Chapter 3
International Financial Markets
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1. Which of the following is not a motive for investing in foreign markets?
a. expectations of a weaker foreign currency
b. international diversification
c. economic conditions
d. all of the above are motives for investing in foreign markets

2. Which of the following are important attributes of banks that provide foreign exchange?
a. speed of execution
b. advice about current market conditions
c. forecasting advice
d. all of the above
e. both b and c

3. The bid rate for the British pound is $1.65 and the ask rate is $1.68. What is the bid/ask spread?
a. 1.82%
b. -1.82%
c. 1.79%
d. -1.79%
e. none of the above

4. If the value of the Canadian dollar (C$) is $0.65 and the euro (€) is worth $0.90, what is the value of the euro in Canadian dollars?
a. C$1.38
b. C$0.72
c. C$0.59
d. €0.72
e. none of the above

5. The Eurodollar market grew substantially in the 1960s and 1970s for which of the following reasons?
a. higher reserve requirements for Eurobanks
b. U.S. regulations in 1968 which limited foreign lending by U.S. banks
c. higher spreads that Eurobanks could charge on loans and deposits
d. all of the above
e. both a and c

6. Multinational corporations sometimes borrow in the Eurocredit market. These loans are denominated in dollars and many other currencies. The common maturity for Eurocredit loans is:
a. one year
b. three years
c. five years
d. ten years
e. thirty years

7. A long-term bond that is issued by a borrower foreign to the country where the bond is placed is called a:
a. foreign bond
b. Eurobond
c. Eurocredit bond
d. all of the above

8. A stock offering by foreign corporations in the U.S. is called a (an):
a. American depository receipt (ADR)
b. Yankee stock offering
c. floating rate note (FRN)
d. none of the above

9. The most common type of foreign exchange transaction is for immediate exchange at the so-called forward rate.
a. True
b. False

10. A purchaser of a currency put option buys the right to sell a specific currency at a specific price within a specific period of time.
a. True
b. False

11. In December 1987, 12 major industrialized countries met in Buenos Aires and agreed on standardized guidelines for bank capital classification. This agreement was called the "Brazil Accord."
a. True
b. False

12. Loan rates float in accordance with the movement of some market interest rate, such as the Lisbon Intrabank Offer Rate (LIBOR). It is the rate commonly charged for loans between Eurobanks.
a. True
b. False

13. The adoption of the euro discouraged MNCs based in Europe to issue stock.
a. True
b. False

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