International Banking and Finance Review Questions
Course Introduction
This course explores the principles and practices of international banking and finance, examining how financial institutions operate in a global context. Students will gain an understanding of the structures, regulations, and risk management strategies relevant to international banking, as well as the role of global financial markets and instruments. Key topics include foreign exchange markets, international monetary systems, cross-border lending, payment systems, and regulatory frameworks. The course also analyzes challenges such as currency risk, sovereign risk, and the impact of international financial crises, equipping students with essential skills to navigate the complexities of international finance.
Recommended Textbook
International Corporate Finance 1st Edition by
J. Ashok Robin
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15 Chapters
741 Verified Questions
741 Flashcards
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Chapter 1: Introduction
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Sample Questions
Q1) Compared to _________________,______________________ can be easily transmitted to foreign locations for use there.
A)physical capital,knowledge capital
B)knowledge capital,physical capital
C)physical capital,financial capital
D)intellectual properties,knowledge capital
Answer: A
Q2) The movement of goods across national borders is the definition of ________________________.
A)importation
B)exportation
C)globalization
D)international trade
Answer: D
Q3) The effect of the risks faced by MNCs is to:
A)decrease the firm's profit potential.
B)increase the need for new sources of foreign capital.
C)decrease the firm's ability to develop a strategy for addressing risks.
D)increase the volatility of cash flow.
Answer: D
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Chapter 2: International Financial Markets: Structure and Innovation
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Q1) ____________________ are Eurobonds that are issued simultaneously in multiple regions or countries.
A)Global bonds
B)Foreign bonds
C)Eurocurrencies
D)Samurai bonds
Answer: A
Q2) The most commonly used settlement system for foreign currency transactions is operated by:
A)the National Association of Securities Dealers Automated Quotations (NASDAQ).
B)the New York Stock Exchange ( NYSE).
C)the Society for Worldwide Interbank Financial Communications (SWIFT).
D)the British government.
Answer: C
Q3) The two key financial instruments used in the Eurocurrency markets are:
A)foreign exchange swap agreements and Euro commercial paper.
B)Euro commercial paper and Euro certificate of deposit.
C)Euro certificate of deposit and Euro negotiable instruments.
D)Euro negotiable instruments and foreign exchange swap agreements.
Answer: B
Page 4
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Chapter 3: Currency and Eurocurrency Derivatives
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Q1) Forwards are traded in the Interbank market and forwards are traded in the CME and other markets,so currency markets are:
A)among the few where both forwards and futures are traded.
B)able to treat forwards and futures as a single derivative.
C)difficult to understand because they sell two different derivatives using the same pricing structure.
D)able to control the prices of both forwards and futures.
Answer: A
Q2) If a party has the right but not the obligation to buy the underlying asset,the party has a(n)_____________________;if the party has right but not an obligation to sell the underlying asset,the party has a:
A)call option;put option.
B)put option;call option.
C)buy option;sell option.
D)option;future.
Answer: A
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Chapter 4: Currency Systems and Valuation
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Q1) The first step in making the euro the single currency of Europe was:
A)taking steps to make all of the currencies in use in Europe have equal value.
B)linking the value of all currencies in Europe to the USD.
C)the institution of several policies including the freeing of capital flow among member states.
D)obtaining the approval of the International Monetary Fund.
Q2) We now understand that _____________________ is (are)the most important factor in global economic growth.
A)free trade agreements
B)the work of the IMF
C)free movement of capital
D)minimal restrictions on immigration
Q3) The reintroduction of the gold standard was intended to accomplish two objectives:
A)make the work of the IMF possible and stabilize currency values.
B)make currencies freely convertible into other currencies and stabilize currency values.
C)create the IMF and make it possible for Germany to pay war reparations.
D)allow European countries to finance rebuilding after World War II and stabilize currency values.
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Chapter 5: Currency Parity Conditions
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Q1) Absolute purchasing power parity requires that:
A)government regulations assure that prices for goods are the same in all locations.
B)the law of one price be in place and result in prices for goods in one location be equivalent to the price of those goods in another place.
C)markets function efficiently so that the price of goods are the same everywhere they are sold.
D)goods markets function efficiently and the price of goods fluctuate.
Q2) "Grossing-up" nominal interest rates means:
A)adding up all of the interest rates at major institutions in a country and dividing by the number of institutions considered to determine an average interest rate.
B)determining the differential in interest rates in one country compared to interest rates in another country.
C)reducing nominal rates by the inflation rate to compensate for the loss of purchasing power attributed to inflation.
D)increasing nominal rates by the inflation percentage to determine the real purchasing power of consumers.
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Chapter 6: Currency Risk Exposure Measurement
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Q1) Economic exposure as an aspect of currency risks involves:
A)the impact of worldwide economic changes on a firm's profitability.
B)the impact of currency changes on a firm's overall cash flow.
C)how a firm reacts to negative external economic shocks.
D)the effect of currency changes on a firm's profit and loss statement.
Q2) Operating exposure for a firm is determined by the:
A)general performance of the currency markets.
B)time series of the values for the currencies in which it deals.
C)currencies in which it incurs costs and earns revenues.
D)policies of the firm with regard to risk-taking.
Q3) Purely domestic firms do not have any ____________ exposure,but they do have ___________________ exposure.
A)currency;operating
B)transaction;operating
C)operating;translation
D)market;currency
Q4) What is the difference between operating exposure and transaction exposure?
Q5) The Markowitz Portfolio Approach says that diversification of assets diminishes risk.What does that mean in the context of international financial transactions?
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Chapter 7: Currency Exposure Management
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Q1) Hedging involves taking positions in derivative instruments that are ___________ a firm's currency position.
A)the same as B)equal to C)opposite to D)not related to
Q2) If the maturity of a currency position and the maturity of the hedging instrument are the same,then:
A)all risk is eliminated.
B)cash inflows and cash outflows are offsetting.
C)maturities match.
D)hedging is not necessary.
Q3) Using derivatives such as forwards,options and money markets to control currency exposure is called:
A)swapping.
B)gambling.
C)debt contracting.
D)hedging.
Q4) How does hedging assist a firm in reducing its currency exposure?
Q5) Why are firm managers generally considered to be risk-adverse?
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Chapter 8: Capital Budgeting
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Q1) Buying currency options with strike prices that approximate the break-even value of currencies for a project is an appropriate currency risk management tool,but:
A)option strike prices are often not available for the break-even value of currencies.
B)option strike prices cannot be established before the option date arrives.
C)option premiums for such options may be prohibitively high.
D)option premiums are only determined after the options are obtained,so the cost of options are variable.
Q2) The most important variable in determining cash flow and the variable that affects most other cash flow variable is:
A)price of the units predicted to be sold.
B)number of units of product predicted to be sold.
C)number of units of product sold in the previous period.
D)average number of units of product sold in the last year.
Q3) In most projects,the typical unit sales forecast will:
A)increase initially and decrease toward the end of the project.
B)remain constant throughout the project.
C)increase initially and then remain constant until the end of the project.
D)increase steadily until the end of the project.
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Page 10
Chapter 9: Advanced Capital Budgeting
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Q1) Differences in NPV of a proposed project between parent and subsidiary can arise from:
A)political risk or currency risk.
B)cash flow or currency asymmetries.
C)cash flow or cost-of-capital asymmetries.
D)political risk or economic risk.
Q2) How do remittance restrictions impact the cash flow to the parent from a project?
Q3) The restrictions on the ability of a foreign subsidiary to remit its profits to its parent result in:
A)restricted accounts.
B)sinking funds.
C)blocked funds.
D)political risk.
Q4) An example of operational side effects is:
A)the use of firm personnel in competing projects.
B)the additional cost resulting from a new project.
C)the additional managerial oversight required by a new project.
D)the effect of a project on the sales of related products sold by the parent.
Q5) What are the causes of parent-subsidiary asymmetry?
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Chapter 10: Long-Term Financing
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Q1) A bond issued in a country in a currency other than the currency of the country where it is issued is considered to be a:
A)foreign bond.
B)Eurobond.
C)domestic bond.
D)ninja bond.
Q2) What is cost of capital?
Q3) Within reasonable parameters,if a firm increases its debt as a proportion of its capital structure:
A)its overall cost of capital increases because the amount of interest it has to pay increases.
B)WACC declines because of the tax advantage of debt.
C)WACC increases because the proportion of interest to dividends increases.
D)its costs increase because it is contractually required to pay interest,while dividends are paid in the firm's discretion.
Q4) MNCs might raise equity funds through an IPO or through a seasoned offering.What is the difference between an IPO and a seasoned offering?
Q5) How does a line of credit differ from a term loan?
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Chapter 11: Optimizing and Financing Working Capital
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Q1) How can a firm create excess capacity?
A)A firm can arrange a line of credit.
B)A firm can borrow more than it currently needs.
C)A firm can sell assets that it does not currently need.
D)A firm can enter a new market in a foreign country.
Q2) A Eurobank loan is a loan
A)that is denominated in euros but which is made in a country where the euro is not the domestic currency.
B)that is made in a currency other than the euro but that must be repaid in euros.
C)made by a bank in one country to an entity in another country.
D)a loan made a bank in Europe.
Q3) A bank loan made for a fixed period of time at a fixed interest rate requiring periodic payments of principle and interest is called a:
A)term loan.
B)line of credit.
C)fixed loan.
D)secured loan.
Q4) In the context of cash management,what are opportunity costs?
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Page 13
Chapter 12: International Alliances and Acquisitions
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Q1) In evaluating a target in a merger or acquisition,if the target has outstanding debt:
A)the debt will probably discourage the acquiring firm from pursuing the merger or acquisition.
B)that debt must be added to the estimated value of the target to determine the target's equity value.
C)that debt must be subtracted from the estimated value of the target to determine the target's equity value.
D)that debt must be retired before the merger or acquisition can proceed.
Q2) A real option that is often involved in a joint venture is the option to:
A)bring other entities into the joint venture once it has been established.
B)take control of the joint venture.
C)end the joint venture without the consent of the other entities involved in the joint venture.
D)invest more capital in the joint venture so that it can pursue new opportunities.
Q3) What is the difference between a vertical merger and a horizontal merger?
Q4) How is outsourcing related to a firm's core competencies?
Q5) Why is overcapacity sometimes a negative condition for a firm?
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Page 14
Chapter 13: International Trade
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Q1) Explain the differences between accounts receivable financing and accounts receivable factoring.
Q2) The receipt issued by the carrier of goods,usually to the exporter,that confirms that the goods have been delivered to the carrier for shipment to the importer is called a:
A)bill of lading.
B)letter of credit.
C)banker's acceptance.
D)invoice for shipment.
Q3) A consignment arrangement allows:
A)an exporter to reduce the risks that the purchase price of the goods exported will not be paid.
B)an importer to use its bargaining power to get the lowest price that the exporter can offer.
C)an importer to acquire goods for immediate resale without increasing inventory risk.
D)an exporter to avoid the delays that can be experienced in getting foreign goods cleared through customs.
Q4) Explain the process of documentary collections.
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Chapter 14: International Taxation and Accounting
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Q1) In the context of transfer pricing,what is an arm's-length transaction?
A)An arm's-length transaction is one in which both the buyer and the seller are satisfied with the transaction price.
B)An arm's-length transaction is a transaction in which the transfer price is determined by the IRS.
C)An arm's-length transaction is one in which the sales price is within 10% of the market price for the good or service being sold.
D)An arm's-length transaction is a transaction in which the price is set by the market and the interaction of each party attempting to get the best possible price from their perspective.
Q2) The __________________ approach to taxation looks at each entity separately in determining tax liability and does not consider whether income has been previously taxed.
A)holistic
B)composite
C)integrated system
D)separate entity
Q3) How does the separate entity approach to taxation differ from the integrated system approach?
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Page 16
Chapter 15: International Portfolio Investments
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Q1) Mutual funds that allow additional investment by existing owners of shares in the fund or investments by new investors are called:
A)ongoing funds.
B)investment funds.
C)churned funds.
D)open-end funds.
Q2) What is an earnings call?
A)An earnings call occurs when investors in a firm call upon the firm to report its currency income.
B)An earnings call occurs when a brokerage firm requires its clients who have made investments on credit to pay the debt owed to the brokerage firm.
C)An earnings call is a general communication from an investment firm to its clients advising them of the current earnings of the major firms covered by the investment firm.
D)An earnings call is a communication from a firm to the investment community that answers questions about the financial affairs and status of the firm.
Q3) What is corporate governance and how does it affect foreign investments?
Q4) What are depository receipts?
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