign bank competition.

Topic: Reasons for International Banking

18. A bank may establish a multinational operation for the reason of regulatory advantage. The
underlying rationale being that

A. banks follow their multinational customers abroad to prevent the erosion of their clientele to
foreign banks seeking to service the multinational's foreign subsidiaries.
B. multinational banking operations help a bank prevent the erosion of its traveler's check,
tourist, and foreign business markets from foreign bank competition.
C. by maintaining foreign branches and foreign currency balances, banks may reduce
transaction costs and foreign exchange risk on currency conversion if government controls
can be circumvented.
D. multinational banks are often not subject to the same regulations as domestic banks. There
may be reduced need to publish adequate financial information, lack of required deposit
insurance and reserve requirements on foreign currency deposits, and the absence of
territorial restrictions.

Topic: Reasons for International Banking

19. Currently, the biggest bank in the world is

A. Citigroup.
B. Bank of America.
C. UBS.
D. The World Bank.

Topic: Reasons for International Banking

20. A bank may establish a multinational operation for the reason of retail defensive strategy. The
underlying rationale being that

A. banks follow their multinational customers abroad to prevent the erosion of their clientele to
foreign banks seeking to service the multinational's foreign subsidiaries.
B. multinational banking operations help a bank prevent the erosion of its traveler's check,
tourist, and foreign business markets from foreign bank competition.
C. by maintaining foreign branches and foreign currency balances, banks may reduce
transaction costs and foreign exchange risk on currency conversion if government controls
can be circumvented.
D. multinational banks are often not subject to the same regulations as domestic banks. There
may be reduced need to publish adequate financial information, lack of required deposit
insurance and reserve requirements on foreign currency deposits, and the absence of
territorial restrictions.

Topic: Reasons for International Banking

21. A bank may establish a multinational operation for the reason of wholesale defensive strategy.
The underlying rationale being that

A. banks follow their multinational customers abroad to prevent the erosion of their clientele to
foreign banks seeking to service the multinational's foreign subsidiaries.
B. multinational banking operations help a bank prevent the erosion of its traveler's check,
tourist, and foreign business markets from foreign bank competition.
C. by maintaining foreign branches and foreign currency balances, banks may reduce
transaction costs and foreign exchange risk on currency conversion if government controls
can be circumvented.
D. multinational banks are often not subject to the same regulations as domestic banks. There
may be reduced need to publish adequate financial information, lack of required deposit
insurance and reserve requirements on foreign currency deposits, and the absence of
territorial restrictions.

Topic: Reasons for International Banking

22. Which of the following are reasons why a bank may establish a multinational operation?

A. Low marginal and transaction costs

B. Home nation information services, and prestige
C. Growth and risk reduction
D. All of the above

Topic: Reasons for International Banking

23. A bank may establish a multinational operation for the reason of transaction costs. The
underlying rationale being that

A. banks follow their multinational customers abroad to prevent the erosion of their clientele to
foreign banks seeking to service the multinational's foreign subsidiaries.
B. multinational banking operations help a bank prevent the erosion of its traveler's check,
tourist, and foreign business markets from foreign bank competition.
C. by maintaining foreign branches and foreign currency balances, banks may reduce
transaction costs and foreign exchange risk on currency conversion if government controls
can be circumvented.
D. multinational banks are often not subject to the same regulations as domestic banks. There
may be reduced need to publish adequate financial information, lack of required deposit
insurance and reserve requirements on foreign currency deposits, and the absence of
territorial restrictions.

Topic: Reasons for International Banking

24. A bank may establish a multinational operation for the reason of growth. The rationale being
that

A. growth prospects in a home nation may be limited by a market largely saturated with the
services offered by domestic banks.
B. multinational banks are often not subject to the same regulations as domestic banks. There
may be reduced need to publish adequate financial information, lack of required deposit
insurance and reserve requirements on foreign currency deposits, and the absence of
territorial restrictions.
C. greater stability of earnings is possible with international diversification. Offsetting business
and monetary policy cycles across nations reduces the country-specific risk of any one
nation.
D. by maintaining foreign branches and foreign currency balances, banks may reduce
transaction costs and foreign exchange risk on currency conversion if government controls
can be circumvented.

Topic: Reasons for International Banking

25. A bank may establish a multinational operation for the reason of home country information
services. The underlying rationale being that

A. by maintaining foreign branches and foreign currency balances, banks may reduce
transaction costs and foreign exchange risk on currency conversion if government controls
can be circumvented.
B. local firms may be able to obtain from a foreign subsidiary bank operating in their country
more complete trade and financial market information about the subsidiary's home country
than they can obtain from their own domestic banks.
C. the foreign bank subsidiary can draw on the parent bank's knowledge of personal contacts
and credit investigations for use in that foreign market.
D. greater stability of earnings is possible with international diversification. Offsetting business
and monetary policy cycles across nations reduces the country-specific risk of any one
nation.

Topic: Reasons for International Banking

26. A correspondent bank relationship is established when

A. two banks maintain deposits with one another.

B. two banks write to each other about the credit conditions of their countries.
C. a group of banks form a syndicate to spread out the risk and cost of a large bond offering.
D. all of the above

Topic: Correspondent Bank

Topic: Types of International Banking Offices

27. Correspondent bank relationships can be beneficial

A. because a bank can service its MNC clients at a very low cost.
B. because a bank can service its MNC clients without the need to have personnel in many
different countries.
C. because a bank can service its MNC clients without developing its own foreign facilities to
service its clients.
D. all of the above

Topic: Correspondent Bank

Topic: Types of International Banking Offices
28. Consider a U.S. importer desiring to purchase merchandise from a Dutch exporter invoiced in
euros, at a cost of €160,000. The U.S. importer will contact his U.S. bank (where of course he
has an account denominated in U.S. dollars) and inquire about the exchange rate, which the
bank quotes as €0.6250/$1.00. The importer accepts this price, so his bank will proceed to
____________ the importer's account in the amount of ____________.

A. Debit; $256,000
B. Credit; €512,100
C. Credit; $500,000
D. Debit; €100,000

Topic: Correspondent Bank

Topic: Types of International Banking Offices

29. The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's
correspondent account(s) with bank B if a currency trader employed at Bank A buys £45,000
from a currency trader at bank B for $90,000 using its correspondent relationship with Bank B.

A. Bank A's dollar-denominated account at B will rise by $90,000.

B. Bank B's dollar-denominated account at A will fall by $90,000.
C. Bank A's pound-denominated account at B will rise by £45,000.
D. Bank B's pound-denominated account at A will rise by £45,000.

Topic: Correspondent Bank

Topic: Types of International Banking Offices

30. Correspondent bank services include

A. prepaid postage and packing materials.

B. letters of introduction.
C. foreign exchange conversions.
D. both b and c

Topic: Correspondent Bank

Topic: Types of International Banking Offices

31. The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's
correspondent account(s) with bank B if a currency trader employed at Bank A buys £45,000
from a currency trader at bank B for $90,000 using its correspondent relationship with Bank B.

A. Bank A's dollar-denominated account at B will fall by $90,000.

B. Bank B's dollar-denominated account at A will rise by $90,000.
C. Bank A's pound-denominated account at B will rise by £45,000.
D. Bank B's pound-denominated account at A will fall by £45,000.
E. All of the above are correct

Topic: Correspondent Bank

 Topic: Types of International Banking Offices

32. The current exchange rate is €1.00 = $1.50. Compute the correct balances in Bank A's
correspondent account(s) with bank B if a currency trader employed at Bank A buys €100,000
from a currency trader at bank B for $150,000 using its correspondent relationship with Bank
B.

A. Bank A's dollar-denominated account at B will fall by $150,000.

B. Bank B's dollar-denominated account at A will fall by $150,000.
C. Bank A's pound-denominated account at B will fall by €100,000.
D. Bank B's pound-denominated account at A will rise by €100,000.

Topic: Correspondent Bank

Topic: Types of International Banking Offices

33. A representative office

A. is what lawyers' offices are called in Mexico.

B. is a small service facility staffed by parent bank personnel that is designed to assist MNC
clients of the parent bank in dealings with the bank's correspondents.
C. is a small service facility staffed by correspondent bank personnel that is designed to assist
MNC clients of the parent bank in dealings with the bank's correspondents.
D. none of the above

Topic: Representative Offices

34. A representative office

A. is a way for the parent bank to provide its MNC clients with a level of service greater than
that provided through merely a correspondent relationship.
B. is a small service facility staffed by parent bank personnel that is designed to assist MNC
clients of the parent bank in dealings with the bank's correspondents.
C. is a step up from a correspondent relationship, but below a foreign branch.
D. all of the above

Topic: Representative Offices

35. A foreign branch bank

A. is a small service facility staffed by parent bank personnel that is designed to assist MNC
clients of the parent bank in dealings with the bank's correspondents.
B. operates like a local bank, but legally is a part of the parent bank.
C. is subject to domestic regulation only.
D. all of the above

Topic: Foreign Branches

36. A foreign branch bank

A. is a small service facility staffed by parent bank personnel that is designed to assist MNC
clients of the parent bank in dealings with the bank's correspondents.
B. operates like a local bank, but legally is a part of the parent bank.
C. is subject to domestic regulation only.
D. all of the above

Topic: Foreign Branches

37. Why would a U.S. bank open a foreign branch bank?

A. Because this form of bank organization can allow a U.S. bank to provide a fuller range of
services for its MNC customers than it can through a representative office.
B. To avoid U.S. banking regulation on transactions routed through that foreign country.
C. Because this form of organization allows the bank to service MNC clients at low cost and
without the need of having bank personnel located in the country.
D. both a and b

Topic: Foreign Branches

38. Why would a U.S. bank open a foreign branch bank instead of a foreign chartered subsidiary?

A. This form of bank organization allows the bank to be able to extend a larger loan to a
customer than a locally chartered subsidiary bank of the parent.
B. To slow down check clearing and maximize the bank's float.
C. To avoid U.S. banking regulation.
D. Both a and c

Topic: Foreign Branches

39. The most popular way for a U.S. bank to expand overseas is

A. branch banks.
B. representative offices.
C. subsidiary banks.
D. affiliate banks.

Topic: Foreign Branches

40. A foreign branch bank operates like a local bank, but legally

A. it is a part of the parent bank.

B. a branch bank is subject to both the banking regulations of its home country and the
country in which it operates.
C. a branch bank is subject to only the banking regulations of its home country and not the
country in which it operates.
D. both a and b

Topic: Foreign Branches

41. The major legislation controlling the operation of foreign banks in the U.S.

A. specifies that foreign branch banks operating in the U.S. must comply with U.S. banking
regulations just like U.S. banks.
B. specifies that foreign branch banks operating in the U.S. must comply with their country-of-
origin banking regulations just like U.S. banks operating abroad.
C. specifies that the "shell" branches are illegal for U.S. and foreign banks.
D. both a and c

Topic: Foreign Branches

42. A subsidiary bank is

A. a locally incorporated bank that is wholly owned by a foreign parent.

B. a locally incorporated bank that is majority owned by a foreign parent.
C. a locally incorporated bank that is partially owned (but not controlled) by a foreign parent.
D. both a and b

Topic: Subsidiary and Affiliate Banks

43. An affiliate bank is

A. a locally incorporated bank that is wholly owned by a foreign parent.

B. a locally incorporated bank that is majority owned by a foreign parent.
C. a locally incorporated bank that is partially owned (but not controlled) by a foreign parent.
D. both a and b

Topic: Subsidiary and Affiliate Banks

44. Both subsidiary and affiliate banks

A. operate under the banking laws of the country in which they are incorporated.
B. operate under the banking laws of the U.S.
C. can underwrite securities, but not accept dollar-denominated deposits.
D. both a and b

Topic: Subsidiary and Affiliate Banks

45. U.S. banks that establish subsidiary and affiliate banks

A. are allowed to underwrite securities.

B. must provide FDIC insurance on their foreign-currency denominated demand deposits.
C. can underwrite securities, but not accept dollar-denominated deposits.
D. both a and b

Topic: Subsidiary and Affiliate Banks

46. Foreign banks that establish subsidiary and affiliate banks in the U.S.

A. tend to locate in states that are major centers of financial activity.

B. tend to locate in the highly populous states of New York, California, Illinois, Florida,
Georgia, and Texas.
C. can underwrite securities, but not accept dollar-denominated deposits.
D. both a and b

Topic: Subsidiary and Affiliate Banks

47. Edge Act banks are so-called because

A. the are Federally chartered subsidiaries of U.S. banks that are physically located in the
United States and are allowed to engage in a full range of international banking activities.
B. Senator Walter E. Edge of New Jersey sponsored the 1919 amendment to Section 25 of the
Federal Reserve Act to allow U.S. banks to be competitive with the services foreign banks
could supply their customers.
C. they can only be chartered in states that are on the borders of the United States—on the
"edge" of the map.
D. none of the above