Course Introduction
International Banking Exam Questions
International Banking explores the roles, functions, and operations of banks within the global financial system. The course examines the structure and regulation of international banking markets, foreign exchange mechanisms, risk management strategies, and the impact of economic and political factors on global banking activities. Students will analyze the relationships between multinational banks, international regulatory bodies, and global capital flows, gaining insights into topics such as cross-border lending, correspondent banking, trade finance, international payment systems, and the challenges posed by evolving technologies and financial crises in an interconnected world.
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
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Sample Questions
Q1) Due to the larger opportunity set of funding sources around the world from which an MNC can choose,an MNC may be able to obtain capital at a lower cost than a purely domestic firm.
A)True
B)False
Answer: True
Q2) The goal of a multinational corporation (MNC)is the maximization of shareholder wealth.
A)True
B)False
Answer: True
Q3) With regard to corporate goals,an MNC is mostly concerned with maximizing ____________,and a purely domestic firm is mostly concerned with maximizing
A) shareholder wealth;short term earnings
B) shareholder wealth;shareholder wealth
C) short term earnings;sales volume
D) short term earnings;shareholder wealth
Answer: B
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Chapter 2: International Flow of Funds
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Sample Questions
Q1) 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
Q2) The World Bank frequently enters into cofinancing agreements.Under these agreements,financing is provided by the World Bank and/or official aid agencies,export credit agencies,or commercial banks.
A)True
B)False
Answer: True
Q3) 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
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Chapter 3: International Financial Markets
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) The ask quote is the price for which a bank offers to sell a currency.
A)True
B)False
Answer: True
Q2) An investor engaging in a transaction whereby he or she contracts to purchase British pounds one year from now is an example of a spot market transaction.
A)True
B)False
Answer: False
Q3) 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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Page 5
Chapter 4: Exchange Rate Determination
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45 Verified Questions
45 Flashcards
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Sample Questions
Q1) An increase in U.S.interest rates relative to German interest rates would likely ________ the U.S.demand for euros and _________ the supply of euros for sale. A) reduce;increase B) increase;reduce C) reduce;reduce D) increase;increase
Q2) Signals regarding future actions of market participants in the foreign exchange market sometimes result in overreactions.
A)True
B)False
Q3) The main effect of interest rate movements on exchange rates is through their effect on international trade.
A)True
B)False
Q4) The exchange rates of smaller countries are very stable because the market for their currency is very liquid.
A)True
B)False
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Chapter 5: Currency Derivatives
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103 Flashcards
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Sample Questions
Q1) The writer of a call option is obligated to sell the underlying currency to the buyer of the option if the option is exercised.
A)True
B)False
Q2) The 90-day forward rate for the euro is $1.07,while the current spot rate of the euro is $1.05.What is the annualized forward premium or discount of the euro
A) 1.9 percent discount.
B) 1.9 percent premium.
C) 7.6 percent premium.
D) 7.6 percent discount.
Q3) If your firm expects the euro to substantially depreciate,it could speculate by _______ euro call options or _______ euros forward in the forward exchange market.
A) selling;selling
B) selling;purchasing
C) purchasing;purchasing
D) purchasing;selling
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Chapter 6: Government Influence on Exchange Rates
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Sample Questions
Q1) It has been argued that the exchange rate can be used as a policy tool.Assume that the U.S.government would like to reduce inflation.Which of the following is an appropriate action given this scenario
A) sell dollars for foreign currency.
B) buy dollars with foreign currency.
C) lower interest rates.
D) none of the above
Q2) 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
Q3) A weaker dollar places _______ pressure on U.S.inflation,which in turn places _______ pressure on U.S.interest rates,which places _______ pressure on U.S.bond prices.
A) upward;downward;upward
B) upward;downward;downward
C) upward;upward;downward
D) downward;upward;upward
E) downward;downward;upward
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Chapter 7: International Arbitrage and Interest Rate Parity
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Sample Questions
Q1) When using _______,funds are not tied up for any length of time.
A) covered interest arbitrage
B) locational arbitrage
C) triangular arbitrage
D) B and C
Q2) Realignment in the exchange rates of banks will eliminate locational arbitrage.More specifically,market forces will increase the ask rate of the bank from which the currency was bought to conduct locational arbitrage and will decrease the bid rate of the bank to which the currency was sold to conduct locational arbitrage.
A)True
B)False
Q3) If interest rate parity exists,then _______ is not feasible.
A) forward realignment arbitrage
B) triangular arbitrage
C) covered interest arbitrage
D) locational arbitrage
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Chapter 8: Relationships among Inflation,Interest Rates,and Exchange Rates
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Sample Questions
Q1) Under purchasing power parity,the future spot exchange rate is a function of the initial spot rate in equilibrium and:
A) the income differential.
B) the forward discount or premium.
C) the inflation differential.
D) none of the above
Q2) Because there are sometimes no substitutes for traded goods,this will:
A) reduce the probability that PPP shall hold.
B) increase the probability that PPP shall hold.
C) increase the probability the IFE will hold.
D) B and C
Q3) The IFE theory suggests that foreign currencies with relatively high interest rates will appreciate because the high nominal interest rates reflect expected inflation.
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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Sample Questions
Q1) Foreign exchange markets appear to be strong-form efficient.
A)True
B)False
Q2) Fundamental models examine moving averages over time and thus allow the development of a forecasting rule.
A)True
B)False
Q3) If foreign exchange markets are strong-form efficient,then all relevant public and private information is already reflected in today's exchange rates.
A)True
B)False
Q4) Which of the following is true
A) Nominal forecast errors cannot be negative.
B) Nominal forecast errors are negative when the forecasted rate exceeds the realized rate.
C) Absolute forecast errors are negative when the forecasted rate exceeds the realized rate.
D) None of the above.
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Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Sample Questions
Q1) Translation exposure is less of a concern when earnings are not remitted by the subsidiary to the parent.
A)True
B)False
Q2) A set of currency cash inflows is more volatile if the correlations are low.
A)True
B)False
Q3) Which of the following is not a form of exposure to exchange rate fluctuations
A) transaction exposure.
B) credit exposure.
C) economic exposure.
D) translation exposure.
Q4) In general,translation exposure is more closely monitored when the foreign earnings of the subsidiaries are more likely to be remitted to the parent.
A)True
B)False
Q5) A reduction in hedging will probably reduce transaction exposure.
A)True
B)False
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Chapter 11: Managing Transaction Exposure
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Sample Questions
Q1) If interest rate parity exists and transactions costs are zero,the hedging of payables in euros with a forward hedge will _______.
A) have the same result as a call option hedge on payables
B) have the same result as a put option hedge on payables
C) have the same result as a money market hedge on payables
D) require more dollars than a money market hedge
E) A and D
Q2) A call option exists on British pounds with an exercise price of $1.60,a 90day expiration date,and a premium of $.03 per unit. A put option exists on British pounds with an exercise price of $1.60,a 90day expiration date,and a premium of $.02 per unit. You plan to purchase options to cover your future receivables of 700,000 pounds in 90 days. You will exercise the option in 90 days (if at all). You expect the spot rate of the pound to be $1.57 in 90 days. Determine the amount of dollars to be received,after deducting payment for the option premium.
A) $1,169,000.
B) $1,099,000.
C) $1,106,000.
D) $1,143,100.
E) $1,134,000.
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Chapter 12: Managing Economic Exposure and Translation Exposure
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Sample Questions
Q1) An MNC is attempting to reduce its economic exposure by financing a portion of its business with loans in the foreign currency.If the foreign currency weakens,the MNC will need _______ of the foreign currency to cover the loan payment,while the MNC's foreign currency revenues will convert to _______ dollars.
A) more;fewer
B) more;more
C) less;fewer
D) less;more
Q2) All MNCs are subject to translation exposure.
A)True
B)False
Q3) ________ 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
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Page 14
Chapter 13: Direct Foreign Investment
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Sample Questions
Q1) To enter markets where superior profits are possible,an MNC should:
A) acquire a competitor that has controlled its local market.
B) establish a subsidiary or acquire a competitor in a new market.
C) establish a subsidiary in a market where tougher trade restrictions will adversely affect the firm's export volume.
D) establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based.
Q2) Consider a country that presently has a high level of unemployment because of weak economic conditions.Its income levels are very low.This country may be an attractive target as a result of ______ motives by U.S.firms that engage in direct foreign investment.
A) revenue-related
B) cost-related
C) A and B
D) none of the above
Q3) Direct foreign investment (DFI)represents investment in real assets (such as land,buildings,or even existing plants)in foreign countries.
A)True
B)False
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Page 15
Chapter 14: Multinational Capital Budgeting
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Sample Questions
Q1) When conducting a capital budgeting analysis and attempting to account for effects of exchange rate movements for a foreign project,inflation __________ included explicitly in the cash flow analysis,and debt payments by the subsidiary _________ included explicitly in the cash flow analysis. A) should be;should be B) should definitely not be;should definitely not be C) should definitely not be;should be D) should be;should definitely not be
Q2) When a foreign subsidiary is not wholly owned by the parent and a foreign project is partially financed with retained earnings of the parent and of the subsidiary,then: A) the parent's perspective should be used to evaluate a foreign project. B) the subsidiary's perspective should be used to evaluate a foreign project. C) the foreign project should enhance the value of both the parent and the subsidiary. D) none of the above
Q3) In multinational capital budgeting,depreciation is treated as a cash outflow.
A)True B)False
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Chapter 15: Multinational Restructuring
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Sample Questions
Q1) An international acquisition may be preferable to the establishment of a new subsidiary because the firm can immediately expand its international business and benefit from existing customer relationships.
A)True
B)False
Q2) Since the cash flows generated by a foreign target will eventually be converted to the parent's currency,there is no need to consider the foreign exchange rate in the capital budgeting process.
A)True
B)False
Q3) Other things being equal,a foreign subsidiary in China would more likely be divested by the U.S.parent if new information caused the parent to suddenly anticipate that:
A) the Chinese yuan would depreciate in the future.
B) the Chinese yuan would appreciate in the future.
C) the Chinese yuan would remain somewhat stable in the future.
D) none of the above;the value of the Chinese yuan has no impact on the feasibility of a divestiture.
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Chapter 16: Country Risk Analysis
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Sample Questions
Q1) _________ involve(s)the collection of independent opinions on country risk without group discussion by the assessors who provide these opinions.
A) The checklist approach
B) The Delphi technique
C) Quantitative analysis
D) Inspection visits
Q2) When quantifying country risk:
A) weights should be equally allocated among factors.
B) weights should be assigned to the political and financial factors according to their perceived importance.
C) it is not generally necessary to construct separate ratings for political and financial risk since these will be equally weighed in the final analysis.
D) the derived factors will be identical for all MNCs conducting business in that country.
Q3) While an overall risk rating of a country can be useful,it cannot always detect upcoming crises.
A)True
B)False
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Chapter 17: Multinational Cost of Capital and Capital Structure
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Sample Questions
Q1) A firm's cost of ___________ reflects an opportunity cost: what the existing shareholders could have earned if they had received the earnings as dividends and invested the funds themselves..
A) debt
B) retained earnings
C) new common equity
D) none of the above
Q2) Capital asset pricing theory would most likely suggest that the cost of capital is generally ________ for _________.
A) higher;MNCs
B) lower;domestic firms
C) lower;MNCs
D) none of the above
Q3) The lower a project's beta,the _______ is the project's _________ risk.
A) lower;systematic
B) lower;unsystematic
C) higher;systematic
D) higher;unsystematic
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Chapter 18: Long-Term Financing
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Sample Questions
Q1) Eurobonds are often issued with a floating coupon rate that is tied to LIBOR.
A)True
B)False
Q2) Two limitations of interest rate swaps are that there is a cost of time and resources associated with searching for a suitable partner and that there is a risk to each swap participant that the counterparticipant could default on his payments.
A)True
B)False
Q3) 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
Q4) In general,the _________ rate payer in a plain vanilla swap believes interest rates are going to _______.
A) fixed;decline
B) floating;decline
C) floating;increase
D) none of the above
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Chapter 19: Financing International Trade
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Sample Questions
Q1) 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
Q2) The ____________________ is a private corporation owned by a consortium of commercial banks and industrial companies,but the ______________ is a self-sustaining government agency.
A) Overseas Private Investment Corporation (OPIC);Private Export Funding Corporation (PEFCO)
B) Private Export Funding Corporation (PEFCO);Overseas Private Investment Corporation (OPIC)
C) Private Export Funding Corporation (PEFCO);Ex-Imbank
D) Overseas Private Investment Corporation (OPIC);Ex-Imbank
Q3) A bill of exchange requesting the bank to pay the face amount at a future date is a:
A) banker's acceptance.
B) time draft.
C) letter of credit.
D) sight draft.
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Page 21
Chapter 20: Short-Term Financing
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48 Flashcards
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Sample Questions
Q1) Countries with a _______ rate of inflation tend to have a ______ interest rate.
A) high;low
B) low;high
C) high;high
D) A and B are correct
Q2) Assume Jelly Corporation,a U.S.-based MNC,obtains a one-year loan of 1,500,000 Malaysian ringgit (MYR)at a nominal interest rate of 7%.At the time the loan is extended,the spot rate of the ringgit is $.25.If the spot rate of the ringgit in one year is $.28,the dollar amount initially obtained from the loan is $__________,and $___________ are needed to repay the loan.
A) 375,000;449,400
B) 449,400;375,000
C) 6,000,000;5,357,143
D) 5,357,143;6,000,000
Q3) Euronotes are unsecured debt securities whose interest rate is based on the London Interbank Offer Rate (LIBOR)with typical maturities of one,three,and six months.
A)True
B)False
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Chapter 21: International Cash Management
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Sample Questions
Q1) Assume that interest rate parity holds.The U.S.one-year interest rate is 10% and the Australian one-year interest rate is 8%.What will the approximate effective yield be for an Australian citizen of a one-year deposit denominated in U.S.dollars Assume the deposit is covered by a forward sale of dollars.
A) 10%.
B) 8%.
C) 2%.
D) cannot answer without more information
Q2) Assume that a U.S.investor invests in a British CD offering a sixmonth interest rate of 5%. Over this sixmonth period,the pound depreciates by 9%. The effective yield on the British CD for the U.S.investor is:
A) 14.45%.
B) 4.45%.
C) 14.00%.
D)4.00%.
Q3) Preauthorized payment is an arrangement that allows a corporation to charge a customer's bank account up to some limit.
A)True
B)False
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Page 23