International Banking Review Questions
Course Introduction
International Banking explores the global financial system, the role and operations of international banks, and the regulatory frameworks governing cross-border banking activities. The course covers topics such as foreign exchange markets, international lending, risk management strategies, global payment systems, and the impact of international financial institutions. Students will examine how economic, political, and legal factors affect international banking, analyze case studies of multinational banks, and discuss current trends and challenges in the evolving world of global finance.
Recommended Textbook
Multinational Business Finance 15th Edition by David K. Eiteman
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18 Chapters
1227 Verified Questions
1227 Flashcards
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Chapter 1: Multinational Financial Management: Opportunities and Challenges
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73 Verified Questions
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Sample Questions
Q1) List and explain three strategic motives why firms become multinationals and give an example of each.
Answer: The authors provide 5 strategic motives for firms to become multinationals: market seekers, raw materials seekers, production efficiency seekers, knowledge seekers, and political safety seekers. Market seekers are looking for more consumers for their products such as automobiles or steel. Knowledge seekers may be looking for an educated work force similar to the way firms seeking R and D set up shop in university towns. Raw materials seekers may be after commodities such as oil or copper. Production efficiencies may occur in countries like Mexico that have capable workers and lower wages. Political safety seekers are looking for countries that will not expropriate their assets, so they may stay away from countries that in the post have engaged in such activities.
Q2) Interest spreads in the eurocurrency market are small for many reasons EXCEPT:
A) Eurocurrency loans are secured loans.
B) Eurocurrency deposits and loans are made in amounts of $500,000 or more on an unsecured basis.
C) The eurocurrency is a wholesale market.
D) Borrowers are usually large corporations or government entities.
Answer: A
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Chapter 2: The International Monetary System
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61 Verified Questions
61 Flashcards
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Sample Questions
Q1) The post WWII international monetary agreement that was developed in 1944 is known as the:
A) United Nations.
B) League of Nations.
C) Yalta Agreement.
D) Bretton Woods Agreement.
Answer: D
Q2) From the time of its creation through September 2017, the euro peaked versus the USD in April 2008 at around $1.60/ .
A)True
B)False
Answer: True
Q3) A currency board exists when a country's central bank commits to back a fraction of its money base with foreign reserves at all times.
A)True
B)False
Answer: False
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Chapter 3: The Balance of Payments
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Sample Questions
Q1) The BOP must be in balance, but the current account need not be.
A)True
B)False
Answer: False
Q2) Anaconda Copper Inc. created a subsidiary in Chile last year to mine copper ore.
The proportion of net income paid back to the parent company as a dividend would be recorded in the current account subcategory of:
A) services trade.
B) income trade.
C) goods trade.
D) current transfers.
Answer: B
Q3) In the United States and most developed countries, the current account and the combined financial/capital accounts tend to be inversely related in that when one is positive, the other tends to be negative.
A)True
B)False
Answer: True
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Chapter 4: Financial Goals and Corporate Governance
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Sample Questions
Q1) What are the most important distinctions that make state owned enterprises (SOEs) different from other forms of government organizations?
Q2) A recent study shows that privately held firms use less financial leverage and enjoy lower costs of debt than publicly traded firms.
A)True
B)False
Q3) Systematic risk can be defined as:
A) the total risk to the firm.
B) the risk of the individual security.
C) the risk of the market in general.
D) the risk that can be systematically diversified away.
Q4) U.S. listings of publicly traded firms as a percentage of worldwide listings of such firms INCREASED from 11% in 1996 to approximately 33% in 2015.
A)True
B)False
Q5) Companies that are delisted cease to trade.
A)True
B)False
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Chapter 5: The Foreign Exchange Market
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69 Flashcards
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Sample Questions
Q1) ________ seek to profit from trading in the market itself rather than having the foreign exchange transaction being incidental to the execution of a commercial or investment transaction.
A) Speculators and arbitrageurs
B) Foreign exchange brokers
C) Central banks
D) Treasuries
Q2) Define spot, forward, and swap transactions in the foreign exchange market and give an example of how each could be used.
Q3) Business firms in countries with exchange controls, for example, China (mainland), often must surrender foreign exchange earned from exports to the central bank at the daily fixing price.
A)True
B)False
Q4) The authors identify two tiers of foreign exchange markets:
A) bank and nonbank foreign exchange.
B) commercial and investment transactions.
C) interbank and client markets.
D) client and retail market.
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Chapter 6: International Parity Conditions
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62 Flashcards
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Sample Questions
Q1) Arbitragers applying Covered Interest Arbitrage drive the international currency and money markets toward the equilibrium described by:
A) the effective exchange rate index.
B) the purchasing power parity.
C) the nominal effective exchange rate index.
D) the interest rate parity.
Q2) The government just released international exchange rate statistics and reported that the real effective exchange rate index for the U.S. dollar vs. the Japanese yen decreased from 105 last year to 95 currently and is expected to fall still further in the coming year. Other things equal, U.S. ________ to/from Japan think this is good news, and U.S. ________ to/from Japan think this is bad news.
A) importers; exporters
B) importers; importers
C) exporters; exporters
D) exporters; importers
Q3) Explain the logic behind the application of the PPP theory to explain changes in the spot exchange rate.
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Chapter 7: Foreign Currency Derivatives: Futures and Options
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) The maximum gain for the purchaser of a call option contract is ________ while the maximum loss is ________.
A) unlimited; the premium paid.
B) the premium paid; unlimited.
C) unlimited; unlimited.
D) unlimited; the value of the underlying asset.
Q2) If the rho of the specific option is known, it is easy to determine how the option's value will change as the spot rate changes.
A)True
B)False
Q3) If the spot rate changes from $1.70/£ to $1.71/£ and there is an option with an initial premium of $0.033/£ and a delta of 0.5, then the new option premium would be:
A) $0.043/£.
B) $0.038/£.
C) $0.005/£.
D) $1.715/£.
Q4) Why are foreign currency futures contracts more popular with individuals and banks while foreign currency forwards are more popular with businesses?
Page 9
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Chapter 8: Interest Risk and Swaps
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Sample Questions
Q1) The potential exposure that any individual firm bears that the second party to any financial contract will be unable to fulfill its obligations under the contract is called:
A) interest rate risk.
B) credit risk.
C) counterparty risk.
D) clearinghouse risk.
Q2) The single largest interest rate risk of a firm is:
A) interest sensitive securities.
B) debt service.
C) dividend payments.
D) accounts payable.
Q3) Sovereign credit risk is the global financial market's assessment of the ability of a sovereign borrower to repay USD denominated debt.
A)True
B)False
Q4) Your firm is faced with paying a variable rate debt obligation with the expectation that interest rates are likely to go up. Identify two strategies using interest rate futures and interest rate swaps that could reduce the risk to the firm.
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Chapter 9: Foreign Exchange Rate Determination and Intervention
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Sample Questions
Q1) Technical analysis of exchange rates developed in part due to the forecasting inadequacies of fundamental exchange rate theories.
A)True
B)False
Q2) The ________ approach argues that exchange rates are determined by the supply and demand for a wide variety of financial assets
A) balance of payments
B) monetary
C) asset market
D) law of one price
Q3) Which of the following was NOT an international currency crisis in the 1990s and early 2000s?
A) the Asian Crisis
B) the Canadian Crisis
C) the Argentine Crisis
D) All of the above were currency crises in the 1990s and 2000s.
Q4) Foreign exchange forecasting can be either long-term, or short-term in duration. Compare and contrast the motivation for and the techniques a forecaster might use for each of the time periods.
11
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Chapter 10: Transaction Exposure
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64 Verified Questions
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Sample Questions
Q1) ________ are transactions for which there are, at present, no contracts or agreements between parties.
A) Backlog exposure
B) Quotation exposure
C) Anticipated exposure
D) none of the above
Q2) The key arguments in opposition to currency hedging such as market efficiency, agency theory, and diversification do not have financial theory at their core.
A)True
B)False
Q3) Many MNE s manage foreign exchange exposure centrally, thus gains or losses are always matched with the country of origin.
A)True
B)False
Q4) The objective of currency hedging is to eliminate the change in the value of the exposed asset or cash flow from a change in exchange rates.
A)True
B)False
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Page 12
Chapter 11: Translation Exposure
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) ________ occur as a result of changes in the value of currency, whereas ________ occur as a result of ongoing business activities.
A) Operating gains or losses; translation gains or losses
B) Swap losses; translation gains or losses
C) Translation gains or losses; operating gains or losses
D) all of the above
Q2) Gains or losses caused by translation adjustments when using the current rate method are reported separately on the:
A) consolidated statement of cash flow.
B) consolidated income statement.
C) consolidated balance sheet.
D) none of the above
Q3) Most countries specify the translation method to be used by a foreign subsidiary based on its business operations or the functional currency. Explain both subsidiary characterization criteria and the one adopted in the United States.
Q4) Describe a balance sheet hedge and give at least two examples of when such a hedge could be justified.
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13
Chapter 12: Operating Exposure
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Sample Questions
Q1) Which of the following is NOT an important impediment to widespread use of parallel loans?
A) difficulty in finding an appropriate counterparty
B) the risk that one of the parties will fail to return the borrowed funds when agreed
C) the process does not avoid exchange rate risk
D) All of the above are significant impediments.
Q2) The particular strategy of trying to offset stable inflows of cash from one country with outflows of cash in the same currency is known as:
A) hedging.
B) diversification.
C) matching.
D) balancing.
Q3) Purely domestic firms will be at a disadvantage to MNEs in the event of market disequilibria because:
A) domestic firms lack comparative data from its own sources.
B) international firms are already so large.
C) all of the domestic firm's raw materials are imported.
D) None of the above; domestic firms are not at a disadvantage.
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14
Chapter 13: Global Cost and Availability of Capital
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Sample Questions
Q1) In some respects, internationally diversified portfolios are the same in principle as a domestic portfolio because:
A) the investor is attempting to combine assets that are perfectly correlated.
B) investors are trying to reduce systematic risk.
C) investors are trying to reduce the total risk of the portfolio.
D) all of the above
Q2) ________ risk is a function of the variability of expected returns of the firm's stock relative to the market index and the measure of correlation between the expected returns of the firm and the market.
A) Systematic
B) Unsystematic
C) Total
D) Diversifiable
Q3) Which of the following is NOT a contributing factor to the segmentation of capital markets?
A) excessive regulatory control
B) perceived political risk
C) anticipated foreign exchange risk
D) All of the above are contributing factors.
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Page 15
Chapter 14: Funding the Multinational Firm
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Sample Questions
Q1) When a firm borrows in a foreign currency, the effective cost is the foreign interest rate plus an adjustment for changes in the exchange rate.
A)True
B)False
Q2) The financial structure and financing of a foreign subsidiary change over time as it passes through the following stages of its business life cycle EXCEPT:
A) maturing.
B) growth.
C) startup.
D) discovery.
Q3) The ultimate step sourcing capital abroad would be to place a directed equity issue in a prestigious target market or a euroequity issue in global equity markets.
A)True
B)False
Q4) The Euro-medium-term-note (EMTN) has filled a substantial niche market in global financing. What are the distinguishing characteristics of the EMTN and why is it such a popular form of financing for MNEs?
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16
Chapter 15: Multinational Tax Management
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Sample Questions
Q1) In the context of the digital economy many tax authorities are redefining the location of a taxable transaction from the county of the supplier to the country of the buyer.
A)True
B)False
Q2) A tax that is a form of social redistribution of income is defined as a/an ________ tax.
A) un-American
B) transfer
C) flat
D) none of the above
Q3) What is the total value of taxes paid in the following example if the value added tax is 10%? A farmer raises wheat that he sells for $1.50 to the grain company. The grain company sells to the processor for $2.00 per bushel. The processor turns the wheat into a breakfast cereal and wholesales it for $3.00 per bushel. The retailer sells the cereal for $4.00 per bushel.
A) $0.15
B) $0.20
C) $0.30
D) $0.40
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Page 17
Chapter 16: International Trade Finance
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Sample Questions
Q1) In effect, the forfaiter functions both as a money market firm and a specialist in packaging financial deals involving country risk.
A)True
B)False
Q2) The exporter-importer relationship to a corporation of a foreign importer that has not previously conducted business with the firm would be an:
A) unaffiliated known.
B) affiliated party.
C) unaffiliated unknown.
D) any of the above
Q3) Drafts that have been accepted by banks become:
A) clean drafts.
B) nonmarketable.
C) banker's acceptances.
D) none of the above
Q4) What is a banker's acceptance? How are they initiated? Why are they desirable for the exporter?
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Chapter 17: Foreign Direct Investment and Political Risk
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Sample Questions
Q1) Which of the following is NOT an advantage to a joint venture?
A) Possible loss of opportunity to enter the foreign market with FDI later.
B) The local partner understands the customs and mores of the foreign market.
C) The local partner can provide competent management at many levels.
D) May be a realistic alternative when 100% foreign ownership is not allowed.
Q2) Proactive financial strategies depend on discovering market imperfections.
A)True
B)False
Q3) A number of institutional services provide updated country risk ratings on a regular basis. This is an example of micro-risk information for MNEs using this data.
A)True
B)False
Q4) List and explain three strategic motives why firms could become multinationals and give an example of each.
Q5) A/An ________ would be an example of an owner-specific advantage for an MNE.
A) patent
B) economy of scale
C) economy of scope
D) all of the above
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Chapter 18: Multinational Capital Budgeting and Cross-Border Acquisitions
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Sample Questions
Q1) For purposes of international capital budgeting, evaluation of a project from the PARENT viewpoint serves some useful purposes, but it should be subordinated to evaluation from the LOCAL's viewpoint.
A)True
B)False
Q2) Explain how political risk and exchange rate risk increase the uncertainty of international projects for the purpose of capital budgeting.
Q3) In project finance, retained earnings and the reinvestment of earnings are the most important decisions to guarantee the long-term growth of the project's value.
A)True
B)False
Q4) Real option analysis allows managers to analyze all of the following EXCEPT:
A) the option to defer.
B) the option to abandon.
C) the option to alter capacity.
D) All of the above may be analyzed using real option analysis.
Q5) What is real option analysis? How is it a better method of making investment decisions than using traditional capital budgeting analysis?
Page 20
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