Financial Institutions Instruments And Markets 9th Edition By Christopher Viney – Test Bank

Chapter 11 Testbank Key

1. The largest borrowers in the international markets currently are:
A. wealthy individuals.
B. Japanese households.
C. financial institutions.
D. governments.
Ans: C
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 11.01 Explain the origins and the continued existence of the euromarkets.
Section: Introduction
Topic: Introduction

2. Borrowers are attracted to international debt markets because:
A. it is cheaper to borrow money from off-shore markets.
B. international debt markets offer a variety of fund raising options in different denominating currencies.
C. the bid-ask spreads in the international bonds markets are lower than in the domestic market, and hence offer the opportunity to lower the cost of borrowing.
D. All of the given answers.
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Medium
Est time: <1 minute
Learning Objective: 11.01 Explain the origins and the continued existence of the euromarkets.
Section: Introduction
Topic: Introduction

3. Borrowers may access the international debt markets if:
A. they have a number of debt issues already.
B. they have a large number of shares on issue.
C. a large number of investors are willing to buy their shares.
D. they have good credit standing.
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 11.01 Explain the origins and the continued existence of the euromarkets.
Section: Introduction
Topic: Introduction

4. The existence of ________ allows large multinational corporations to use large banks or groups of banks to invest and raise short-term funds in many countries but not in the currency of those countries.
A. the World Bank
B. a strong US dollar
C. eurocurrency markets
D. the International Monetary Fund
Ans: C
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 11.01 Explain the origins and the continued existence of the euromarkets.
Section: 11.01 The euromarkets
Topic: The euromarkets

5. A major reason for the ongoing growth of the euromarkets is:
A. that most euromarket securities are bearer instruments.
B. that interest rates on deposits are generally higher than in the domestic country.
C. the high level of regulation that reduces the default risk.
D. that a borrower may diversify debt across a number of international markets.
Ans: B
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 11.01 Explain the origins and the continued existence of the euromarkets.
Section: 11.01 The euromarkets
Topic: The euromarkets

6. Deregulation of the international financial system and the process of globalisation in the early 1980s encouraged:
A. banks to raise funds in the international markets.
B. investors into the international markets as they could earn higher returns.
C. borrowers to diversify debt across a number of international markets.
D. All of the given answers.
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 11.01 Explain the origins and the continued existence of the euromarkets.
Section: 11.01 The euromarkets
Topic: The euromarkets

7. The majority of financial instruments in the euromarkets are currently denominated in:
A. euros.
B. Japanese yen.
C. British pounds.
D. US dollars.
Ans: D
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 11.01 Explain the origins and the continued existence of the euromarkets.
Section: 11.01 The euromarkets
Topic: The euromarkets

8. Which of the following best defines a euromarket-type transaction?
A. A transaction conducted in ‘European currency units’ within the European Union
B. A financial transaction denominated in a currency outside the currency of the country where the debt issue is made
C. A wholesale foreign exchange transaction of a government or institutional investor
D. A financial transaction in USD, conducted solely within the European markets
Ans: B
AACSB: Communication
Bloom’s: Knowledge
Difficulty: Easy
Est time: <1 minute
Learning Objective: 11.01 Explain the origins and the continued existence of the euromarkets.
Section: 11.01 The euromarkets
Topic: The euromarkets

9. Which of the following statements in relation to the relative cost of transactions in the euromarkets is NOT correct?
A. Euromarket transactions transcend country boundaries and therefore are not exposed to foreign exchange risk.
B. They do not deal in small retail market transactions, so their administrative and operating costs per dollar transacted are lower.
C. Loans tend to be for large amounts to medium-to-large borrowers, and so fewer resources are devoted to credit risk assessment per dollar lent.
D. Since transactions are conducted outside the jurisdiction of central bank regulation, costs associated with regulatory controls are minimised.
Ans: A
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 11.01 Explain the origins and the continued existence of the euromarkets.
Section: 11.01 The euromarkets
Topic: The euromarkets

10. When an Australian company borrows in the euromarkets and the Australian dollar depreciates more than the interest rate advantage, the actual cost of the loan is:
A. lower than if the company had borrowed in Australia.
B. higher than if the company had borrowed in Australia.
C. unaffected, as the company has a natural hedge.
D. offset by the principal increase.
Ans: B
AACSB: Communication
Bloom’s: Comprehension
Difficulty: Medium
Est time: <1 minute
Learning Objective: 11.01 Explain the origins and the continued existence of the euromarkets.
Section: 11.01 The euromarkets
Topic: The euromarkets