International Banking
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Course Introduction
International Banking explores the operations, regulations, and strategic challenges faced by financial institutions operating across global markets. This course examines the structure of the international banking system, cross-border financial services, risk management, and regulatory compliance such as Basel accords. Students will learn about foreign exchange markets, international lending, correspondent banking relationships, and the impact of globalization and digital technologies on banking practices. The course also addresses contemporary issues such as anti-money laundering measures, economic sanctions, and the evolving role of international banks in financial crises and development.
Recommended Textbook
International Financial Management 13th Edition by Jeff
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Page 2
Madura
Chapter 1: Multinational Financial Management: An Overview
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Sample Questions
Q1) Four MNCs generate the same level of sales. The MNC that ______________________would likely have the most direct foreign investment.
A)exports all of its products
B)produces and sells its products locally
C)imports products from unrelated firms in other countries and sells them locally
D)acquires a foreign firm that produces most of its products to be sold in that foreign country
Answer: D
Q2) The Sarbanes-Oxley Act ensures a more transparent process for managers to report on the productivity and financial condition of their firm.
A)True
B)False
Answer: True
Q3) International trade is the most common form of direct foreign investment (DFI).
A)True
B)False
Answer: False
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Page 3
Chapter 2: International Flow of Funds
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Sample Questions
Q1) ____ purchases more U.S. exports than the other countries listed here.
A)Italy
B)Spain
C)Mexico
D)Canada
Answer: D
Q2) Which of the following will probably not result in an increase in a country's current account balance (assuming everything else remains constant)?
A)a decrease in the country's rate of inflation
B)a decrease in the country's national income level
C)an increase in government restrictions in the form of tariffs or quotas
D)an appreciation of the country's currency
E)All of the above will result in an increased current account balance.
Answer: D
Q3) A weakening of the U.S. dollar with respect to the British pound would likely reduce U.S. exports to the United Kingdom and increase U.S. imports from the United Kingdom.
A)True
B)False
Answer: False
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Page 4
Chapter 3: International Financial Markets
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Sample Questions
Q1) Which of the following is probably not an example of the use of forward contracts by an MNC?
A)Hedging pound payables by selling pounds forward
B)Hedging peso receivables by selling pesos forward
C)Hedging yen payables by purchasing yen forward
D)Hedging peso payables by purchasing pesos forward
E)All of the above are examples of using forward contracts.
Answer: A
Q2) Shareholders can have influence on a wider variety of management issues in some countries than in others.
A)True
B)False
Answer: True
Q3) In general, common-law countries such as the United States, Canada, and the United Kingdom allow for more legal protection of shareholders than civil-law countries such as France and Italy.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Exchange Rate Determination
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Sample Questions
Q1) Any event that reduces the supply of Swiss francs to be exchanged for U.S. dollars should result in a(n) ____ in the value of the Swiss franc with respect to ____, other things being equal
A)increase; the U.S. dollar
B)increase; nondollar currencies
C)decrease; nondollar currencies
D)decrease; the U.S. dollar
Q2) In general, when speculating on exchange rate movements, the speculator will borrow the currency that is expected to appreciate and invest in the country whose currency is expected to depreciate.
A)True
B)False
Q3) A currency's liquidity can affect the extent to which speculation can impact the currency's value.
A)True
B)False
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Chapter 5: Currency Derivatives
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Sample Questions
Q1) Currency futures contracts sold on an exchange contain:
A)a commitment to the owner, and are standardized.
B)a commitment to the owner, and can be tailored to the owner's desire.
C)a right but not a commitment to the owner, and can be tailored to the owner's desire.
D)a right but not a commitment to the owner, and are standardized.
Q2) Macomb Corporation is a U.S. firm that invoices some of its exports in Japanese yen. If it expects the yen to weaken, it could ____ to hedge the exchange rate risk on those exports.
A)sell yen put options
B)buy yen call options
C)buy futures contracts on yen
D)sell futures contracts on yen
Q3) The spot rate of the British pound is quoted at $1.49. The 90-day forward rate exhibits a 2% discount. What is the 90-day forward rate of the pound?
A)$1.52
B)$1.61
C)$1.37
D)$1.46
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7
Chapter 6: Government Influence on Exchange Rates
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Sample Questions
Q1) Dollarization refers to the replacement of local currency with U.S. dollars.
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 primary result of the Bretton Woods Agreement was:
A)the establishment of the European Monetary System (EMS).
B)establishing specific rules for when tariffs and quotas could be imposed by governments.
C)establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values.
D)establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to intervene when necessary).
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8
Chapter 7: International Arbitrage and Interest Rate Parity
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Sample Questions
Q1) If the cross exchange rate of two nondollar currencies implied by their individual spot rates with respect to the dollar is less than the cross exchange rate quoted by a bank, locational arbitrage is possible.
A)True
B)False
Q2) American Bank quotes a bid rate of $0.026 and an ask rate of $0.028 for the Indian rupee (INR); National Bank quotes a bid rate of $0.024 and an ask rate for $0.025. Locational arbitrage would involve:
A)buying rupees from American Bank at the bid rate and selling them to National Bank at the ask rate.
B)buying rupees from National Bank at the ask rate and selling them to American Bank at the bid rate.
C)buying rupees from American Bank at the ask rate and selling to National Bank at the bid rate.
D)buying rupees from National Bank at the bid rate and selling them to American Bank at the ask rate.
E)Locational arbitrage is not possible in this case.
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Page 9
Chapter 8: Relationships among Inflation, Interest Rates, and Exchange Rates
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Sample Questions
Q1) According to the international Fisher effect (IFE), the exchange rate percentage change should be approximately equal to the differential in income levels between two countries.
A)True
B)False
Q2) Assume that inflation in the United States is expected to be 9 percent, while inflation in Australia is expected to be 5 percent over the next year. Today you receive an offer to purchase a one-year put option for $.03 per unit on Australian dollars at a strike price of $0.72. Today the Australian dollar is quoted at $0.70. You believe that purchasing power parity holds. You should accept the offer.
A)True
B)False
Q3) Research indicates that deviations from purchasing power parity (PPP) are less pronounced over the long run.
A)True
B)False
Q4) Interest rate parity can only hold if purchasing power parity holds.
A)True
B)False
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Chapter 9: Forecasting Exchange Rates
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Sample Questions
Q1) If today's exchange rate reflects all relevant public information about the euro's exchange rate, but not all relevant private information, then ____ would be refuted.
A)weak-form efficiency
B)semistrong-form efficiency
C)strong-form efficiency
D)A and B
E)B and C
Q2) Since the forward rate does not capture the nominal interest rate between two countries, it should provide a less accurate forecast for currencies in high-inflation countries than the spot rate.
A)True
B)False
Q3) Foreign exchange markets appear to be strong-form efficient.
A)True
B)False
Q4) The closer graphical points are to the perfect forecast line, the better the forecast. A)True
B)False
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11
Chapter 10: Measuring Exposure to Exchange Rate
Fluctuations
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Sample Questions
Q1) A purely domestic firm is never exposed to exchange rate fluctuations.
A)True
B)False
Q2) Lampon Co. is a U.S. firm that has a subsidiary in Hong Kong that produces light fixtures and sells them to Japan, denominated in Japanese yen. Its subsidiary pays all of its expenses, including the cost of goods sold, in U.S. dollars. The Hong Kong dollar is pegged to the U.S. dollar. If the Japanese yen appreciates against the U.S. dollar, the Hong Kong subsidiary's revenue will ____, and its expenses will ____.
A)increase; decrease
B)decrease; remain unchanged
C)decrease; increase D)increase; remain unchanged
Q3) A firm's transaction exposure in any foreign currency is based solely on the size of its open position in that currency.
A)True
B)False
Q4) A reduction in hedging will probably reduce transaction exposure. A)True
B)False
Page 12
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Chapter 11: Managing Transaction Exposure
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Sample Questions
Q1) If interest rate parity exists, the forward hedge will always outperform the money market hedge.
A)True
B)False
Q2) Most MNCs can completely hedge all of their transactions.
A)True
B)False
Q3) MNCs should hedge receivables using bear spreads only for currencies that are expected to appreciate substantially prior to option expiration.
A)True
B)False
Q4) >From the perspective of Detroit Co., which has payables in Mexican pesos, hedging the payables is especially beneficial if the expected real cost of hedging the payables is: A)negative.
B)zero.
C)positive and large.
D)positive and small.
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Chapter 12: Managing Economic Exposure and Translation Exposure
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Sample Questions
Q1) ____ 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
Q2) The translation gain (or loss) is simply a paper gain (or loss). Conversely, the gain (or loss) resulting from a hedge strategy is a real gain (or loss).
A)True
B)False
Q3) All MNCs are subject to translation exposure.
A)True
B)False
Q4) Economic exposure represents any impact of exchange rate fluctuations on a firm's future cash flows and thus includes transaction exposure.
A)True
B)False
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Chapter 13: Direct Foreign Investment
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Sample Questions
Q1) Assume a U.S. MNC initiates direct foreign investment in the United Kingdom. If the British pound is expected to appreciate against the dollar, the dollar value of earnings remitted to the parent should ____. The parent may request that the subsidiary ____ in order to benefit from the expectation about the pound.
A)increase; postpone remitting earnings until the pound strengthens B)decrease; postpone remitting earnings until the pound strengthens C)decrease; remit earnings immediately before the pound strengthens D)increase; remit earnings immediately before the pound strengthens
Q2) To diversify internationally for the purpose of reducing risk, which strategy is appropriate?
A)Establish subsidiaries in markets whose business cycles are the same as those where existing subsidiaries are based.
B)Establish a subsidiary in a market that has relatively low cost of labor or land.
C)Establish a subsidiary in a market where the local currency is weak but is expected to appreciate over time.
D)Establish subsidiaries in markets whose business cycles differ from those where existing subsidiaries are based.
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Page 15
Chapter 14: Multinational Capital Budgeting
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Sample Questions
Q1) The ____ is (are) likely the major source of funds to support a particular project.
A)initial investment
B)variable costs
C)fixed costs
D)none of the above
Q2) Other things being equal, a blocked funds restriction is more likely to have a significant adverse effect on a project if the currency of that country is expected to ____ over time, and if the interest rate in that country is relatively ____.
A)appreciate; low
B)appreciate; high
C)depreciate; high
D)depreciate; low
Q3) Sometimes, a multinational project may appear feasible from the subsidiary's perspective but not from the parent's perspective and vice versa.
A)True
B)False
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16
Chapter 15: International Corporate Governance and Control
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Sample Questions
Q1) The Sarbanes-Oxley Act requires executives and the board of directors to conduct a thorough review when assessing acquisitions.
A)True
B)False
Q2) Even if an existing business adds value to an MNC, it may be worthwhile to assess whether the business would generate more value to the MNC if it was restructured.
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) 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.
Q2) Which of the following is probably the best method of incorporating country risk into a capital budgeting analysis?
A)Adjusting the discount rate upward
B)Adjusting the input variables to estimate the sensitivity of the project's NPV
C)Adjusting the political risk rating to obtain a more favorable NPV
D)Country risk should be ignored in capital budgeting, since it is a subjective analysis.
Q3) U.S.-based firms could avoid country risk by simply avoiding international business.
A)True
B)False
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Chapter 17: Multinational Cost of Capital and Capital Structure
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Sample Questions
Q1) Assume a subsidiary is forced to borrow in excess of the MNC's optimal capital structure. Also assume that the parent company reduces its debt financing by an offsetting amount. Under this scenario, the cost of capital for the MNC overall could not have changed.
A)True
B)False
Q2) According to the text, the cost of capital for an international project will:
A)always be greater than the firm's cost of capital.
B)always be less than the firm's cost of capital.
C)always be the same as the firm's cost of capital.
D)none of the above
Q3) An MNC's "global" target capital structure is:
A)always debt intensive.
B)always equity intensive.
C)sometimes different from the MNC's "local" capital structure (at a subsidiary).
D)none of the above
Q4) An MNC's cost of equity is unrelated to the local risk-free rate.
A)True
B)False
Page 19
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Chapter 18: Long-Term Debt Financing
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Sample Questions
Q1) An MNC may be tempted to finance with a maturity that is less than the expected life of the project when the yield curve is:
A)flat.
B)inverted.
C)upward sloping.
D)downward sloping.
Q2) A currency swap between two firms of different countries enables the exchange of ____ for ____ at periodic intervals.
A)stock; one currency
B)stock; a portfolio of foreign currencies
C)one currency; stock options
D)one currency; another currency
Q3) When a financial institution acts as a(n) ____ to an interest rate swap, it simply arranges a swap between two parties.
A)ultraparty
B)Broker
C)counterparty
D)none of the above
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Chapter 19: Financing International Trade
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Sample Questions
Q1) 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-Im Bank
D)Overseas Private Investment Corporation (OPIC); Ex-Im Bank
Q2) According to the text, international trade activity has generally ____ over time. This should cause the popularity of trade finance techniques to ____ over time.
A)increased; increase
B)increased; decrease
C)decreased; increase
D)decreased; decrease
Q3) Under a countertrade arrangement, the exporter ships the products to the importer while retaining title to the merchandise until it is sold.
A)True
B)False
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Chapter 20: Short-Term Financing
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Sample Questions
Q1) A large firm may finance in a foreign currency to offset a net payable position in that foreign country.
A)True
B)False
Q2) The interest rate of Euronotes is based on the T-bill rate.
A)True
B)False
Q3) Refer to Exhibit 20-1 above. What is the effective financing rate for the MNC assuming that it borrows leu on a covered basis?
A)10 percent
B)-10 percent
C)-1 percent
D)1 percent
E)none of the above
Q4) An MNC's parent or subsidiary in need for funds commonly determines whether there are any available internal funds before searching for outside funding.
A)True
B)False
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Page 22
Chapter 21: International Cash Management
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Sample Questions
Q1) Assume that a U.S. firm considers investing in British one-year Treasury securities. The interest rate on these securities is 12 percent, while the U.S. interest rate on the same securities is 10 percent. The firm believes that today's spot rate is an appropriate forecast for the spot rate of the pound in one year. Based on this information, the effective yield on British securities from the U.S. firm's perspective is:
A)equal to the U.S. interest rate.
B)equal to the British interest rate.
C)lower than the U.S. interest rate.
D)higher than the British interest rate.
E)lower than the British interest rate, but higher than the U.S. interest rate.
Q2) Which of the following is true?
A)Some countries may prohibit netting.
B)Some countries may prohibit forms of leading and lagging.
C)A and B
D)None of the above
Q3) In general, exchange rate fluctuations cause cash flows to be more volatile and uncertain.
A)True
B)False
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Page 23