International Banking and Finance Test Bank
Course Introduction
International Banking and Finance explores the structure, functions, and operations of banks and financial institutions in a global context. The course examines the principles of international financial markets, foreign exchange mechanisms, risk management, and regulatory frameworks that govern cross-border banking activities. Students will learn about the role of multinational banks in facilitating international trade, investment, and economic development, as well as analyze issues such as eurocurrency markets, international lending, and global financial crises. Through case studies and applications, the course provides insights into contemporary challenges and strategies in international banking and finance.
Recommended Textbook
International Financial Management 8th Edition by Madura
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21 Chapters
1110 Verified Questions
1110 Flashcards
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Page 2
Chapter 1: Multinational Financial Management: An Overview
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42 Verified Questions
42 Flashcards
Source URL: https://quizplus.com/quiz/20499
Sample Questions
Q1) Due to the risks involved in international business,firms should:
A) only consider international business in major countries.
B) maintain international business to no more than 20% of total business.
C) maintain international business to no more than 35% of total business.
D) none of the above
Answer: D
Q2) Franchising is the process by which national governments sell state owned operations to corporations and other investors.
A)True
B)False
Answer: False
Q3) The Single European Act of 1987 was primarily intended to:
A) create more trade barriers between European countries.
B) unify East Germany and West Germany.
C) provide financial support for Eastern Europe.
D) make regulations more uniform across industrialized countries in Europe.
Answer: D
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Page 3
Chapter 2: International Flow of Funds
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46 Verified Questions
46 Flashcards
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Sample Questions
Q1) A weakening of the U.S.dollar with respect to the British pound would likely reduce the U.S.exports to Britain and increase U.S.imports from Britain.
A)True
B)False
Answer: False
Q2) The U.S.typically has a balance-of-trade surplus in its trade with __________.
A) China
B) Japan
C) A and B
D) none of the above
Answer: D
Q3) The current account represents the investment in fixed assets in foreign countries that can be used to conduct business operations.
A)True
B)False
Answer: False
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Chapter 3: International Financial Markets
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52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/20501
Sample Questions
Q1) A share of the ADR of a Dutch firm represents one share of that firm's stock that is traded on a Dutch stock exchange.The share price of the firm was 15 euros when the Dutch market closed.As the U.S.market opens,the euro is worth $1.10.Thus,the price of the ADR should be _____.
A) $13.64
B) $15.00
C) $16.50
D) 16.50 euros
E) none of the above
Answer: C
Q2) As a result of the Smithsonian Agreement,the U.S.dollar was:
A) the currency to be used by all countries as a medium of exchange for international trade.
B) forced to be freely floating relative to all currencies without any boundaries.
C) devalued relative to major currencies.
D) revalued (upward) relative to major currencies.
Answer: C
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5
Chapter 4: Exchange Rate Determination
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Sample Questions
Q1) If a country experiences an increase in interest rates relative to U.S.interest rates,the inflow of U.S.funds to purchase its securities should _____________,the outflow of its funds to purchase U.S.securities should ___________,and there is ______________ pressure on its currency's equilibrium value.
A) increase;decrease;downward B) decrease;increase;upward C) increase;decrease;upward D) decrease;increase;downward E) increase;increase;upward
Q2) The markets that have a smaller amount of foreign exchange trading for speculatory purposes than for trade purposes will likely experience more volatility than those where trade flows play a larger role.
A)True
B)False
Q3) Since supply and demand for a currency are constant (primarily due to government intervention),currency values seldom fluctuate.
A)True
B)False
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Chapter 5: Currency Derivatives
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) You purchase a call option on pounds for a premium of $.03 per unit,with an exercise price of $1.64;the option will not be exercised until the expiration date,if at all. If the spot rate on the expiration date is $1.65,your net profit per unit is:
A) -$.03.
B) -$.02.
C) -$.01.
D) $.02.
E) none of the above
Q2) If an actual put option premium is less than what is suggested by the put-call parity relationship,arbitrage can be conducted.
A)True
B)False
Q3) A put option on British pounds has a strike (exercise)price of $1.48.The present exchange rate is $1.55.This put option can be referred to as:
A) in the money.
B) out of the money.
C) at the money.
D) at a discount.
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Chapter 6: Government Influence on Exchange Rates
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Sample Questions
Q1) Under a pegged exchange rate system,the home currency's value is pegged to a foreign currency or to some unit of account.
A)True
B)False
Q2) Under a fixed exchange rate system,U.S.inflation would have a greater impact on inflation in other countries than it would under a freely floating exchange rate system.
A)True
B)False
Q3) A possible reason why China was less affected by the Asian crisis is that its government exerts more influence on private enterprise than the governments of other Asian countries.
A)True
B)False
Q4) As foreign exchange activity has grown:
A) central bank intervention has become more effective.
B) central bank intervention has become more frequent.
C) central bank intervention has become less effective.
D) none of the above
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Page 8
Chapter 7: International Arbitrage and Interest Rate Parity
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58 Verified Questions
58 Flashcards
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Sample Questions
Q1) Which of the following is an example of triangular arbitrage initiation
A) buying a currency at one bank's ask and selling at another bank's bid, which is higher than the former bank's ask.
B) buying Singapore dollars from a bank (quoted at $.55) that has quoted the South African rand (SAR)/Singapore dollar (S$) exchange rate at SAR2.50 when the spot rate for the rand is $.20.
C) buying Singapore dollars from a bank (quoted at $.55) that has quoted the South African rand/Singapore dollar exchange rate at SAR3.00 when the spot rate for the rand is $.20.
D) converting funds to a foreign currency and investing the funds overseas.
Q2) If the interest rate is lower in the U.S.than in the United Kingdom,and if the forward rate of the British pound is the same as its spot rate:
A) U.S. investors could possibly benefit from covered interest arbitrage.
B) British investors could possibly benefit from covered interest arbitrage.
C) neither U.S. nor British investors could benefit from covered interest arbitrage.
D) A and B
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9
Chapter 8: Relationships among Inflation,Interest Rates,and Exchange Rates
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37 Verified Questions
37 Flashcards
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Sample Questions
Q1) Interest rate parity can only hold if purchasing power parity holds.
A)True
B)False
Q2) According to the international Fisher effect,if U.S.investors expect a 5% rate of domestic inflation over one year,and a 2% rate of inflation in European countries that use the euro,and require a 3% real return on investments over one year,the nominal interest rate on oneyear U.S.Treasury securities would be:
A) 2%
B) 3%.
C) 2%.
D) 5%.
E) 8%.
Q3) If interest rate parity holds,then the international Fisher effect must hold. A)True
B)False
Q4) The interest rate parity theory offers a direct explanation regarding why exchange rates change over time.
A)True
B)False
10
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Chapter 9: Forecasting Exchange Rates
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58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/20507
Sample Questions
Q1) Which of the following is not a limitation of fundamental forecasting
A) uncertain timing of impact.
B) forecasts are needed for factors that have a lagged impact.
C) omission of other relevant factors from the model.
D) possible change in sensitivity of the forecasted variable to each factor over time.
E) none of the above
Q2) If it was determined that the movement of exchange rates was not related to previous exchange rate values,this implies that a __________ is not valuable for speculating on expected exchange rate movements.
A) technical forecast technique
B) fundamental forecast technique
C) none of the above
D) all of the above
Q3) Foreign exchange markets are generally found to be at least ___________ efficient.
A) weak-form
B) semistrong-form
C) strong form
D) none of the above
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Page 11
Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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59 Verified Questions
59 Flashcards
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Sample Questions
Q1) A set of currency cash inflows is more volatile if the correlations are low.
A)True
B)False
Q2) If an MNC has a net inflow in one currency and a net outflow of about the same amount in another currency,then the MNCs' transaction exposure is _______ is the two currencies are ________ correlated.
A) high;positively
B) low;negatively
C) high;negatively
D) none of the above
Q3) Subsidiary A of Mega Corporation has net inflows in Australian dollars of A$1,000,000,while Subsidiary B has net outflows in Australian dollars of A$1,500,000.The expected exchange rate of the Australian dollar is $.55.What is the net inflow or outflow as measured in U.S.dollars
A) $500,000 outflow.
B) $500,000 inflow.
C) $275,000 inflow.
D) $275,000 outflow.
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Chapter 11: Managing Transaction Exposure
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63 Verified Questions
63 Flashcards
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Sample Questions
Q1) When the real cost of hedging is positive,this implies that hedging was more favorable than not hedging.
A)True
B)False
Q2) When a perfect hedge is not available to eliminate transaction exposure,the firm may consider methods to at least reduce exposure,such as ___________.
A) leading
B) lagging
C) cross-hedging
D) currency diversification
E) all of the above
Q3) Which of the following reflects a hedge of net payables on British pounds by a U.S.firm
A) purchase a currency put option in British pounds.
B) sell pounds forward.
C) sell a currency call option in British pounds.
D) borrow U.S. dollars, convert them to pounds, and invest them in a British pound deposit.
E) A and B
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Page 13
Chapter 12: Managing Economic Exposure and Translation Exposure
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43 Verified Questions
43 Flashcards
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Sample Questions
Q1) It is generally least difficult to effectively hedge various types of:
A) translation exposure.
B) transaction exposure.
C) economic exposure.
D) A and C
Q2) ________ exposure occurs when an MNC translates each subsidiary's financial data to its home currency for consolidated financial statements.
A) Translation
B) Transaction
C) Economic
D) None of the above
Q3) An MNC expects to sell fixed assets it utilizes in Europe in the distant future.In order to hedge the sale of these assets in the distant future,the MNC could create a(n)___________ that _________ the expected value of the assets in the future.
A) asset;matches
B) asset;exceeds
C) liability;matches
D) liability;is less than
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Chapter 13: Direct Foreign Investment
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) A country with high unemployment could best increase its employment by:
A) encouraging foreign firms to establish subsidiaries that produce the same products local firms produce.
B) encouraging foreign firms to establish licensing arrange ments for products local firms produce.
C) encouraging foreign firms to establish subsidiaries that produce products local firms do not produce.
D) none of the above would reduce employment.
Q2) ____________ is not a disadvantage of direct foreign investment.
A) The expense of establishing a foreign subsidiary
B) The uncertainty of inflation and exchange rate movements
C) Political risk
D) All of the above are disadvantages of direct foreign investment
Q3) Countries that became part of the European Union in 2004 had high labor and production costs and therefore were not targeted for new DFI by MNCs that wanted to reduce manufacturing costs.
A)True
B)False
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Chapter 14: Multinational Capital Budgeting
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49 Verified Questions
49 Flashcards
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Sample Questions
Q1) If a host government restricts the remittances from a foreign subsidiary,a possible solution is to let the subsidiary obtain partial financing for the project.
A)True
B)False
Q2) Everything else being equal,the _________ the depreciation expense is in a given year,the ________ a foreign project's NPV will be.
A) higher;lower
B) higher;higher C) lower;higher
D) none of the above
Q3) No matter what the probability distribution of future exchange rates is,as long as one out of several scenarios results in a negative net present value (NPV),a project should not be accepted.
A)True
B)False
Q4) In multinational capital budgeting,depreciation is treated as a cash outflow.
A)True
B)False
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Page 16
Chapter 15: Multinational Restructuring
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52 Flashcards
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Sample Questions
Q1) The target's board has indicated that it finds a premium of 30 percent appropriate.You have been asked to negotiate for Klimewsky with the Malaysian target.What is the maximum percentage premium you should be willing to offer
A) 30.0%.
B) 25.9%.
C) you should not offer any premium because the market's valuation is below Klimewsky's valuation.
D) none of the above
Q2) If potential acquirers are based in different countries,their required rates of return when considering a specific target will only vary if the desired use of the target is different.
A)True
B)False
Q3) The valuation of newly privatized businesses is generally more difficult than the valuation of a foreign target that has operated privately for several years.
A)True
B)False
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Chapter 16: Country Risk Analysis
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49 Verified Questions
49 Flashcards
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Sample Questions
Q1) Which of the following is not a technique to assess country risk
A) Gamma technique.
B) Delphi technique.
C) checklist approach.
D) inspection visits.
Q2) Country risk assessment should be used when:
A) determining whether to establish a subsidiary in a foreign country.
B) determining whether to continue business in a foreign country.
C) A and B
D) none of the above
Q3) Insurance purchased to cover the risk of expropriation __________,and will typically cover __________.
A) will be the same for all firms;only a portion of the firm's total exposure.
B) will be the same for all firms;all of the firm's total exposure.
C) will be dependent on the firm's risk;all of the firm's total exposure.
D) will be dependent on the firm's risk;only a portion of the firm's total exposure.
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Chapter 17: Multinational Cost of Capital and Capital Structure
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50 Verified Questions
50 Flashcards
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Sample Questions
Q1) An argument for MNCs to have a debt-intensive capital structure is:
A) they are well diversified.
B) foreign government tax rules may change over time.
C) exposure to exchange rate fluctuations.
D) exposure to fund blockage.
Q2) To the extent that individual economies are ______________ each other,net cash flows from a portfolio of subsidiaries should exhibit ________ variability,which may reduce the probability of bankruptcy.
A) dependent on;less
B) dependent on;more
C) independent of;less
D) independent of;more
Q3) Generally speaking,an MNC's size,its access to international capital markets,and international diversification are unfavorable to an MNC's cost of capital.
A)True
B)False
Q4) Normally,an MNC will issue stock in all of the countries where it does business.
A)True
B)False
19
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Chapter 18: Long-Term Financing
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Sample Questions
Q1) When an MNC financesin a currency that matches its cash inflows using a relatively _______ maturity,the MNC is exposed to __________ risk.
A) short;interest rate
B) long;interest rate
C) short;exchange rate
D) none of the above
Q2) A back-to-back (also called parallel)loan represents simultaneous loans provided by two parties with an agreement to repay at a specified point in the future.
A)True
B)False
Q3) Currency swaps,whereby two parties exchange currencies at a specified point in time for a specified price,are often used by MNCs to hedge against interest rate risk.
A)True
B)False
Q4) Many MNCs simultaneously swap interest payments and currencies.
A)True
B)False
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Chapter 19: Financing International Trade
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Sample Questions
Q1) Under prepayment,the exporter will not ship the goods until the buyer has remitted payment to the exporter.
A)True
B)False
Q2) A banker's acceptance is a draft drawn on and accepted by a(an)__________.
A) bank
B) importer
C) exporter
D) none of the above
Q3) Consider an exporter that is willing to send goods to the importer without a guaranteed payment by the bank. The bank provides a loan to the exporter that is backed by the value of the exported goods. This reflects:
A) accounts receivable financing.
B) forfaiting.
C) factoring.
D) a letter of credit.
Q4) There is an active secondary market for banker's acceptances.
A)True
B)False
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Chapter 20: Short-Term Financing
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Sample Questions
Q1) One reason an MNC may consider foreign financing is that the proceeds could be used to offset a foreign net payables position.
A)True
B)False
Q2) The interest rate of euronotes is based on the T-bill rate.
A)True
B)False
Q3) A U.S.firm plans to borrow Swiss francs today for a oneyear period. The Swiss interest rate is 9%. It uses today's spot rate as a forecast for the franc's spot rate in one year. The U.S.oneyear interest rate is 10%. The expected effective financing rate on Swiss francs is:
A) equal to the U.S. interest rate.
B) less than the U.S. interest rate, but more than the Swiss interest rate.
C) equal to the Swiss interest rate.
D) less than the Swiss interest rate.
E) more than the U.S. interest rate.
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Chapter 21: International Cash Management
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Sample Questions
Q1) ___________________ may complicate cash flow optimization.
A) The use of a zero-balance account
B) Government restrictions
C) Leading and lagging
D) None of the above
Q2) MNCs often use ____________ to invest excess cash while retaining liquidity.
A) international bond markets
B) international equity markets
C) international money markets
D) the market for acquisitions
Q3) Leading refers to the payment of supplies earlier than necessary;lagging refers to the payment of supplies later than allowed.
A)True
B)False
Q4) Netting can achieve all but one of the following:
A) Cross border transactions between subsidiaries are reduced.
B) Transactions costs are reduced.
C) Currency conversion costs are reduced.
D) Transaction exposure is eliminated.
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