International Financial Markets
Exam Practice Tests
Course Introduction
International Financial Markets explores the structure, functions, and operations of financial markets across the globe. This course examines the institutions and instruments that facilitate cross-border investment and trade, including currency exchanges, global bond and equity markets, and derivative instruments. Students gain an understanding of how economic, political, and regulatory factors influence international capital flows and asset prices. The course also addresses risk management strategies in global finance, the impact of globalization on financial markets, and relevant contemporary issues such as fintech, emerging markets, and financial crises.
Recommended Textbook
Financial Markets and Institutions 9th Edition by Jeff Madura
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Page 2
Chapter 1: Role of Financial Markets and Institutions
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Sample Questions
Q1) Securities are certificates that represent a claim on the issuer.
A)True
B)False
Answer: True
Q2) Which of the following statements is incorrect?
A)Financial markets attract funds from investors and channel the funds to corporations.
B)Money markets enable corporations to borrow funds on a short-term basis so that they can support their existing operations.
C)Financial institutions serve solely as intermediaries with the financial markets and never serve as investors.
D)Investors seek to invest their funds in the stock of firms that are presently undervalued and have much potential to improve.
Answer: C
Q3) Common types of capital market securities include Treasury bills and commercial paper.
A)True
B)False
Answer: False
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3
Chapter 2: Determination of Interest Rates
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Sample Questions
Q1) Canada and the U.S.are major trading partners.If Canada experiences a major increase in economic growth, it could place ____ pressure on Canadian interest rates and ____ pressure on U.S.interest rates.
A)upward; upward
B)upward; downward
C)downward; downward
D)downward; upward
Answer: A
Q2) The federal government demand for loanable funds is ____.If the budget deficit was expected to increase, the federal government demand for loanable funds would ____.
A)interest elastic; decrease
B)interest elastic; increase
C)interest inelastic; increase
D)interest inelastic; decrease
Answer: C
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Chapter 3: Structure of Interest Rates
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Sample Questions
Q1) If the yield curve is upward sloping, some investors may attempt to benefit from the higher yields on longer-term securities, even when they have funds for only a short period of time.This strategy is known as riding the yield curve.
A)True
B)False
Answer: True
Q2) A theory states that while investors and borrowers may normally concentrate on a particular natural maturity market, conditions may cause them to change maturity markets.This theory is called the
A)liquidity premium theory.
B)efficient markets theory.
C)pure expectations theory.
D)preferred habitat theory.
Answer: D
Q3) If liquidity influences the yield curve, the forward rate underestimates the market's expectation of the future interest rate.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Functions of the Fed
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Sample Questions
Q1) The ____ consists of seven members, each of whom is appointed by the President of the United States.
A)Federal Open Market Committee (FOMC)
B)Federal Advisory Council
C)Board of Governors
D)none of the above
Q2) The ____ is directly responsible for conducting monetary policy.
A)Federal Advisory Council
B)FOMC
C)Senate
D)President of the United States
Q3) The ____ is directly responsible for setting reserve requirements.
A)Federal Advisory Council
B)FOMC
C)Board of Governors
D)President of the United States
Q4) To increase the money supply, the Trading Desk would be instructed to sell government securities.
A)True
B)False
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Chapter 5: Monetary Policy
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Sample Questions
Q1) If the Fed attempts to reduce inflation, it would likely increase money supply growth.
A)True
B)False
Q2) A purchase of Treasury securities by the Fed leads to a(n) ____ in interest rates and a(n) ____ in the level of business investment.
A)increase; decrease B)decrease; decrease C)increase; increase D)decrease; increase
Q3) The Fed is usually more willing to monetize the debt when inflation is relatively high. A)True
B)False
Q4) One of the disadvantages of inflation targeting is that the Fed could lose credibility is the U.S.inflation rate deviates substantially from the Fed's target inflation rate.
A)True
B)False
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Chapter 6: Money Markets
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Sample Questions
Q1) The rate on Eurodollar floating rate CDs is based on A)a weighted average of European prime rates.
B)the London Interbank Offer Rate.
C)the U.S.prime rate.
D)a weighted average of European discount rates.
Q2) When an investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700, the Treasury bill discount is ____ percent.
A)5.93
B)6.12
C)6.20
D)6.02
E)none of the above
Q3) Money market securities are must have a maturity of three months or less.
A)True
B)False
Q4) The interest rate charged for a short-term loan from a bank to a corporation is referred to as the London interbank offer rate (LIBOR).
A)True
B)False
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Chapter 7: Bond Markets
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Sample Questions
Q1) Bonds issued by ____ are backed by the federal government.
A)the Treasury
B)AAA-rated corporations
C)state governments
D)city governments
Q2) Many bonds are listed on the New York Stock Exchange (NYSE).
A)True
B)False
Q3) (Financial calculator required.) Paul can purchase bonds with 15 years remaining until maturity, a par value of $1,000, and a 9 percent annual coupon rate for $1,100.Paul's yield to maturity is ____ percent.
A)9.33
B)7.84
C)9.00
D)none of the above
Q4) Bonds that are not secured by specific property are called A)a chattel mortgage.
B)open-end mortgage bonds.
C)debentures.
D)blanket mortgage bonds.
Page 9
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Chapter 8: Bond Valuation and Risk
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Sample Questions
Q1) Which of the following is most likely to cause a decrease in bond prices?
A)a decrease in money supply growth and an increase in the demand for loanable funds
B)a forecast of decreasing oil prices
C)a forecast of a stronger dollar
D)an increase in money supply growth and no change in the demand for loanable funds
Q2) If bond portfolio managers expect interest rates to decrease in the future, they would likely ____ their holdings of bonds now, which could cause the prices of bonds to ____ as a result of their actions.
A)increase; increase
B)increase; decrease
C)decrease; decrease
D)decrease; increase
Q3) If the coupon rate equals the required rate of return, the price of the bond
A)should be above its par value.
B)should be below its par value.
C)should be equal to its par value.
D)is negligible.
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Chapter 9: Mortgage Markets
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Sample Questions
Q1) An institution that originates and holds a fixed-rate mortgage is adversely affected by ____ interest rates; the borrower who was provided the mortgage is adversely affected by ____ interest rates.
A)stable; decreasing B)increasing; stable
C)increasing; decreasing D)decreasing; increasing
Q2) Non-U.S.financial institutions never hold mortgages on U.S.property.
A)True
B)False
Q3) ____ was created in 1968 as a corporation that is wholly owned by the federal government.It supplies funds to low- and moderate-income homeowners indirectly by facilitating the flow of funds into secondary mortgage markets.
A)Freddie Mac
B)Ginnie Mae
C)Fannie Mae
D)None of the above
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11
Chapter 10: Stock Offerings and Investor Monitoring
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Sample Questions
Q1) The practice of purchasing IPO stock at the offer price and selling the stock shortly afterward is called
A)flipping.
B)skiing.
C)flopping.
D)none of the above
Q2) Whenever ____ exceeds ____, the stock price will be driven ____.
A)supply; demand; up
B)demand; supply; down
C)demand; supply; up
D)none of the above
Q3) Shareholders can most easily measure a firm's performance by monitoring changes in its ____ over time.
A)share price
B)employee job descriptions
C)board of directors
D)asset size
Q4) Underwriters sell most of the shares of an IPO to institutional investors.
A)True
B)False
Page 12
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Chapter 11: Stock Valuation and Risk
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Sample Questions
Q1) If the standard deviation of a stock's returns over the last 12 quarters is 4 percent, and if there is no perceived change in volatility, there is a ____ percent probability that the stock's returns will be within ____ percentage points of the expected outcome. A)68; 4 B)68; 8 C)95; 8 D)95; 6 E)none of the above
Q2) According to the text, other things being equal, stock prices of U.S.firms primarily involved in exporting could be ____ affected by a weak dollar.Stock prices of U.S.importing firms could be ____ affected by a weak dollar.
A)adversely; favorably
B)favorably; adversely
C)favorably; favorably
D)adversely; adversely
Q3) Stock repurchases are commonly viewed as an unfavorable signal about the firm. A)True B)False
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Chapter 12: Market Microstructure and Strategies
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Sample Questions
Q1) The bid-ask spread is negatively related to A)order costs.
B)inventory costs.
C)risk
D)trading volume.
Q2) Which of the following statements is incorrect?
A)In a short sale, investors place an order to sell a stock that they do not own.
B)Investors sell a stock short when they anticipate that its price will rise.
C)When investors sell short, they will ultimately have to provide the stock back to the investor from whom they borrowed it.
D)Short-sellers must make payments to the investor from whom the stock was borrowed to cover the dividend payments that the investor would have received of the stock had not been borrowed.
Q3) When investors sell short, they are essentially lending the stock to another investor and will ultimately receive that stock back from the investor to whom they lent it.
A)True
B)False
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14
Chapter 13: Financial Futures Markets
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Sample Questions
Q1) The futures price is mainly a function of the prevailing price of the underlying security plus an expected adjustment in that price by the settlement date.
A)True
B)False
Q2) Marcia buys an S&P 500 futures contract with a September settlement date when the index is 1,750.By the settlement date, the S&P 500 index falls to 1,400.The return on Marcia's position in the S&P 500 futures contract is ____ percent.
A)F1F1F1S1 F1F1F1020
B)F1F1F1S1 F1F1F1010
C)25
D)20
E)0
Q3) Assume that a stock mutual fund uses stock index futures as it conducts dynamic asset allocation.This means that the mutual fund
A)liquidates its stocks whenever it expects a market downturn.
B)maintains a constant buy position in stock index futures.
C)maintains a constant sell position in stock index futures.
D)none of the above
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Chapter 14: Options Markets
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Q1) The motive for a CEO to backdate options is that it allowed them to exercise the options at a lower exercise price.
A)True
B)False
Q2) Corporations involved in international business transactions can ____ to hedge future ____.
A)sell currency call options; payables
B)purchase currency put options; receivables
C)purchase currency call options, receivables
D)purchase currency put options, payables
E)A and B
Q3) Speculators may be willing to write ____ options on foreign currencies they expect to ____ against the dollar.
A)put; strengthen
B)put; weaken
C)call; strengthen
D)call; weaken
E)A and D
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Chapter 15: Swap Markets
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Q1) A ____ swap allows the party making floating-rate payments to terminate the swap prior to maturity.
A)zero coupon-for-floating
B)forward
C)callable
D)putable
Q2) An arrangement which enables firms to exchange currencies at periodic intervals is called a
A)currency swap.
B)interest rate swap.
C)swap exchange.
D)eurobond swap.
Q3) A ____ swap involves the exchange of fixed-rate payments for floating-rate payments that are capped.
A)rate-capped
B)zero-coupon-for-floating
C)callable
D)putable
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Chapter 16: Foreign Exchange Derivative Markets
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Q1) If the U.S.government imposed trade restrictions on U.S.imports, this would ____ the U.S.demand for foreign currencies, and would place ____ pressure on the values of foreign currencies (with respect to the dollar).
A)increase; upward
B)increase, downward
C)limit; upward
D)limit; downward
Q2) If the forward rate of a foreign currency ____ the existing spot rate, the forward rate will exhibit a ____.
A)exceeds; discount
B)is below; premium
C)is below; discount
D)A and B
Q3) The forward rate is the exchange rate for immediate delivery.
A)True
B)False
Q4) Financial institutions rarely use the forward market.
A)True
B)False
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Chapter 17: Commercial Bank Operations
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Sample Questions
Q1) Bank loans designed to support a firm's ongoing business operations are called A)term loans.
B)working capital loans.
C)direct lease loans.
D)revolving credit loans.
Q2) The intent of federal funds transactions is to
A)correct short-term fund imbalances experienced by banks.
B)correct long-term fund imbalances experienced by banks.
C)serve as a permanent source of bank capital.
D)serve as the primary depository source of funds.
Q3) A bank's uses of funds represent liabilities of a bank.
A)True
B)False
Q4) Commercial banks can be a lender or a borrower when using repurchase agreements and loans in the federal funds market. A)True
B)False
Q5) A bank's sources of funds represent liabilities or equity of the bank.
A)True
B)False
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Chapter 18: Bank Regulation
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Q1) The Sarbanes-Oxley Act (SOX) was enacted in 2002 in order to ensure a more transparent process for reporting on productivity and the financial condition of the firm.
A)True
B)False
Q2) Commercial banks that are not members of the Federal Reserve System ____ borrow from the Fed, and ____ subject to the Fed's reserve requirements.
A)may; are B)may; are not C)may not; are not D)may not; are
Q3) Which banking act prevented interstate banking?
A)McFadden Act
B)Glass-Steagall Act
C)DIDMCA
D)Garn-St Germain Act
Q4) Banks commonly use depositor funds to invest in stocks.
A)True
B)False
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Page 20
Chapter 19: Bank Management
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Q1) A bank can usually simultaneously maximize its return on assets and minimize credit risk.
A)True
B)False
Q2) Petri Bank had interest revenues of $70 million last year and $30 million in interest expenses.About $300 million of Petri's $800 million in assets are rate-sensitive, while $600 million of its liabilities are rate-sensitive.Petri Bank's gap ratio is ____ percent.
A)37.5
B)50.0
C)100.0
D)40.0
Q3) For most banks, the average duration of liabilities exceeds the average duration of assets, so the duration gap is positive.
A)True
B)False
Q4) Floating-rate loans completely eliminate interest rate risk.
A)True
B)False
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Chapter 20: Bank Performance
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Q1) When only equity counts as capital, the higher the capital ratio, the A)lower the leverage measure.
B)lower the degree of financial leverage.
C)higher the leverage measure.
D)A and B
E)B and C
Q2) Gross interest expense is affected by
A)market interest rates.
B)the composition of assets held by the bank.
C)fee services provided by the bank.
D)A and B
Q3) During periods of ____ economic growth, loan demand tends to be ____, allowing banks to provide ____ loans.
A)strong; higher; more
B)weak; higher; more C)weak; lower; more
D)strong; lower; fewer
E)none of the above
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22
Chapter 21: Thrift Operations
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Sample Questions
Q1) The ____ acts as a temporary lender to credit unions.
A)World Bank
B)Central Liquidity Facility
C)Federal Home Loan Bank
D)National Credit Union Administration
Q2) Like commercial banks, savings institutions commonly measure the gap between their rate-sensitive assets and rate-sensitive liabilities in order to determine their exposure to credit risk.
A)True
B)False
Q3) Federal credit unions are regulated and supervised by the
A)Central Liquidity Facility.
B)National Credit Union Administration.
C)Securities and Exchange Commission.
D)Corporate Credit Union Network.
E)none of the above
Q4) An interest rate swap reduces the favorable impact of declining interest rates.
A)True
B)False
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Chapter 22: Finance Operations
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Q1) Finance companies differ from commercial banks, savings institutions, and credit unions in that they
A)normally do not obtain funds from deposits.
B)focus on financing acquisitions by companies.
C)focus on providing residential mortgages.
D)use most of their funds to purchase stocks.
Q2) Finance companies commonly act as ____ for accounts receivable; that is, they purchase a firm's receivables at a discount and are responsible for processing and collecting the balances of these accounts.
A)brokers
B)dealers
C)market makers
D)factors
E)none of the above
Q3) After interest rates increase, finance companies tend to use more long-term debt to lock in the cost of funds over an extended period of time.
A)True
B)False
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Chapter 23: Mutual Fund Operations
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Q1) ____ are not exchange-traded funds.
A)Spiders
B)Growth mutual funds
C)Diamonds
D)Sector Spiders
Q2) Investors who feel capable of making their own investment decisions often prefer to invest in load funds.
A)True
B)False
Q3) Many businesses that go public are partially backed by venture capital before the IPO.
A)True
B)False
Q4) The term "mutual funds" is normally used to represent open-end funds, and does not include closed end funds.
A)True
B)False
Q5) The net asset value of a mutual fund is estimated once every week.
A)True
B)False
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Chapter 24: Securities Operations
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Q1) Investors sell a security short when they expect the price of the security to A)increase substantially.
B)decrease.
C)remain perfectly stable.
D)increase slightly.
Q2) All information relevant to the security, as well as the agreement between the issuer and the securities firm, must be provided in the A)origination.
B)registration statement.
C)best-efforts agreement.
D)none of the above
Q3) The return to investors who purchase IPO shares at the IPO offer price are ____, and the returns to investors who purchase the shares after the IPO are generally ____.
A)high; high
B)high; low
C)low; high
D)low; low
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26
Chapter 25: Insurance and Pension Fund Operations
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Q1) Life insurance companies can attempt to reduce their exposure to interest rate risk by
A)increasing their proportion of long-term assets.
B)diversifying the age distribution of their customer base.
C)increasing their proportion of short-term assets.
D)concentrating on an older age distribution of their customer base.
Q2) With a(n) ____ plan, contributions are dictated by the benefits that will eventually be provided.
A)matched funding
B)projective funding
C)defined-benefit
D)defined-contribution
E)none of the above
Q3) The ratio of an insurance company's net profit to policyholders' surplus is called A)liquidity ratio.
B)return on net worth.
C)net underwriting margin.
D)return on assets.
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