International Banking
Midterm Exam
Course Introduction
International Banking examines the principles, operations, and regulatory frameworks that shape the global banking industry. The course delves into the functions and structures of international banks, explores cross-border financial transactions, foreign exchange markets, and international payment systems. Students will analyze the risks and opportunities associated with global banking, including country risk, currency risk, and compliance with international laws and standards. The impact of international financial institutions, regulatory bodies, and current trends such as digital currencies and fintech innovations are also discussed. This course prepares students to understand and navigate the complexities of banking on an international scale.
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) The North American Free Trade Agreement (NAFTA)of 1993 eliminated trade barriers between the United States and Mexico.
A)True
B)False
Answer: True
Q2) Licensing is the process by which a firm provides its technology (copyrights,patents,trademarks,or trade names)in exchange for fees or some other specified benefits.
A)True
B)False
Answer: True
Q3) In comparing exporting to direct foreign investment (DFI),an exporting operation will likely incur __________ fixed production costs and __________ transportation costs than DFI.
A) higher;higher
B) higher;lower
C) lower;lower
D) lower;higher
Answer: D
Page 3
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Chapter 2: International Flow of Funds
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Sample Questions
Q1) Portfolio investments represent transactions involving long-term financial assets (such as stocks and bonds)between countries that do not affect the transfer of control.
A)True
B)False
Answer: True
Q2) A balance-of-trade surplus indicates an excess of merchandise imports over merchandise exports.
A)True
B)False
Answer: False
Q3) The North American Free Trade Agreement (NAFTA)increased restrictions on:
A) trade between Canada and Mexico.
B) trade between Canada and the U.S.
C) direct foreign investment in Mexico by U.S. firms.
D) none of the above.
Answer: D
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Page 4
Chapter 3: International Financial Markets
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) According to the text,the forward rate is commonly used for:
A) hedging.
B) Eurocurrency transactions.
C) Eurocredit transactions.
D) Eurobond transactions.
Answer: A
Q2) The Basel II accord would:
A) replace the Basel Accord.
B) reduce the amount of capital banks are required to hold.
C) require banks to take more risks and to document their risk.
D) correct some inconsistencies that still exist.
Answer: D
Q3) A syndicated Eurocredit loan:
A) represents a loan by a single bank to a syndicate of corporations.
B) represents a loan by a single bank to a syndicate of country governments.
C) represents a direct loan by a syndicate of oil producing exporters to a less developed country.
D) represents a loan by a group of banks to a borrower.
E) A and B
Answer: D
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Chapter 4: Exchange Rate Determination
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Sample Questions
Q1) 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
Q2) Assume that the U.S.experiences a significant decline in income,while Japan's income remains steady. This event should place _______ pressure on the value of the Japanese yen,other things being equal.(Assume that interest rates and other factors are not affected.)
A) upward
B) downward
C) no
D) upward and downward (offsetting)
Q3) Increases in relative income in one country vs.another result in an increase in that country's currency value.
A)True
B)False
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Chapter 5: Currency Derivatives
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Sample Questions
Q1) The US options exchanges are regulated by the SEC.
A)True
B)False
Q2) It is possible to have an opportunity loss when using futures to hedge.
A)True
B)False
Q3) Which of the following is true of options
A) The writer decides whether the option will be exercised.
B) The writer pays the buyer the option premium.
C) The buyer decides if the option will be exercised.
D) More than one of these.
Q4) An implicit forward contract is a new type of forward contract that does not result in the actual exchange of currencies in the future.
A)True
B)False
Q5) Due to put-call parity,we can use the same formula to price calls and puts.
A)True
B)False
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Chapter 6: Government Influence on Exchange Rates
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Sample Questions
Q1) A country with fixed exchange rates often faces constraints on growth.
A)True
B)False
Q2) The interest rate of a country with a currency board:
A) is less stable than it would be without a currency board.
B) is typically below the interest rate of the currency to which it is tied.
C) will move in tandem with the interest rate of the currency to which it is tied.
D) is completely independent of the interest rate of the currency to which it is tied.
Q3) The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar's value is expected to:
A) remain stable.
B) strengthen.
C) weaken.
D) none of the above will have an impact on inflation.
Q4) The Bretton Woods Agreement called for the establishment of a single European currency.
A)True
B)False
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8
Chapter 7: International Arbitrage and Interest Rate Parity
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Sample Questions
Q1) Assume the following information:
Spot rate today of Swiss franc = $.60
1-year forward rate as of today for Swiss franc = $.63
Expected spot rate 1 year from now = $.64
Rate on 1year deposits denominated in Swiss francs = 7%
Rate on 1year deposits denominated in U.S.dollars = 9%
From the perspective of U.S.investors with $1,000,000,covered interest arbitrage would yield a rate of return of ______%.
A) 5.00
B) 12.35
C) 15.50
D) 14.13
E) 11.22
Q2) Due to _______,market forces should realign the cross exchange rate between two foreign currencies based on the spot exchange rates of the two currencies against the U.S.dollar.
A) forward realignment arbitrage
B) triangular arbitrage
C) covered interest arbitrage
D) locational arbitrage
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Page 9
Chapter 8: Relationships among Inflation,Interest Rates,and Exchange Rates
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Sample Questions
Q1) The inflation rate in the U.S.is 3%,while the inflation rate in Japan is 1.3%.The current exchange rate for the Japanese yen (¥)is $0.0075.After supply and demand for the Japanese yen has adjusted in the manner suggested by purchasing power parity,the new exchange rate for the yen will be:
A) $0.0076.
B) $0.0075.
C) $0.0074.
D) $0.0131.
E) none of the above
Q2) Nominal interest rates in Cyprus are 7%,while nominal interest rates in the U.S.are 5%.The spot rate for the Cyprus pound (CYP)is $1.50.According to the international Fisher effect (IFE),the Cyprus pound should adjust to a new level of:
A) $1.47.
B) $1.53.
C) $1.43.
D) $1.57.
Q3) If interest rate parity holds,then the international Fisher effect must hold.
A)True
B)False
Page 10
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Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) Which of the following forecasting techniques would best represent sole use of today's spot exchange rate of the euro to forecast the euro's future exchange rate
A) fundamental forecasting.
B) market based forecasting.
C) technical forecasting.
D) mixed forecasting.
Q2) Which of the following forecasting techniques would best represent the use of relationships between economic factors and exchange rate movements to forecast the future exchange rate
A) fundamental forecasting.
B) market based forecasting.
C) technical forecasting.
D) mixed forecasting.
Q3) Inflation and interest rate differentials between the U.S.and foreign countries are examples of variables that could be used in fundamental forecasting.
A)True
B)False
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11
Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Sample Questions
Q1) The maximum one-day loss computed for the value-at-risk (VAR)method,does not depend on:
A) the expected percentage change in the currency for the next day.
B) the standard deviation of the daily percentage changes in the currency over a previous period.
C) the current level of interest rates.
D) the confidence level used.
Q2) 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
Q3) If the U.S.dollar appreciates:
A) an MNC's U.S. sales will probably decrease.
B) an MNC's exports denominated in U.S. dollars will probably increase.
C) an MNC's interest owed on foreign funds borrowed will probably increase.
D) an MNC's exports denominated in foreign currencies will probably increase.
E) all of the above
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Page 12
Chapter 11: Managing Transaction Exposure
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63 Verified Questions
63 Flashcards
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Sample Questions
Q1) MNCs generally do not need to hedge because shareholders can hedge their own risk.
A)True
B)False
Q2) A _______ involves an exchange of currencies between two parties,with a promise to reexchange currencies at a specified exchange rate and future date.
A) long term forward contract
B) currency swap
C) parallel loan
D) money market hedge
Q3) Your company will receive C$600,000 in 90 days. The 90day forward rate in the Canadian dollar is $.80. If you use a forward hedge,you will:
A) receive $750,000 today.
B) receive $750,000 in 90 days.
C) pay $750,000 in 90 days.
D) receive $480,000 today.
E) receive $480,000 in 90 days.
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Page 13
Chapter 12: Managing Economic Exposure and Translation Exposure
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Sample Questions
Q1) A foreign subsidiary with more susceptible expenses than revenue to exchange rate movements will be favorably affected by an appreciation of the foreign currency.
A)True
B)False
Q2) U.S.-based MNCs invoicing in Asian currencies and incurring expenses in Asian currencies were probably less affected by weakness of Asian currencies than U.S.-based MNCs that invoice in Asian currencies but do not incur expenses in those currencies.
A)True
B)False
Q3) If the Singapore dollar appreciates against the U.S.dollar over this year,the consolidated earnings of a U.S.company with a subsidiary in Singapore will be ____ as a result of the exchange rate movement.
A) negative
B) adversely affected
C) favorably affected
D) unaffected
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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) They key to international diversification is selecting foreign projects whose performance levels are highly correlated over time.
A)True
B)False
Q2) Based on the text,it should be obvious that markets are__________ in reality,and consequently,monopolistic advantages _________ be exploited.
A) perfect;may possibly
B) perfect;cannot
C) imperfect;may possibly
D) imperfect;cannot
Q3) Direct foreign investment would typically be welcomed if:
A) the products to be produced are substitutes for other locally produced products.
B) people from its headquarters country are transferred to the foreign country to work at the subsidiary.
C) the products to be produced are going to be exported.
D) all of the above
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Chapter 14: Multinational Capital Budgeting
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49 Verified Questions
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Sample Questions
Q1) According to the text,in order to develop a distribution of possible net present values from international projects,a firm should use:
A) a risk adjusted discount rate.
B) payback period.
C) certainty equivalents.
D) simulation.
Q2) If an MNC sells a product in a foreign country and imports partially manufactured components needed for production to that country from the U.S.,then the local economy's inflation will have:
A) a more pronounced impact on revenues than on costs.
B) a less pronounced impact on revenues than on costs.
C) the same impact on revenues as on costs.
D) none of the above
Q3) What is the net present value of the Norwegian project
A) -$803,848.
B) $5,803,848.
C) $1,048,829.
D) none of the above
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16
Chapter 15: Multinational Restructuring
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Sample Questions
Q1) Which of the following tax-related factors need not be considered in assessing a foreign target
A) corporate tax rates in the host country.
B) withholding tax rates in the host country.
C) withholding tax rates in the home country.
D) corporate tax rates in the home country.
E) all of the above must be considered in assessing a foreign target.
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) An MNC should periodically reassess its investments to determine whether to divest them.
A)True
B)False
Q4) At present,U.S.firms acquire more targets in the former Soviet Union than in any other country.
A)True
B)False
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Chapter 16: Country Risk Analysis
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Sample Questions
Q1) A __________ currency may ________ the volume of products imported by the country and therefore reduce the country's production and national income.
A) weak;increase
B) weak;reduce
C) strong;increase
D) strong;reduce
Q2) The most important variable in determining a country's degree of overall country risk:
A) is political risk.
B) is financial risk.
C) is the probability of a host government takeover.
D) may often vary with the country of concern.
Q3) To reduce the exposure to a host government takeover,an MNC may attempt to recover cash flows from the foreign project more quickly or hire local labor.
A)True
B)False
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Chapter 17: Multinational Cost of Capital and Capital Structure
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Sample Questions
Q1) One argument for why subsidiaries should be whollyowned by the parent is that:
A) the potential conflict of interests between the MNC's managers and shareholders is avoided.
B) the potential conflict of interests between the MNC's majority shareholders and minority shareholders is avoided.
C) the potential conflict of interests between the MNC's existing creditors is avoided.
D) the potential conflict of interests between the MNC's managers and creditors is avoided.
Q2) Because increased external financing by a foreign subsidiary reduces the external financing needed by the parent,such an action will not affect the overall MNC's cost of capital.
A)True
B)False
Q3) Normally,an MNC will issue stock in all of the countries where it does business. A)True
B)False
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Chapter 18: Long-Term Financing
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Sample Questions
Q1) U.S.-based MNCs whose foreign subsidiary generates large earnings may be able to offset exposure to exchange rate risk by issuing bonds denominated in the subsidiary's local currency.
A)True
B)False
Q2) 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
Q3) An MNC issuing pound-denominated bonds may be completely insulated from exchange rate risk associated with the bond if its foreign subsidiary makes the coupon and principal payments of the bond with its pound receivables.
A)True
B)False
Q4) Since yield curves are identical across countries,MNCs rarely consider them when deciding on the maturity of bonds denominated in a foreign currency.
A)True
B)False
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Chapter 19: Financing International Trade
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Sample Questions
Q1) __________ was established in 1934 with the intention to facilitate SovietAmerican trade.
A) Domestic International Sales Corporation (DISC)
B) Private Export Funding Corporation (PEFCO)
C) Export Import Bank
D) Foreign Credit Insurance Association (FCIA)
Q2) A __________ provides a summary of freight charges and conveys title to the merchandise.
A) letter of credit
B) banker's acceptance
C) bill of lading
D) bill of exchange
Q3) Who bears the payment risk in a letter of credit
A) the exporter.
B) the importer.
C) the issuing bank.
D) both the exporter and importer.
Q4) There is an active secondary market for banker's acceptances.
A)True
B)False
Page 21
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Chapter 20: Short-Term Financing
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Sample Questions
Q1) A firm without any exposure to foreign exchange rates would likely increase this exposure the most by:
A) borrowing domestically.
B) borrowing a portfolio of foreign currencies that are not highly correlated.
C) borrowing a portfolio of foreign currencies that are highly correlated.
D) borrowing two foreign currencies that are negatively correlated.
Q2) Assume the U.S.interest rate is 7.5%,the New Zealand interest rate is 6.5%,the spot rate of the NZ$ is $.52,and the oneyear forward rate of the NZ$ is $.50. At the end of the year,the spot rate is $.48. Based on this information,what is the effective financing rate for a U.S.firm that takes out a oneyear,uncovered NZ$ loan
A) about 1.7%.
B) about 0.0%.
C) about 14.7%.
D) about 15.4%.
E) about 8.3%.
Q3) The interest rate of euronotes is based on the T-bill rate.
A)True
B)False
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Chapter 21: International Cash Management
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Sample Questions
Q1) 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.
Q2) According to the text:
A) banks in most non U.S. countries are as capable as the U.S. in facilitating cash transfers and most other cash management operations for MNCs.
B) banks in most non U.S. countries are more advanced than the U.S. in facilitating cash transfers for MNCs.
C) an MNC with subsidiaries in several different countries has no problems in coordinating its cash transfers since a uniform global banking system exists.
D) none of the above
Q3) ___________________ 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
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