Q&A Hero

Q: _______________ are primarily medium-term credit agreements between international banks and their larger corporate and government customers. The customer is authorized to periodically offer short term notes that come due in 90 to 180 days over a stipulated period.

Q: When dealers speculate on trends in the prices of selected currencies, it is called ______________.

Q: A device which aids customers in selling goods abroad is known by the acronym _________ and was originally developed by the Japanese.

Q: A(n) _________________________________________________________________ is a contractual agreement between two parties to exchange interest payments in order to hedge against interest rate risk.

Q: The ____________________________________________ is an international market for long-term debt denominated in foreign currency units.

Q: A(n) ____________________________________________ is the exchange of different national currencies between two parties who need foreign currencies to repay loans or cover other expenses.

Q: A(n) ____________________________________________ grants the buyer the right to deliver or take delivery of a designated currency at a specified price until it expires.

Q: ____________________________________________ is the risk that has to do with the fluctuations in currency prices.

Q: ____________________________________________ refers to the market for foreign currency or trading one currency for another.

Q: The ___________________________________________ is an agreement between the U.S., Japan, Canada, and several other nations of Western Europe to adopt common capital standards for all of their banks.

Q: The ______________________________________________ requires regulators to determine if foreign banks selling their services in the U.S. are adequately regulated by their home governments and to close those not adequately supervised or in violation of U.S. law.

Q: A(n) ______________________________________________ is where computerized records of transactions involving banks and their international customers are kept separate from the rest of the domestic accounts. These are more lightly regulated than regular bank offices.

Q: A(n) ______________________ is where a bank customer, anticipating a future need to make foreign currency purchase, will negotiate a contract for the delivery of the currency at a set price on a set date.

Q: A(n) ______________________________________ is a receipt issued by a U.S. bank which makes it easier for a foreign business borrower to sell securities in the U.S.

Q: The ____________________________________________ is the first major federal law regulating foreign bank activity in the U.S. It requires foreign banks accepting deposits to meet reserve requirements and allows foreign banks to be eligible for federal deposit insurance under stipulated conditions.

Q: A(n) ___________________________________________ is an organization which has over half its income from activities associated with exporting goods and services from the U.S. They can offer export insurance coverage, transportation, warehousing, and other services.

Q: A(n) ______________________ branch is a special foreign office which merely records the receipt of deposits and other international transactions. Often these branches contain little more than a desk, a telephone, fax machine, and computer and are used as a way around regulations.

Q: ____________________________ are domestic U.S. companies owned by U.S. or foreign banks, located outside the home state of the bank that owns them. These organizations are limited primarily to international business transactions.

Q: When an international bank acquires majority ownership of a separate, legally incorporated foreign bank under host-country rules, this foreign bank is called a(n) ______________________ of the international bank.

Q: A(n) ______________________ is the most common organizational form for an international bank. It offers the bank's full range of services but is not a separate legal entity from its parent bank.

Q: A(n) ______________________ is a more complete organizational form for international banks than a representative office. It does not generally take deposits from the public but gives commitments to make or purchase loans, among other things.

Q: A(n) ___________________________________ is the simplest organizational form for an international bank. This is a limited service office that markets the services provided by the home office and identifies new customers but does not take deposits or book loans.

Q: Banks and other financial firms continue to substantially consolidate and converge, resulting in more diverse service providers. This is because of: A. the Foreign Bank Supervision Enhancement Act. B. introduction of depository receipts. C. increase in currency swaps. D. increased consolidation and convergence. E. the Basel Agreement.

Q: An investor takes a call option on euro futures contracts at strike price of $0.65. If the market price of euro futures reduces to $0.62, the call option will: A. be "in the money". B. be exercised before the option expires. C. go unexercised. D. increase upside profits. E. increase downside risk.

Q: Recently, FOREX trading activity among leading commercial and investment bank dealers has sharply increased due to: A. volatility among leading currencies. B. increase in security underwriting for corporations. C. provision of foreign marketing assistance to customers. D. introduction of payments and cash management services. E. supply of foreign currencies directly to customers.

Q: An increasing number of nations are recognizing the need of coordinating the regulatory activities so that all financial firms, serving international markets, operate under similar rules. This is known as: A. reconciliation B. accord C. consolidation D. convergence E. harmonization

Q: Which of the following types of bank possesses its own charter and capital stock and is legally incorporated under host-country rules? A. A branch office B. A joint venture C. A representative office D. A subsidiary E. A shell branch

Q: A bank, concerned about risk exposure in entering a foreign market, lacking the necessary expertise and customer contacts abroad, or wishing to offer services restricted to banks alone, may choose to: A. set up a branch office. B. enter into a joint venture with a foreign financial firm. C. set up an agency office. D. set up a representative office. E. set up a shell branch.

Q: Which of the following is a way in which a bank can deal with a troubled international loan? A. The loan can be restructured generally with a lower interest rate and longer time to repay B. The loan can be sold in the secondary market C. The bank can write off all or part of the loan D. The bank can accept exit bonds in lieu of loan repayment E. All of the options are ways to deal with a troubled international loan

Q: A broker has purchased stock in Sony Corporation and has asked Citibank to act as a custodian of this stock. Citibank has issued a negotiable instrument representing ownership interest in the stock of the Japanese company. These negotiable instruments are denominated in dollars and not in yen. This is an example of a(n): A. Eurocommercial paper (ECP). B. Depository receipt (DR). C. Note issuance facility. D. Currency swap. E. None of the options is correct

Q: Suppose the Bank of America provides a 5 year credit guarantee for Dillard's Department Stores. Dillard's Department Stores periodically issues short term notes with due dates of 90 days after they are issued in the international market. Bank of American has most likely provided a(n): A. Eurocommercial paper (ECP) B. Depository receipt (DR) C. Note issuance facility D. Currency swap E. None of the options is correct.

Q: A multinational company raises short-term credit through London's financial district. They are most likely using: A. Eurocommercial paper (ECP) B. Depository receipt (DR) C. Note issuance facility D. Currency swap E. None of the options is correct.

Q: Which of the following is a reason for the growth of the currency swap market in recent years? A. It has helped thousands of businesses and governments hedge currency risk. B. It has provided central banks with a new instrument to trade. C. It has helped shape money and credit conditions in various countries. D. It has helped strengthen home nations' economies. E. All of the options are reasons for the growth of the currency swap market in recent years.

Q: Suppose a U.S. bank borrows money in London while a British company borrows money in New York. At the end of the loan period the U.S. company needs pounds to repay their loan and the British company needs dollars to repay their loan. Which of the following might be a good tool for these companies to reduce their currency risk? A. Currency futures contract B. Currency option contract C. Interest rate futures contract D. Interest rate swap contract E. Currency swap contract

Q: Suppose Citibank holds assets denominated in euros of 120 million and liabilities denominated in euros of 180 million. They also have euro purchases of 40 million and euro sales of 70 million. When would Citibank experience a loss in the currency market? A. When the euro declines in value relative to the dollar B. When the dollar increases in value relative to the euro C. When the yen increases in value D. When the euro increases in value relative to the dollar E. None of the options is correct.

Q: Suppose Bank of America holds assets denominated in yen of 150 million and liabilities denominated in yen of 90 million. They also have yen purchases of 70 million and yen sales of 50 million. When would Bank of America experience a loss in the currency market? A. When the yen declines in value relative to U.S. dollars B. When the yen increases in value relative to U.S. dollars C. When U.S. dollar declines in value relative to the yen D. When the euro declines in value E. None of the options is correct.

Q: Suppose South Korea limits the amount of deposits made in South Korea that can be used to make loans in other countries. This would be in support of which reason for regulating international banks? A. Protecting the safety of depositor funds B. Promoting stable growth in money and credit C. Providing foreign currency controls D. Protecting domestic financial institutions E. Restricting the outflow of scarce capital

Q: Suppose India restricts entry of foreign banks until the end of the decade. This would be in support of which reason for regulating international banks? A. Protecting the safety of depositor funds B. Promoting stable growth in money and credit C. Providing foreign currency controls D. Protecting domestic financial institutions E. Restricting the outflow of scarce capital

Q: Suppose Brazil decides to restrict the export of the real by international banks so that the real does not leave the country and reduce currency reserves for repayment of Brazilian debt. This would be in support of which reason for regulating international banks? A. Protecting the safety of depositor funds B. Promoting stable growth in money and credit C. Providing foreign currency controls D. Protecting domestic financial institutions E. Restricting the outflow of scarce capital

Q: Suppose the international banks operating in Venezuela have to meet the same legal reserve requirements as domestic banks to avoid massive threats to economic health in the nation. This would be in support of which reason for regulating international banks? A. Protecting the safety of depositor funds B. Promoting stable growth in money and credit C. Providing foreign currency controls D. Protecting domestic financial institutions E. Restricting the outflow of scarce capital

Q: If Denmark requires that all foreign banks operating in Denmark have at least ten percent capital, what reason for regulating international banks is this action most likely in support of? A. Protecting the safety of depositor funds B. Promoting stable growth in money and credit C. Providing foreign currency controls D. Protecting domestic financial institutions E. Restricting the outflow of scarce capital

Q: The State Bank of Nebraska owns a company that has more than half of its income from activities associated with exporting goods and services from the U.S. This company offers export insurance coverage, transportation and warehousing in Europe, trade financing, and other services. What type of company does the State Bank of Nebraska own? A. A representative office B. An agency office C. A branch office D. A subsidiary E. An export trading company

Q: The State Bank of Virginia owns 55 percent of the shares of the Bank of Budapest. What type of arrangement is this? A. A representative office B. An agency office C. A branch office D. A subsidiary E. An export trading company

Q: The Second National Bank of Guthrie has opened an office in Chile. This office offers a full line of services and is not a separate legal entity from the Second National Bank of Guthrie. What type of office has the Second National Bank of Guthrie opened in Chile? A. A representative office B. An agency office C. A branch office D. A subsidiary E. An export trading company

Q: The Third State Bank of Laramie has opened an office in Morocco. This office does not take deposits but makes commitments to make loans, issues letters of credit, and provides technical assistance to companies in Morocco. What type of office has the Third State Bank of Laramie opened in Morocco? A. A representative office B. An agency office C. A branch office D. A subsidiary E. An export trading company

Q: The First National Bank of Summerville has opened an office in Turkey. This is a limited service office that can market services of the home office in Turkey and can identify Turkish customers but cannot take deposits or book loans. What type of office has the First National Bank of Summerville opened in Turkey? A. A representative office B. A shell branch C. A branch office D. A subsidiary E. An export trading company

Q: The biggest problem for international banks at the beginning of the 21st century is: A. the Internet. B. interest rate risk. C. foreign exchange risk. D. non-performing loans. E. None of the options is correct.

Q: The market for banking in China exhibits all of the following except: A. high savings rate. B. a well-qualified management. C. a large percentage of troubled loans. D. a general lack of access from outside the country. E. a growing economy.

Q: The primary source for international bank statistics is: A. the FDIC. B. the OCC. C. the BIS. D. the ETC. E. the United Nations.

Q: As the text suggests, all of the following areas of the world have significant opportunities for foreign banks except: A. Asia. B. China. C. Russia. D. Japan. E. South Korea.

Q: The Goudge Grilling Company has just ordered a shipment of grills from Frankfurt. Payment for the grills must be in euros when the grills are delivered. Euros have changed in value in the last 30 days. They have gone from $1.42 to $1.44. If this trend continues which of the following currency contracts can help the Goudge Grilling Company hedge their currency risk? A. Put currency option B. Short-hedge currency futures contract C. Long-hedge currency futures contract D. Currency swap contract E. None of the options is correct.

Q: The Hagard Mercantile Company has made a $30 million investment in a mill in Germany and fears a substantial decline in the mark's current spot rate from $0.63 to $0.56 lowering the value of the company's investment in the mill. Which of the following currency contracts can help Hagard solve this problem? A. Call currency option B. Put currency option C. Long-hedge currency futures contract D. Currency swap contract E. None of the options is correct.

Q: Which of the following is a risk evaluation system in international lending today? A. The Seat-of-the-pants method B. The Discrimination method C. The Delphi method D. The State-risk indicator method E. None of the options is correct.

Q: Which of the following is one of the customer services supplied by banks in international markets? A. Underwriting notes and bond issues in the U.S. bond market B. Helping customer market their products in the domestic market C. Helping customers hedge against foreign currency risk D. Making loans to domestic customers E. All of the options are customer services offered by banks in the international market.

Q: A full-service facility operated by a bank away from its home office but is merely a local office that represents a single large financial-service corporation is known as a(n): A. branch office. B. agency office. C. subsidiary. D. representative office. E. None of the options is correct.

Q: Banks have been heavily involved in selling their services across national boundaries since: A. the industry's very beginning. B. the 1950s. C. the 1980s. D. the turn of the century. E. None of the options is correct.

Q: A foreign currency contract where one party trades currencies with another and trades it back at the end of the contract is called a: A. currency option contract. B. currency forward contract. C. currency swap contract. D. currency futures contract. E. None of the options is correct.

Q: A foreign currency contract that gives the holder of the contract the right to sell a foreign currency at a specified price on or before the published expiration date is called a: A. call currency option. B. put currency option. C. long hedge currency futures contract. D. short-hedge currency futures contract. E. None of the options is correct.

Q: A foreign currency contract that obligates the holder of the contract to make delivery of a foreign currency sometime in the future is called a: A. call currency option. B. put currency option. C. long-hedge currency futures contract. D. short-hedge currency futures contract. E. None of options is correct.

Q: Under current U.S. law, the Federal Reserve Board must be notified a minimum of __________ days in advance if a foreign bank wishes to close any of its U.S. offices. A. 30 B. 60 C. 90 D. 180 E. None of options is correct.

Q: Which U.S. federal law required branches and agency offices of foreign banks to secure federal licenses for their U.S. operations for the first time? A. International Banking Act B. International Lending and Supervision Act C. Bank Holding Company Act D. International Bank Supervision and Examination Procedures Act E. None of options is correct.

Q: ____________ are often used to protect a nation against loss of its foreign currency reserves, which might damage its prospects for repaying international loans and purchasing goods and services abroad. A. Export loan rate restrictions B. Foreign exchange controls C. Minimum capitalization requirements for domestic banks D. Examination and supervision regulations for local branch offices E. None of options is correct

Q: Business corporations that are subsidiaries of a bank organized under Section 25 of the Federal Reserve Act and must devote the bulk of their activities to serving international customers are known as: A. IBFs. B. shell branches. C. ETCs. D. agreement corporations. E. None of options is correct.

Q: A call currency option: A. obligates the holder to purchase currency or currency futures contracts at a fixed price any time before the option expires. B. gives the holder the right to purchase currency or currency futures contracts at a fixed price any time before the option expires. C. obligates the holder to sell currency or currency futures contracts at a fixed price any time before the option expires. D. gives the holder the right to sell currency or currency futures contracts at a fixed price any time before the option expires. E. None of options is correct.

Q: The Foreign Bank Supervision Enhancement Act of 1991 places the responsibility for supervising U.S. branches of foreign banks with the: A. Office of the Comptroller of the Currency. B. Federal Reserve Board. C. Federal Deposit Insurance Corporation. D. Secretary of Commerce. E. None of options is correct.

Q: Which of the following is (are) the key component(s) included in the International Banking Act (IBA) of 1978?A. Foreign banks are required to follow the same branching laws as U.S. banks.B. Legal reserves requirements determined by the Federal Reserve Board are compulsory against deposits accepted by U.S. branch or agency offices of foreign banks with consolidated assets of $1 billion or more.C. U.S. branches of foreign banks are eligible for deposit insurance under stipulated conditions.D. U.S. branches of foreign banks have access to certain Federal Reserve services, such as the ability to borrow from the Federal Reserve banks.E. All of the options are correct.

Q: International banking regulation(s) that do not apply to most domestic banking activity include: A. foreign exchange controls. B. restricting the outflow of scarce capital. C. protecting domestic financial institutions from foreign competition. D. protecting domestic markets from foreign competition. E. All of the options are correct.

Q: International banking activities are regulated for many of the same reasons that shape domestic banking regulation. These common reasons for regulation include: A. restricting bank risk exposure. B. protecting the safety of depositor funds. C. promoting stable growth in money and credit. D. avoiding massive threats to economic health in individual nations. E. All of the options are correct.

Q: Organizational devices used by international banks to take deposits offshore and avoid regulations (such as deposit insurance assessments) are known as: A. international banking facilities (IBFs). B. export trading companies (ETCs). C. shell branches. D. subsidiaries. E. None of options is correct.

Q: The specialized firms that can be operated by U.S. banking companies and Edge Act corporations are called: A. international banking facilities (IBFs). B. export trading companies (ETCs). C. shell branches. D. subsidiaries. E. None of options is correct.

Q: An organizational form used by international banks, that was created by U.S. regulations and authorized by the Federal Reserve Board, consisting of computerized account records is known as: A. international banking facility (IBF). B. export trading company (ETC). C. Edge Acts. D. agencies. E. None of options is correct.

Q: Separate corporate entities affiliated either with a U.S. bank or with a foreign bank operating in the U.S. that can cross state lines, but must devote the majority of their accounts to international activities are known as: A. joint ventures. B. representative office. C. Agreement corporations. D. Edge Act corporations. E. None of options is correct.

Q: A limited service facility that can market services supplied by the home office of an international bank and identify new customers, but cannot take deposits or book loans is known as a: A. branch office. B. agency office. C. subsidiary. D. representative office. E. None of options is correct.

Q: The Eurobond market provides a firm with access to funds outside its home country.

Q: An ETC is a device which aids customers in selling goods abroad.

Q: China has the highest overall savings rate in the world.

Q: The currency swap market is in decline following the introduction of the Euro.

Q: Internet-based banks are not allowed in some countries such as Japan.

Q: The top trading firms in the global currency markets are all banks.

Q: One way to determine the soundness of an international loan is to use the Delphi method which uses the consensus opinion of a panel of experts to develop a measure of a country's risk exposure.