International Business A Managerial

Perspective 8th Edition Griffin Test

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International Business, 8e (Griffin/Pustay)
Chapter 8 Foreign Exchange and International Financial Markets

1) The rising value of the Canadian dollar relative to the U.S. dollar has which of the following
effects?
A) Canadian imports to the U.S. are down.
B) Canadian vacationers pay higher costs for trips to the U.S.
C) Canadian consumers pay higher prices for U.S.-made goods.
D) Canadian retailers in border towns lose customers to U.S. stores.
Answer: D
Diff: 2
AACSB: Dynamics of the global economy
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

2) What most likely happens when the price of yen falls?

A) the quantity of yen demanded goes down
B) the demand curve slopes downward
C) the demand curve slopes upward
D) the value of yen fluctuates
Answer: C
Diff: 2
AACSB: Dynamics of the global economy
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

3) Which of the following is not an example of a participant in the foreign exchange market?
A) Pakistani tourists exchanging rupees for British pounds at a bank in London
B) British retailer Marks and Spenser purchasing appliances from a British supplier
C) the U.S. government arranging a multimillion-dollar loan to Mexico
D) Toyota exporting cars to Canada from factories in Japan
Answer: B
Diff: 2
Skill: Application
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

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4) A call option ________.
A) is a privately traded currency vehicle available only through stockbrokers
B) grants the right to buy a specified amount of foreign currency at a set price
C) allows the holder to buy foreign exchange at the wholesale rate
D) is another term for currency future
Answer: B
Diff: 2
Skill: Concept
Objective: 1

5) ________ is a commodity that consists of currencies issued by countries other than one's own.
A) Eurozone
B) Foreign exchange
C) Floating exchange
D) International monetary fund
Answer: B
Diff: 1
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

6) If the British pound is selling at $1.5212 spot on September 3, and at a 90-day forward rate of
$1.5203, then ________.
A) the pound is selling at a forward premium
B) the pound is selling at a forward discount
C) an investor should buy a call option
D) speculators should buy put options
Answer: B
Diff: 3
Skill: Application
Objective: 3

7) The price of foreign exchange is set by ________.

A) the international monetary fund
B) the gold standard
C) demand and supply in the marketplace
D) administrators of the World Bank
Answer: C
Diff: 2
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

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8) A(n)________ shows the demand for a currency that is derived from foreigners' desire to
acquire the country's goods, services, and assets.
A) direct quote
B) indirect quote
C) derived demand curve
D) upward sloping curve
Answer: C
Diff: 2
Skill: Concept
Objective: 1

9) Which term refers to the price of the foreign currency in terms of the home currency?
A) direct exchange rate
B) indirect quote
C) indirect exchange rate
D) direct spot price
Answer: A
Diff: 1
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

10) Tyler, a U.S. citizen, received a quote on the dollar/yen relationship of ¥108.21/$1. Tyler
most likely received a(n) ________ quote.
A) indirect
B) direct
C) yen
D) dollar
Answer: A
Diff: 2
Skill: Application
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

11) A(n) ________ is the price of the home currency in terms of the foreign currency.
A) direct exchange rate
B) direct quote
C) indirect exchange rate
D) indirect rate price
Answer: C
Diff: 1
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

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12) Carol, an American banker, received a quote between the U.S. dollar and the Japanese yen of
$.00924/¥1. Carol most likely received a(n) ________ quote.
A) indirect
B) direct
C) dollar
D) yen
Answer: B
Diff: 2
Skill: Application
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

13) Worldwide volume of foreign exchange trading is about ________ per day.
A) $2 billion
B) $50 billion
C) $2 trillion
D) $4 trillion
Answer: D
Diff: 1
Skill: Concept
Objective: 1

14) The world's largest trading markets include which one of the following?
A) London
B) Frankfurt
C) Dallas
D) Peking
Answer: B
Diff: 2
Skill: Concept
Objective: 1

15) What percentage of all foreign-exchange trading involves the U.S. dollar?
A) 25%
B) 47%
C) 70%
D) 85%
Answer: D
Diff: 2
Skill: Concept
Objective: 1

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16) ________ assume exchange rate risks by acquiring positions in a currency and hoping that
they can correctly predict changes in the currency's market value.
A) Commercial customers
B) Speculators
C) Arbitrageurs
D) Individuals
Answer: B
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Describe the functions of the foreign exchange market

17) ________ attempt to exploit small differences in the price of a currency between markets by
buying currencies in lower-priced markets and selling in higher-priced markets.
A) Commercial customers
B) Speculators
C) Arbitrageurs
D) Individuals
Answer: C
Diff: 2
Skill: Concept
Objective: 4
Learning Outcome: Describe the functions of the foreign exchange market

18) Currencies that are freely tradable are called ________.

A) hard currencies
B) soft currencies
C) foreign currencies
D) inconvertible currencies
Answer: A
Diff: 1
Skill: Concept
Objective: 2

19) Which of the following would be considered a soft currency?

A) Swiss franc
B) Mexican peso
C) Canadian dollar
D) U.S. dollar
Answer: B
Diff: 2
Skill: Concept
Objective: 2

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20) An inconvertible currency ________.
A) is a foreign exchange transaction that is consummated immediately
B) is a foreign exchange transaction that occurs sometime in the future
C) involves currencies that are not freely tradable
D) involves a transaction in which the same currency is bought and sold simultaneously
Answer: C
Diff: 2
Skill: Concept
Objective: 2

21) The ________ consists of foreign-exchange transactions that are to be consummated

immediately.
A) soft currency market
B) spot market
C) hard currency market
D) forward market
Answer: B
Diff: 1
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

22) The ________ consists of foreign-exchange transactions that are to occur sometime in the
future.
A) soft currency market
B) spot market
C) hard currency market
D) forward market
Answer: D
Diff: 1
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

23) In the world of spot markets, what is the meaning of immediately?

A) two days after the trade date
B) four business days after the trade date
C) on the trade date
D) simultaneous due to electronic transfers
Answer: A
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

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24) What percentage of all foreign exchange transactions take place in the spot market?
A) 10 percent
B) 24 percent
C) 33 percent
D) 47 percent
Answer: C
Diff: 3
Skill: Concept
Objective: 3

25) A spot transaction ________.

A) is a foreign exchange transaction that is consummated immediately
B) is a foreign exchange transaction that occurs sometime in the future
C) involves currencies that are not freely tradeable
D) involves a transaction in which the same currency is bought and sold simultaneously
Answer: A
Diff: 1
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

26) A forward transaction ________.

A) is a foreign exchange transaction that is consummated immediately
B) is a foreign exchange transaction that occurs sometime in the future
C) involves currencies that are not freely tradeable
D) involves a transaction in which the same currency is bought and sold simultaneously
Answer: B
Diff: 1
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

27) A swap transaction ________.

A) is a foreign exchange transaction that is consummated immediately
B) is a foreign exchange transaction that occurs sometime in the future
C) involves currencies that are not freely tradeable
D) involves a transaction in which the same currency is bought and sold simultaneously
Answer: D
Diff: 1
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

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28) A ________ is a contract for a standard amount on a standard delivery date.
A) forward contract
B) currency future
C) currency option
D) call option
Answer: B
Diff: 1
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

29) What is a currency selling at if the forward price is less than the spot price?
A) forward premium
B) forward discount
C) par value
D) swap price
Answer: B
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

30) A ________ allows, but does not require, a firm to buy or sell a specified amount of foreign
currency at a specified price on a specified date.
A) forward swap
B) currency option
C) call option
D) discount put
Answer: B
Diff: 1
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

31) Apex Enterprises wants the right to buy a foreign currency at a specified price at any time up
to a specified date. Apex most likely needs a ________.
A) forward premium
B) forward discount
C) call option
D) put option
Answer: C
Diff: 2
Skill: Application
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

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32) Moffet Manufacturing wants the right to sell a foreign currency at a specified price at any
time up to a specified date. Moffet most likely needs a ________.
A) forward premium
B) forward discount
C) call option
D) put option
Answer: D
Diff: 2
Skill: Application
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

33) What is a currency selling at if the forward price is higher than the spot price?
A) forward premium
B) forward discount
C) par value
D) swap value
Answer: A
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

34) The ________ represents the marketplace's aggregate prediction of the spot price of the
currency rate in the future.
A) forward price
B) spot price
C) exchange rate
D) par value
Answer: A
Diff: 1
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

35) The currencies of countries suffering from balance of payment trade deficits or high inflation
rates are more likely to sell at a ________.
A) spot discount
B) spot premium
C) forward discount
D) forward premium
Answer: C
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

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36) If a currency is selling at a forward premium it most likely means that the foreign-exchange
market believes that the ________.
A) currency will depreciate over time
B) country's economy is weak
C) currency will appreciate over time
D) country's economy is strong
Answer: C
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

37) The currencies of countries enjoying BOP trade surpluses or low inflation rates are more
likely to sell at a ________.
A) spot discount
B) spot premium
C) forward discount
D) forward premium
Answer: D
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

38) If a currency is selling at a forward discount it means that the foreign-exchange market most
likely believes that the ________.
A) currency will depreciate over time
B) country's economy is weak
C) currency will appreciate over time
D) country's economy is strong
Answer: A
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

39) ________ is the riskless purchase of a product in one market for immediate resale in a
second market in order to profit from a price discrepancy.
A) Commercial exchange
B) Foreign exchange
C) Arbitrage
D) Parity
Answer: C
Diff: 1
Skill: Concept
Objective: 4
Learning Outcome: Describe the functions of the foreign exchange market

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40) The theory of ________ states that the prices of tradable goods, when expressed in a
common currency, will tend to equalize across countries as a result of exchange rate changes.
A) supply and demand
B) purchasing power parity
C) arbitrage
D) competitive advantage
Answer: B
Diff: 2
Skill: Concept
Objective: 4
Learning Outcome: Describe the functions of the foreign exchange market

41) ________ suggests that arbitrage activities will continue until the price of the good is
identical in both markets.
A) Purchasing power parity
B) The law of one price
C) Equilibrium pricing
D) Two-point arbitrage
Answer: B
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

42) Euroloans are often quotes at which of the following rates?

A) LIBOR
B) the euro rate
C) prime plus 2 percent
D) prime plus .5 percent
Answer: A
Diff: 2
Skill: Concept
Objective: 5

43) Which of the following is a common form of foreign exchange arbitrage?

A) two-point arbitrage
B) long-distance arbitrage
C) internet arbitrage
D) uncovered interest
Answer: D
Diff: 2
Skill: Concept
Objective: 4

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44) Which form of arbitrage involves profiting from price differences in two distinct markets?
A) geographic arbitrage
B) three-point arbitrage
C) covered interest
D) arbitrage of goods
Answer: A
Diff: 2
Skill: Concept
Objective: 4

45) Suppose £1 is trading for $2.00 in New York City and $1.80 in London. A foreign exchange
trader could take $1.80 and buy £1 in London's financial exchange market and then sell it for
$2.00 in New York's financial exchange market. What is this an example of?
A) two-point arbitrage
B) three-point arbitrage
C) covered interest
D) arbitrage of goods
Answer: A
Diff: 2
Skill: Application
Objective: 4
Learning Outcome: Describe the functions of the foreign exchange market

46) Two-point arbitrage is also known as ________.

A) equilibrium arbitrage
B) forward arbitrage
C) discount arbitrage
D) geographic arbitrage
Answer: D
Diff: 1
Skill: Concept
Objective: 4

47) ________ is profitable whenever the cost of buying a currency directly differs from the cross
rate of exchange.
A) Two-point arbitrage
B) Three-point arbitrage
C) Covered interest
D) Arbitrage of goods
Answer: B
Diff: 2
Skill: Concept
Objective: 4

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48) The ________ is an exchange rate between two currencies calculated through the use of a
third currency.
A) forward rate
B) call rate
C) cross rate
D) covered interest rate
Answer: C
Diff: 1
Skill: Concept
Objective: 4

49) The ________ is the primary third currency used in calculating cross rates.
A) euro
B) U.S. dollar
C) Japanese yen
D) Swiss franc
Answer: B
Diff: 1
Skill: Concept
Objective: 4

50) What kind of arbitrage occurs when the difference between two countries' interest rates is not
equal to the forward discount/premium on their currencies?
A) two-point arbitrage
B) three-point arbitrage
C) covered interest
D) geographic arbitrage
Answer: C
Diff: 2
Skill: Concept
Objective: 4

51) Which form of arbitrage is considered the most important in the foreign-exchange market?
A) two-point arbitrage
B) three-point arbitrage
C) covered interest
D) arbitrage of goods
Answer: C
Diff: 2
Skill: Concept
Objective: 4

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52) ________ suggests that national differences in expected inflation rates yield differences in
nominal interest rates among countries.
A) Two-point arbitrage
B) Three-point arbitrage
C) The international Fisher effect
D) The law of one market price
Answer: C
Diff: 1
Skill: Concept
Objective: 4

53) When an overseas banking operation is separately incorporated from the parent bank, what is
it called?
A) subsidiary bank
B) branch bank
C) affiliated bank
D) correspondent bank
Answer: A
Diff: 2
Skill: Concept
Objective: 2

54) When an overseas banking operation is incorporated within the parent bank, what is it
called?
A) subsidiary bank
B) branch bank
C) affiliated bank
D) correspondent bank
Answer: B
Diff: 2
Skill: Concept
Objective: 2

55) When an overseas banking operation is jointly owned by a parent bank and a local or foreign
partner, what is it called?
A) subsidiary bank
B) branch bank
C) affiliated bank
D) correspondent bank
Answer: C
Diff: 2
Skill: Concept
Objective: 2

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56) What is a Eurodollar?
A) a euro held by an American
B) a U.S. dollar deposited in a European bank
C) a euro deposited in a U.S. bank.
D) any currency deposited in a country other than the country of issue
Answer: B
Diff: 2
Skill: Concept
Objective: 2

57) What term refers to a currency on deposit outside its country of issue?
A) Eurocurrency
B) Eurodollar
C) Euroyen
D) Europound
Answer: A
Diff: 1
Skill: Concept
Objective: 2

58) Which of the following is a true statement about the Euroloan market?
A) It is extremely competitive and lenders operate on razor-thin margins.
B) It is extremely competitive but lenders still receive substantial margins.
C) It is monopolistic, yet lenders operate on razor-thin margins.
D) It is monopolistic and lenders receive substantial margins.
Answer: A
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

59) On the basis of which interest rate are Euroloans often quoted?
A) United States Prime Rate
B) European Central Bank Offer Rate
C) London Interbank Offer Rate
D) International Monetary Fund Interest Rate
Answer: C
Diff: 1
Skill: Concept
Objective: 2
Learning Outcome: Describe the functions of the foreign exchange market

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60) The international bond market is a major source of debt financing for which of the
following?
A) world governments
B) regional organizations
C) small firms
D) small businesses
Answer: A
Diff: 2
Skill: Concept
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

61) A(n) ________ is a large, liquid financial asset that can be traded anywhere at any time.
A) international stock
B) global bond
C) global equity
D) Eurodollar
Answer: B
Diff: 1
Skill: Concept
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

62) ________ focus on offering banking and other financial services to nonresident customers.
A) Subsidiary banks
B) Branch banks
C) Affiliated banks
D) Offshore financial centers
Answer: D
Diff: 2
Skill: Concept
Objective: 2

63) A bond that is issued by Nestle, a Swiss company, that is denominated in yen and sold to
residents of Japan is most likely a ________.
A) Eurobond
B) global bond
C) foreign bond
D) country fund
Answer: C
Diff: 2
Skill: Application
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

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64) Which of the following countries is an important offshore financial center?
A) Turks and Caicos
B) Mexico
C) South Korea
D) Bermuda
Answer: D
Diff: 2
Skill: Concept
Objective: 5

65) Which of the following is a characteristic of most offshore financial centers?

A) political stability
B) services for residents
C) accounting scandals
D) a lack of legal expertise
Answer: A
Diff: 2
Skill: Concept
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

66) A ________ is a mutual fund that specializes in investing in a given country's firms.
A) country fund
B) global equity fund
C) high-risk fund
D) localization fund
Answer: A
Diff: 1
Skill: Concept
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

67) The primary purpose of the foreign-exchange market is to ________.

A) encourage globalization
B) assist developing countries
C) facilitate currency conversions
D) stabilize the currency exchange rate
Answer: C
Diff: 2
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

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68) The ________ tries to exploit differences in the interest rates between countries.
A) currency option
B) country fund
C) collective rate
D) carry trade
Answer: D
Diff: 2
Skill: Concept
Objective: 5
Learning Outcome: Describe the functions of the foreign exchange market

69) Ross Manufacturing wants to sell foreign exchange on a spot basis and contracts with an
international bank to handle the transaction. What is the most likely reason that Ross uses an
international bank in this case?
A) The bank can customize the spot to meet Ross' needs.
B) Laws require that banks handle spot transactions.
C) The bank will not charge Ross a service fee.
D) Ross is a U.S. organization.
Answer: A
Diff: 3
Skill: Synthesis
Objective: 2, 3
Learning Outcome: Describe the functions of the foreign exchange market

70) Which of the following would most likely help international businesspeople to forecast
future changes in exchange rates?
A) swap transaction
B) forward price
C) put option
D) spot price
Answer: B
Diff: 1
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

71) In 2007, the Canadian dollar fell against the U.S. dollar.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 1

72) The rising value of the Canadian dollar relative to the U.S. dollar makes American goods
cheaper to consumers in Canada.
Answer: TRUE
Diff: 1
Skill: Concept
Objective: 1
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73) The price of foreign exchange is set by demand and supply in the marketplace.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

74) The equilibrium point between the quantity of a currency supplied and the quantity of the
currency demanded is the exchange rate.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

75) Foreign exchange rates are usually published daily in most major newspapers.
Answer: TRUE
Diff: 1
Skill: Concept
Objective: 1

76) In a flexible exchange rate system, the price of foreign exchange is established by central
banks.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

77) The direct exchange rate and the indirect exchange rate are reciprocals of one another.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

78) A person normally purchases items using the indirect exchange rate.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 1

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79) Exchange rates are quoted both directly and indirectly.
Answer: TRUE
Diff: 1
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

80) It is common in the U.S. to quote the British pound on a direct basis and the Japanese yen on
an indirect basis.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

81) The euro is the primary transaction currency for the foreign exchange market.
Answer: FALSE
Diff: 1
Skill: Concept
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

82) Foreign exchange speculation is attractive to investors because of its low risk nature.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 1

83) Most developing countries have hard currencies.

Answer: FALSE
Diff: 2
Skill: Concept
Objective: 1

84) Spot transactions account for about two-thirds of all foreign exchange transactions.
Answer: FALSE
Diff: 3
Skill: Concept
Objective: 3

85) The currency option requires a firm to buy or sell a specified amount of a foreign currency at
a specified price any time up to a specified date.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 3

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86) Swap transactions are the only mechanism for obtaining foreign exchange in the future.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

87) Currency futures represent only 1 percent of the foreign-exchange market.

Answer: TRUE
Diff: 3
Skill: Concept
Objective: 3

88) International bankers can customize currency options for their commercial clients.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

89) The forward price of a foreign currency is typically the same as its spot price.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

90) If a foreign currency is selling at a forward premium, the foreign exchange market believes
that the currency will depreciate over time.
Answer: FALSE
Diff: 3
Skill: Concept
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

91) Two-point arbitrage involves profiting from price differences in two geographically different
markets.
Answer: TRUE
Diff: 1
Skill: Concept
Objective: 4

92) When the direct quote and the cross rate for each possible pair of currencies are equal, there
is no opportunity for three-point arbitrage.
Answer: TRUE
Diff: 3
Skill: Concept
Objective: 4
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93) Carry trade was popular in the early 1990s, but has largely been replaced by covered interest
arbitrage today.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 4

94) The short-term interest rate differential between two countries is a good indicator of the
forward premium on the currencies, but not the forward discount.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 4

95) Another name for uncovered interest arbitrage is carry trade.

Answer: TRUE
Diff: 1
Skill: Concept
Objective: 4

96) The Eurocurrency market is limited to exchanges that include the euro.
Answer: FALSE
Diff: 1
Skill: Concept
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

97) The Japanese yen makes up the largest portion of the international bond market.
Answer: FALSE
Diff: 1
Skill: Concept
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

98) The dominant currencies in the international bond market are the euro and the U.S. dollar.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

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99) MNCs can cross-list their common stocks on multiple stock exchanges.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

100) Low-cost Eurocurrency loans can be obtained in offshore financial centers.

Answer: TRUE
Diff: 2
Skill: Concept
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

101) Delivery takes place at two different points in time with a swap transaction.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 3

102) What is the primary transaction currency for the foreign exchange market? What are the
dominant currencies in the international bond market?
Answer: The primary transaction currency for the foreign exchange market is the U.S. dollar.
The dominant currencies in the international bond market are the euro and the U.S. dollar.
Diff: 2
AACSB: Dynamics of the global economy
Skill: Synthesis
Objective: 1, 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

103) As a retail customer, what price do you usually pay for foreign exchange?
Answer: Retail customers generally pay the prevailing wholesale exchange rate plus a premium.
Diff: 2
Skill: Application
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

23
Copyright © 2015 Pearson Education, Inc.
104) Briefly discuss the different categories of clients that are serviced by foreign exchange
departments of banks?
Answer: Commercial customers engage in foreign exchange transactions as part of normal
commercial activities. Speculators deliberately assume exchange risks by acquiring positions in a
currency, hoping to predict changes in market value. Arbitrageurs attempt to exploit small
differences in the price of a currency between markets.
Diff: 3
Skill: Application
Objective: 2
Learning Outcome: Describe the functions of the foreign exchange market

105) What is the difference between a forward contract and a currency future?
Answer: A currency future is for a standard amount while a forward contract can involve
different amounts.
Diff: 2
Skill: Application
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

106) How can firms obtain foreign exchange in the future?

Answer: Firms can obtain foreign exchange in the future through swap transactions, currency
futures, and currency options.
Diff: 2
Skill: Application
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

107) What is the difference between a call option and a put option?
Answer: A call option grants the right to buy the foreign currency in question, while a put option
grants the right to sell the foreign currency.
Diff: 2
Skill: Application
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

108) What does the difference between the spot and forward prices of a country's currency most
likely suggest?
Answer: The difference between the spot and forward prices of a country's currency can signal
the market's expectations regarding that country's economic policies and prospects.
Diff: 2
Skill: Critical Thinking
Objective: 3
Learning Outcome: Describe the functions of the foreign exchange market

24
Copyright © 2015 Pearson Education, Inc.
109) Why does arbitrage most likely exist?
Answer: When the price of a good differs between two markets, people will tend to buy the
good in the market offering the lower price and resell it in the market offering the higher price.
Thus, arbitrage is the riskless purchase of a product for immediate resale.
Diff: 3
Skill: Application
Objective: 4
Learning Outcome: Describe the functions of the foreign exchange market

110) Briefly explain the theory of purchasing power parity and the law of one price.
Answer: The theory of purchasing power parity states that the prices of tradeable goods, when
expressed in a common currency, will tend to equalize across countries as a result of exchange
rate changes. The law of one price states that arbitrage will continue until the price of the good in
question is identical in both markets (excluding transaction, transportation and other costs).
Diff: 2
Skill: Application
Objective: 4
Learning Outcome: Describe the functions of the foreign exchange market

111) What is three-point arbitrage?

Answer: Three-point arbitrage is the buying and selling of three different currencies to make a
risk-free profit.
Diff: 2
Skill: Critical Thinking
Objective: 4

112) What is the international Fisher effect? Explain how it relates to the foreign-exchange
market?
Answer: The international Fisher effect suggests that national differences in expected inflation
rates yield differences in nominal interest rates among countries. Because of the international
Fisher effect and covered-interest arbitrage, an increase in a country's expected inflation rate
implies higher interest rates in that country. This in turn will lead to either a shrinking of the
forward premium or a widening of the forward discount on the country's currency in the foreign-
exchange market. Because of this linkage between inflation and expected changes in exchange
rates, international businesspeople and foreign currency traders carefully monitor countries'
inflation trends. The connection between inflation and exchange rates also affects the
international monetary system.
Diff: 2
AACSB: Dynamics of the global economy
Skill: Synthesis
Objective: 1, 3
Learning Outcome: Describe the functions of the foreign exchange market

25
Copyright © 2015 Pearson Education, Inc.
113) What is a correspondent relationship between banks? What services are performed by
correspondent banks?
Answer: A correspondent relationship is an agent relationship whereby one bank acts as a
correspondent, or agent, for another bank in the first bank's home country, and vice versa.
Correspondent banks provide various services including paying or collecting foreign funds,
providing credit information, and honoring letters of credit.
Diff: 2
Skill: Application
Objective: 2
Learning Outcome: Describe the functions of the foreign exchange market

114) What are the different ways to establish an overseas banking operation?
Answer: An overseas banking operation can be established as a subsidiary bank, a branch bank,
or an affiliated bank.
Diff: 2
Skill: Application
Objective: 2
Learning Outcome: Describe the functions of the foreign exchange market

115) What is the difference between a Eurocurrency and a Eurobond?

Answer: A Eurocurrency is defined as a currency on deposit outside its country of issue. A
Eurobond is a bond issued in the currency of country A, but sold to residents of other countries.
Diff: 2
Skill: Application
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

116) Why are the interest rates often low on international bonds?
Answer: Large transaction sizes, creditworthy borrowers, and freedom from costly regulations
imposed on domestic markets all help to lower interest rates charged on international bonds.
Diff: 2
Skill: Application
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

117) Why would an MNC most likely use an offshore financial center?
Answer: Benefits of offshore financial centers include political stability, a positive regulatory
climate for international capital transactions, excellent communication links to other major
financial centers, and availability of legal, accounting, and financial expertise.
Diff: 2
Skill: Application
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

26
Copyright © 2015 Pearson Education, Inc.
118) Explain how the rising value of the Canadian dollar relative to the U.S. dollar affects
Canadian consumers, Canadian visitors to the United States, and Canadian exporters to the
United States.
Answer: The rising value of the Canadian dollar means that Canadian consumers pay lower
prices for goods made in the United States, and Canadian vacationers to the United States enjoy
lower cost trips. Canadian exporters to the United States, though, could see their business drop
off as Americans import fewer Canadian-made goods.
Diff: 3
Skill: Critical Thinking
Objective: 1
Learning Outcome: Describe the functions of the foreign exchange market

119) Explain the theory of purchasing power parity. How does it affect arbitrage?
Answer: This theory states that the prices of tradable goods, when expressed in a common
currency, will tend to equalize across countries as a result of exchange rate changes. Purchasing
power parity occurs because the process of buying goods in the cheap market and reselling them
in the expensive market affects the demand for, and the price of, the foreign currency, as well as
the market price of the good itself in the two product markets in question. When purchasing
power parity occurs, there is no reason to cross borders to purchase the products.
Diff: 3
AACSB: Dynamics of the global economy
Skill: Synthesis
Objective: 1, 4
Learning Outcome: Describe the functions of the foreign exchange market

120) Assume that the per capita income in Germany in 2011, converted into US dollars, was
$44,270 while the per capita income in Japan, converted into U.S. dollars, was $44,900. Does
this mean that the average Japanese citizen enjoys a higher standard of living than the average
German? Why or why not?
Answer: This question relates to the theory of purchasing power parity. At first glance, it does
appear that the average Japanese citizen has a slightly higher income than the average German
citizen. However, this does not take into account the differences in price levels between the two
countries. After adjusting for purchasing power, Japan's per capita income falls to $35,330.
Diff: 3
Skill: Critical Thinking
Objective: 4
Learning Outcome: Describe the functions of the foreign exchange market

27
Copyright © 2015 Pearson Education, Inc.
121) Why have international banks increasingly provided their own overseas operations rather
than using correspondent banks?
Answer: Providing its own overseas operations enables a larger bank to compete better
internationally. A bank that has its own foreign operations can access new sources of deposits
and profitable lending opportunities. The bank can also better meet the needs of domestic clients
with international banking needs.
Diff: 2
AACSB: Dynamics of the global economy
Skill: Application
Objective: 2
Learning Outcome: Describe the functions of the foreign exchange market

122) Explain the concept of covered interest arbitrage. Why does it occur?
Answer: Covered interest arbitrage is arbitrage that occurs when the difference between two
countries' interest rates is not equal to the forward discount or premium on their currencies. It is
considered to be the most important form of arbitrage in the foreign exchange market and occurs
when international bankers, insurance companies, and corporate treasurers that scan money
markets to obtain the best returns on their short-term excess cash balances and the lowest rates
on short-term loans protect themselves from exchange rate risks.
Diff: 3
AACSB: Dynamics of the global economy
Skill: Critical Thinking
Objective: 4
Learning Outcome: Describe the functions of the foreign exchange market

123) Why are arbitrage activities important to the international monetary system?
Answer: Arbitrage activities, which make up a major portion of the $4 trillion in currencies
traded everyday, affect the supply and demand for the major trading currencies and tie together
the foreign exchange markets.
Diff: 2
AACSB: Dynamics of the global economy
Skill: Synthesis
Objective: 1, 4
Learning Outcome: Describe the functions of the foreign exchange market

124) How did the Eurocurrency market develop? What role did global banks play in the process?
Answer: The Eurocurrency market originated in the early 1950s when the communist-controlled
governments of Central and Eastern Europe needed dollars to finance their international trade,
but feared the U.S. government would confiscate or block their holdings of dollars in U.S. banks
for political reasons. The communist governments solved this problem by using European banks
that were willing to maintain dollar accounts for them.
Diff: 3
Skill: Synthesis
Objective: 2, 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

28
Copyright © 2015 Pearson Education, Inc.
125) What is the difference between a Eurobond, a global bond, and a foreign bond?
Answer: Foreign bonds are issued by a resident of country A, but sold to residents of country B
and denominated in the currency of country B. A Eurobond is issued in the currency of country
A, but sold to residents of other countries. Global bonds are large, liquid financial assets that can
be traded anywhere at anytime.
Diff: 2
AACSB: Dynamics of the global economy
Skill: Critical Thinking
Objective: 5
Learning Outcome: Summarize the roles of the international monetary system and global capital
market

29
Copyright © 2015 Pearson Education, Inc.
Another random document with
no related content on Scribd:
 Its management under the spoils system.

See (in this volume)

CIVIL SERVICE REFORM: A. D. 1901.

LIBRARY OF CONGRESS, at Washington.

The new building.

"By the act of April 15, 1886, the present site, one-quarter
of a mile south of east from the Capitol, was selected, its
acquisition by the United States provided for, and the
construction of a building authorized. During this long period
of discussion many schemes for attaining the desired end,
including a variety of plans for enlarging and occupying the
Capitol and many different sites in the city of Washington,
were considered. Several times did the legislation reach an
advanced state and fail through the pressure of more absorbing
interests. Finally the law referred to adopted sketch plans that
had been prepared by Messrs. Smithmeyer and Pelz, a firm of
Washington architects, but it fixed no limit of cost, nor did
it specify the materials of construction or character of
execution of the design other than to stipulate that the
building should be fireproof. A commission, composed of the
Secretary of the Interior, the Librarian of Congress, and the
Architect of the Capitol, was designated to conduct the
construction of the building. The site, comprising two city
squares—nearly nine acres, within the city building lines and
with the included streets—was purchased of the private owners,
the ground cleared of some seventy buildings occupying it, and
by the summer of 1888 about one-half of the foundation
footings for the building were laid. During that year,
however, Congress became dissatisfied with the progress that
had been made and the uncertainties involved in the operation
of the inadequate original law, and accordingly, on October 2,
modified it and lodged the entire control of the work, including
the preparation of new plans at a limited cost, in the hands
of Brigadier General Thomas Lincoln Casey, Chief of Engineers
 of the United States Army. He immediately placed the writer in
local charge.
{293}
On March 2, 1889, Congress enacted that the building should be
erected at a total cost of $6,500,000, including previous
expenditures, according to a plan that had been prepared and
submitted by General Casey, pursuant to the previous act of
October 2, 1888. This plan was based on that adopted by the
original act, and provided a building of similar form,
dimensions, and architecture. The project embodied the
principal materials of construction and a detailed estimate of
the cost. Under these auspices operations were begun in the
spring of 1889 where the operations had left off the year
before, and the construction thence proceeded without
interruption until the building was finally completed, in the
spring of 1897. It was 470 feet in length by 340 feet in
width, having three stories and a subbasement, and fronts
west—toward the Capitol. … The foundations of the building are
of hydraulic cement concrete, 6 feet deep in ground which is a
mixture of clay and sand of very uniform character. The cellar
walls are of hard red brick; the exterior face of the
superstructure of a fine grained light blue granite from
Concord, New Hampshire; the stone of the rotunda and the
trimmings of the court walls a light blue granite from near
Woodstock, Maryland; the facing of the court walls enameled
brick from Leeds, England; and the backing and interior walls
as well as all of the vaulting of the basement and first
stories are of hard red brick. Most of the floors that are
flat ceiled are of terra cotta, and this material also forms
the covering and filling of the roofs and main dome, of which
the supporting members are of rolled steel in beams, girders,
and trusses. All of the floors are leveled up with concrete
and surfaced with tiles, terrazzo, or mosaic in the public
spaces, while in the office and working rooms they are covered
with a carpet of southern pine boards. The most important of
the strictly useful features of the building are the book
stacks, of which the design is largely original. The problem
was new, not only through the capacity to be provided but the
numerous other conditions to be met, such as light,
ventilation, adjustability to several uses, communication,
immunity from fire, cleanliness, durability, and simplicity.
It was also necessary that rapid mechanical transmission of
books between the shelving and the reading room should be
provided, coupled with a quick and reliable means of
communication, both written and oral. … The book carrier is a
pair of parallel, endless chains, running in a vertical shaft
in the middle of the stack; thence in a horizontal duct in the
cellar to a point below the central desk of the reading room,
where it turns upward and ascends vertically to the delivery
outlet at the desk. A series of equidistant book trays,
eighteen in number, are suspended between the chains. The
machine runs continuously and automatically takes on and
delivers books of the size of a quarto or less at its reading
room terminal and at each of the stack stories. The speed of
the carrier is about 100 feet per minute. The pneumatic
message tube is also convenient as a speaking tube. The great
rotunda or public reading room of the building, the main
staircase hall or foyer, the private reading rooms for the
members of Congress, the Librarian's office, the corridors
communicating with these, and the exhibition halls as well as
many portions of the exterior walls, especially the west main
pavilion, have received a good degree of artistic treatment
and embellishment, but all within strict architectural
requirements. Some forty sculptors and mural painters, about
equally divided in numbers, furnished the principal works of
art under the architects' supervision and direction. Many
appropriate quotations and names are inscribed on the walls in
the architectural tablets, friezes and panels, adding to the
general impressiveness and interest of the building. In all
ways and from all points of view the library building is
eminently instructive as an example of good design, good
appointment for its great purpose, good building and good
administration in the execution, and therefore the more
appropriate to house the nation's library. The unusual success
 of the undertaking under Government auspices is almost wholly due
to the selection of a known competent, sturdy, and faithful
individual such as General Casey was, and giving him the sole
charge directly under Congress without an executive superior
liable to interfere and cause delays. The work went on
quietly, but with energy; and was completed within the
originally estimated time and well within the legal limit of
cost. The total cost of the building was $6,344,585.34—that of
the site, $585,000."

Bernard R. Green,
The Building for the Library of Congress
(Annual Report Smithsonian Institution, 1897, page 625).

LI HUNG-CHANG:
Negotiation of peace with Japan.

See (in this volume)

CHINA: A. D. 1894-1895.

LI HUNG-CHANG:
Tour in Europe and America.

See (in this volume)

CHINA: A. D. 1896.

LI HUNG-CHANG:
Charged with being in Russian pay.

See (in this volume)

CHINA: A. D. 1898 (APRIL-JULY).

LI HUNG-CHANG:
Acting Viceroy at Canton.

See (in this volume)

CHINA: A. D. 1899 (DECEMBER).
LI HUNG-CHANG:
Attempt to open negotiations with allied Powers.

See (in this volume)

CHINA: A. D. 1900 (JULY).

LI HUNG-CHANG:
Chinese Plenipotentiary to negotiate with the allied Powers.

See (in this volume)

CHINA: A. D. 1900 (AUGUST-DECEMBER).

LIKIN, The Chinese taxes called.

"Chinese tariff rates, where they exist, average about 5 per

cent ad valorem. Many articles are admitted free of duty, and
on some the rates are higher than 5 per cent, but in general
terms this is about the average rate. To this, however, there
is a material addition where the goods are intended for
interior points. The Chinese Government, while it collects a
part of its revenue from customs, relies largely upon the
provinces to supply revenue, and arbitrarily names each year
the sum which each province must supply, leaving to the
officers of that province the methods by which this is
obtained. The consequence is that each province is permitted
to collect a tax on goods entering it from the adjacent
provinces, and this custom has been extended to the
subdivision of the provinces, so that goods in transit are
frequently compelled to pay taxes every few miles. As a
consequence, the interior taxes, known as 'likin,' became not
only the terror of importers, but sometimes almost
prohibitory. So serious was this system in its effects upon
attempts to introduce foreign goods that, upon the insistence
of foreign ministers, the Chinese Government announced that an
addition of 50 per cent to the rates paid at the custom-houses
would insure passage of the goods to any point in the interior
 without the exaction of likin taxes.
{294}
This was gladly accepted by foreigners desiring to do business
in the interior of China. The additional 50 per cent on duties
was paid and 'transit passes' issued for the goods in question,
purporting to authorize their free transit to any point in the
Empire. Actual experience, however, shows that these transit
passes do not always accomplish what was expected. … Every 8
or 10 miles along the principal waterways or caravan routes a
likin station is found, where a tax is levied upon some
article or articles carried through by boat, pack animal, or
wheelbarrow. At some points every article is taxed. This is
the usual rule at the gates of cities. In some cases the tax
is as little as 2 per cent ad valorem; in others, such as
silk, satin, and native opium, much more, amounting at times
to 6, 8, or even 10 per cent. Between Shanghai and Soochow, a
distance of 84 miles, there are 8 likin stations. At the first
and last stations all goods are dutiable; at the rest all
goods must be examined, and there is scarcely a single article
that does not in that distance pay at least three taxes. It is
easily seen that under such a system foreign goods cannot be
carried very far from the coast before their prices become
prohibitive for ordinary people."

United States, Bureau of Statistics, Monthly Summary,

March, 1899, pages 2188, 2231.

LINCOLN PARTY, The.

See (in this volume).

UNITED STATES OF AMERICA: A. D. 1900 (MAY-NOVEMBER),
SILVER REPUBLICAN.

LIQUID AIR, The production of.

See (in this volume)

SCIENCE, RECENT: CHEMISTRY AND PHYSICS.
LIQUOR SELLING, The regulation of.
Abolition of the Army Canteen.

See (in this volume)

UNITED STATES OF AMERICA: A. D. 1901 (FEBRUARY).

LIQUOR SELLING:
Dispensary Laws.

See (in this volume)

SOUTH CAROLINA: A. D. 1892-1899;
NORTH CAROLINA: A. D. 1897-1899;
SOUTH DAKOTA: A. D. 1899; and
ALABAMA: A. D. 1899.

LIQUOR SELLING:
International convention respecting the
liquor traffic in Africa.

See (in this volume)

AFRICA: A. D. 1899 (JUNE).

LIQUOR SELLING:
The question in American politics.

See (in this volume)

UNITED STATES OF AMERICA: A. D. 1896 (JUNE-NOVEMBER);
and 1900 (MAY-NOVEMBER).

LIQUOR SELLING:
The Raines Liquor Law.

See (in this volume)

NEW YORK STATE: A. D. 1896-1897.

LISCUM, Colonel Emerson H.:

 Death.

See (in this volume)

CHINA: A. D. 1900 (JULY).

LITTLE ENGLAND PARTY.

A name given by its opponents to the section of the Liberal

party in Great Britain which condemns the boundless
enlargement of British annexations, protectorates and spheres
of influence in all parts of the world, and which is critical
of expansive and imperialistic wars.

LIU KUN-YI, Viceroy at Nanking:

Admirable conduct during the Chinese outbreak.

See (in this volume)

CHINA: A. D. 1900 (JUNE-DECEMBER).

LOCH, Sir H. B.:

British High Commissioner in South Africa.

See (in this volume)

SOUTH AFRICA (THE TRANSVAAL): A. D. 1894.

LOCKOUTS.

See (in this volume)

INDUSTRIAL DISTURBANCES.

LOG OF THE MAYFLOWER, The so-called.

See (in this volume)

MASSACHUSETTS: A. D. 1897.

LOGIA, Discovery of a fragment of the.

 See (in this volume)
ARCHÆOLOGICAL RESEARCH: EGYPT; DISCOVERY OF A
FRAGMENT.

LOMBOK.

See (in this volume)

DUTCH EAST INDIES.

LONDON: A. D. 1894.
The Tower Bridge.

The Tower Bridge was formally opened on the 30th of June,

eight years after the beginning of the work. Its cost was
£1,250,000.

LONDON: A. D. 1897.
Great fire.

On November 19, 1897, occurred one of the largest fires in

London since 1606. Beginning in Aldersgate, it spread over six
acres of a densely populated quarter, destroying over 100
warehouses and buildings. The loss was estimated at
£2,000,000.

LONDON: A. D. 1899.
The London Government Act.

"The London Government Act is the most important measure

passed by Lord Salisbury's Government during the year 1899;
indeed, in some respects it is the most valuable reform
carried by the Parliament which [expired in 1000]. There was
urgent need for such a measure. The machinery of London
Government was hopelessly out of gear. It was both cumbrous
and intricate; it was controlled by a network of small local
authorities whose duties were ill-defined and often clashed
with each other. There was no uniformity or harmony in the
 system." The old Roman wall, "built somewhere between A. D.
350 and A. D. 370 … played a most important part in the
history of London; and, indeed, it had a large share in
creating the problems with which Mr. Balfour had to deal in
1899. Little did its unknown builder dream that his wall, so
admirable in itself, would cause us trouble fifteen centuries
after his death. But such is the fact. He was a wise man, this
nameless benefactor of the infant municipality; he took care
that the wall should be thoroughly well built; and he allowed,
as he thought, ample room for later growth. The exact position of
this wall is well known to antiquaries. Many portions of it
still remain; it included in its ambit about a square mile of
territory, with wells and trees, gardens and pastures,
bordering on the great Roman roads. For a thousand years or
more this area was sufficient for all purposes. … So far as we
now can guess, it was not till the 16th century that any
Londoner felt cramped within the wall and craved more
elbow-room. Gradually the City expanded, and at first it
incorporated its extra-mural parishes, such as Bishopsgate and
Farringdon Without. The borough of Southwark was supposed for
some purposes to be annexed to the City; it was till last year
by a fiction regarded as a ward of the City—the ward of Bridge
Without. To this extent, then, the City spread outside its
wall. But here its natural expansion stopped. … The City
proper remained a compact town, well organized and well
governed, but the suburbs were treated as mere country
villages; their only local authority was the parish vestry,
and its only officers the churchwardens and the overseers.

{295}

"This state of things obviously could not last. It soon became

impossible for the parishioners to assemble in the vestry; no
room, indeed, would hold them. First one parish and then
another applied to Parliament for an Act creating what was
called a 'select vestry,' and many representative bodies were
thus formed with diverse and very miscellaneous powers. …
Where the parishes were small, instead of a select vestry a
district board was formed, under which several small parishes
were grouped. And so when the London Government Act was passed
there were 78 parishes and extra-parochial places within the
county, but outside the City of London. … These vestries and
boards were the sanitary authorities for their respective
areas: they superintended the removal of nuisances, and the
lighting, paving, watering, and cleansing of the streets; they
also attended to some minor works of drainage, ancillary to
the main system. … In 1855, the Metropolitan Board of Works
was created to control the main drainage, to carry out
improvements, to regulate the streets and bridges, and to
maintain and manage the Fire Brigade. But its members were
elected on a vicious system—by the various vestries and
boards, and not directly by the ratepayers. … Its place was
taken [in 1888] by the London County Council. But besides
these vestries, local boards, district boards, and the
Metropolitan Board, it was deemed necessary from time to time
to create many minor authorities to meet various pressing
needs; such were the Metropolitan Asylums Board, the Thames
Conservators, the Lee Conservators, the commissioners of baths
and washhouses, the commissioners of free libraries, the
burial boards, &c., in addition to 30 boards of guardians and
the London School Board. As the population of London outgrew
its existing institutions, the defects and shortcomings were
remedied by patchwork. …

"From this position of affairs we have been rescued by two

important measures, … the Local Government Act, 1888, and the
London Government Act, 1899. … The Local Government Act of
1888 abolished the Metropolitan Board of Works: it created the
administrative county of London; it called into existence the
London County Council. The London Government Act of 1899 has
done still more for London. It has abolished some 127 local
authorities, whose place will be taken by the 28 borough
councils which must be elected on November 1. The London
County Council, the City Corporation, the Metropolitan Asylums
 Board, the boards of guardians, and the London School Board
remain practically untouched. But 73 vestries, 12 district
boards, the Woolwich Local Board of Health (the last of its
race), 12 burial boards, 19 boards of library commissioners,
and 10 boards of baths and washhouses commissioners, for all
purposes of civic government, cease to exist."

London Times, October 16, 1900.

LONDON CONVENTION (British-Boer), of 1884.

See (in this volume)

SOUTH AFRICA (THE TRANSVAAL): A. D. 1884-1894.

LONGEVITY, Human:
The Nineteenth Century increase of.

See (in this vol.)

NINETEENTH CENTURY: THE LENGTHENED AVERAGE.

LOOTING, in China.

See (in this volume)

CHINA: A. D. 1900 (AUGUST 5-16, and 15-28).

"LOS VON ROM" MOVEMENT, The.

See (in this volume)

AUSTRIA-HUNGARY: A. D. 1899-1900.

LOUBET, Émile: Election to the Presidency of the French Republic.

See (in this volume)

FRANCE: A. D. 1899 (FEBRUARY-JUNE).

LOUISIANA: A. D. 1898.
New State Constitution.
An educational qualification of the suffrage which applies
to all negroes and few whites.

The framing of a new constitution for the State was completed

in May. Its distinctive feature is an educational
qualification of the suffrage which does not apply to men who
were qualified in any State to vote at the beginning of the
year 1867, nor to the sons and grandsons of such men, nor to
foreigners naturalized before the 1st of January, 1898. The
amendment is as follows:

"SECTION 3.
He (the voter) shall be able to read and write, and shall
demonstrate his ability to do so when he applies for
registration, by making, under oath administered by the
registration officer or his deputy, written application
therefor, in the English language, or his mother tongue, which
application shall contain the essential facts necessary to
show that he is entitled to register and vote, and shall be
entirely written, dated, and signed by him, in the presence of
the registration officer or his deputy, without assistance or
suggestion from any person or memorandum whatever, except the
form of application hereinafter set forth: Provided, however,
That if the applicant be unable to write his application in
the English language, he shall have the right, if he so
demands, to write the same in his mother tongue from the
dictation of an interpreter; and if the applicant is unable to
write his application by reason of physical disability, the
same shall be written at his dictation by the registration
officer or his deputy, upon his oath of such disability. The
application for registration, above provided for, shall be a
copy of the following form, with the proper names, dates, and
numbers substituted for the blanks appearing therein, to wit:

"I am a citizen of the State of Louisiana. My name is --. I

was born in the State (or country) of --, parish (or county)
of --, on the -- day of --, in the year --. I am now -- years
 -- months and -- days of age. I have resided in this State
since --, and am not disfranchised by any provision of the
constitution of this State.

"SECTION 4.
If he be not able to read and write, as provided by section 3
of this article, then he shall be entitled to register and
vote if he shall, at the time he offers to register, be the
bona fide owner of property assessed to him in this State at a
valuation of not less than $300 on the assessment roll of the
current year, if the roll of the current year shall then have
been completed and filed, and on which, if such property be
personal only, all taxes due shall have been paid.

"SECTION 5.
No male person who was on January 1, 1867, or at any date
prior thereto, entitled to vote under the constitution or
statute of any State of the United States, wherein he then
resided, and no son or grandson of any such person not less
than 21 years of age at the date of the adoption of this
constitution, and no male person of foreign birth, who was
naturalized prior to the first day of January, 1898, shall be
denied the right to register and vote in this State by reason
of his failure to possess the educational or property
qualifications prescribed by this constitution: Provided, He
shall have resided in this State for five years next preceding
the date at which he shall apply for registration, and shall
have registered in accordance with the terms of this article
prior to September 1, 1898; and no person shall be entitled to
register under this section after said date."

{296}

LOW, Seth:
Citizens' Union candidate for Mayor of Greater New York.

See (in this volume)

 NEW YORK CITY: A. D. 1897 (SEPTEMBER-NOVEMBER.)

LOW, Seth:
American commissioner to the Peace Conference at The Hague.

See (in this volume)

PEACE CONFERENCE.

LÜBECK: A. D. 1900.
The Elbe and Trave Canal.

See (in this volume)

GERMANY: A. D. 1900 (JUNE).

LUDLOW, General William:

Military Governor of Havana.

See (in this volume)

CUBA: A. D. 1898-1899 (DECEMBER-OCTOBER).

LUEGER, Dr.:
Anti-Semitic agitation in Vienna.

See (in this volume)

AUSTRIA-HUNGARY: A. D. 1895-1896.

LUXEMBOURG: A. D. 1899 (May-July).

Representation in the Peace Conference at The Hague.

See (in this volume)

PEACE CONFERENCE.

LUZON.

See (in this volume)

PHILIPPINE ISLANDS.
LYNCH LAW, in the United States.

Statistics, compiled by the "Chicago Tribune," of the cases of

mob-murder, called "lynchings," which were reported in the
newspapers as having occurred in the United States during the
year 1899, showed a total of 107, being 20 less than a similar
record for 1898 had shown. Of the reported cases, 3 were in
Kansas, 1 in Pennsylvania, and 103 in Southern States. Georgia
led in the latter list, being credited with 20 executions
under lynch law. Mississippi followed with 14, Louisiana with
13, Arkansas with 11, and other States of the South with
lesser numbers. Of the victims (mostly colored) 44 were
accused of murder; 11 of complicity in murder; 11 with rape or
attempted rape; 1 with rape and murder.

The "Political Science Quarterly," in its Record of Political

Events between November 11, 1897, and May 10, 1898, cites 31
incidents of lynching, exclusive of a mob-murder committed at
Lake City, South Carolina, where a negro postmaster and one of
his children were killed, his wife and three other children
wounded, and their house burned down. Of these incidents, 23
were reported from the South, the victims in every case being
black; 8 were from northwestern States, the victims being
white.

For 1897, the "Buffalo Express" compiled statistics of

reported lynchings from its news columns, which showed 38
between January 1 and June 8, and 77 during the remainder of
the year, making a total of 115.

M.

MACARTHUR, General:
Military operations in the Philippine Islands.

See (in this volume)

PHILIPPINE ISLANDS: A. D. 1899 (JANUARY-NOVEMBER).
MACDONALD, Sir Claude:
British Minister at Peking.

See (in this volume)

CHINA: A. D. 1898 (FEBRUARY), and after.

MACEDONIA, Impending revolt in.

See (in this volume)

TURKEY: A. D. 1899-1901; and
BALKAN AND DANUBIAN STATES.

MACEO, Antonio:
Death of the Cuban leader.

See (in this volume)

CUBA: A. D. 1896-1897.

MACHADADORP:
Temporary seat of Transvaal government.

See (in this volume)

SOUTH AFRICA (THE FIELD OF WAR): A. D. 1900 (MAY-JUNE).

MACKENZIE, The district of.

See (in this volume)

CANADA: A. D. 1895.

MCKINLEY, William:
Election and reelection to the Presidency of the United States.

See (in this volume)

UNITED STATES OF AMERICA: A. D. 1896 (JUNE-NOVEMBER);
and 1900 (MAY-NOVEMBER).
MCKINLEY, William:
Administration.

See (in this volume)

UNITED STATES OF AMERICA: A. D. 1897 (MARCH), and after.

MCKINLEY, William:
Message on the condition of Cuba in 1897.

See (in this volume)

CUBA: A. D. 1896-1897.

MCKINLEY, William:
Message on the destruction of the battleship Maine.

See (in this volume)

UNITED STATES OF AMERICA: A. D. 1898 (FEBRUARY-
MARCH).

MCKINLEY, William:
Message asking for power to intervene in Cuba.

See (in this volume)

UNITED STATES OF AMERICA: A. D. 1898 (MARCH-APRIL).

MCKINLEY, William:
Message announcing state of war with Spain.

See (in this volume)

UNITED STATES OF AMERICA: A. D. 1898 (APRIL).

MCKINLEY, William:
Civil Service order in 1899.

See (in this volume)

CIVIL SERVICE REFORM: A. D. 1899.
MCKINLEY, William:
Negotiation of peace with Spain.
Instructions to and correspondence with Commissioners at Paris.

See (in this volume)

UNITED STATES OF AMERICA: A. D. 1898 (JULY-DECEMBER).

MCKINLEY, William:
Instructions to the military commander and
to the two commissions in the Philippines.

See (in this volume)

PHILIPPINE ISLANDS:
A. D. 1898-1899 (DECEMBER-JANUARY);
1899 (JANUARY); and 1900 (APRIL).

MADAGASCAR.

The island of Madagascar, which stretches through more than

thirteen degrees of latitude, in close neighborhood to the
eastern African coast, opposite Mozambique, though often
called "the great African island," is more Malayan than
African in its population. The dominant tribe is the Hova. For
more than a century the French have been covetous of the
island, and since 1883, when they opened a war with its Hova
rulers, they have pursued a steady policy toward the end of
making it their own. The result of the war of 1886 was a
treaty under which the French claimed a certain protectorate
or control of Malagasy foreign relations,—a claim concerning
which there remained much dispute. In 1890 the British
government recognized the French protectorate, but the native
government continued steadily to refuse acknowledgment that
the treaty had given any such rights.

{297}

MADAGASCAR:
Subjugation of the island by the French.
Anti-foreign and anti-Christian risings.
Revival of idolatry.
Final possession of the island by France proclaimed.
Submissive Declaration of the Queen.

In 1894 the French government took decisive measures looking

toward the subjugation of the island, and, early in 1895, a
strong expedition under General Duchesne was landed on the
coast. The Malagasy were much divided among themselves, and
they were poorly prepared for war. They made feeble resistance
to the invaders; but the latter had a difficult and costly
campaign, notwithstanding, on account of the nature of the
country and the absence of roads, which they were obliged to
construct as they advanced. They are said to have lost only 20
men killed in action, but 6,000 by disease. They reached
Antananarivo, the Hova capital, at the end of September.
"Immediately on the arrival of General Duchesne a treaty was
signed by the Malagasy authorities, by which the whole power
of the country was ceded to the French. The queen remained in
her place, and the Hova Prime Minister was also allowed to be
nominally at the head of affairs. Part of this arrangement was
found impracticable after a short time; the Prime Minister had
enjoyed unlimited power for too long a period to accept a
subordinate position, and General Duchesne was forced to
remove him. According]y, he was taken to a house of his own at
a short distance from the capital, where he was kept under
surveillance for two or three months, but as he was still
supposed to be plotting he was deported to Algiers, in which
country he died after a very short exile.

"It seemed at first as if the change of masters in the island

was to be accomplished without any serious disturbance. … In
the early part of November (1895), however, this satisfactory
state of affairs was rudely interrupted. A paltry quarrel
between two clans about a piece of ground, which each claimed,
gradually developed into a serious rising. The two parties