Saudi Electronic University - MGT 321

Chapter 12 The Global Capital Market

True / False Questions

1)A capital market brings together those who want to invest money and those who want to borrow money.

True      False

2. Market makers are companies that make large investments in governmental bonds.

True      False

3. Commercial banks perform a direct connection function in capital markets.

True      False

4. An investor purchases the right to receive a specified fixed stream of income from the corporation when he purchases a share of stock.

True      False

5. A debt loan requires a corporation to repay a predetermined portion of the loan amount at regular intervals regardless of how much profit it is making.

True      False

6. Debt loans include cash loans from banks and funds raised from the sale of corporate bonds to investors.

True      False

7. The liquidity of the market is limited in a purely domestic capital market.

True      False

8. The cost of capital is the difference between cost of inputs and outputs.

True      False

9. The cost of capital is higher in a global market than in a purely domestic capital market.

True      False

10. By using the global capital market, investors have a much wider range

.     of investment opportunities than in a purely domestic capital market.

True      False

11. The risk associated with a portfolio increases as the investor increases

.     the number of stocks in her portfolio.

True      False

12. Investors can reduce the level of risk by diversifying a portfolio

.     internationally.

True      False

13. Systematic risk refers to the movements in a stock portfolio's value that

.     are attributable to macroeconomic forces affecting all firms in an economy.

True      False

14. The systematic risk is the level of diversifiable risk in an economy.

.

True      False

15. The relatively low correlation between the movements of stock markets

.     in different countries indicates that countries face different economic conditions.

True      False

16. Using floating exchange rates will help countries reduce the risk of

.     investing in foreign assets.

True      False

17. Financial services is an information-intensive industry.

.

True      False

18. An integrated international capital market is less volatile compared to a

.     nonintegrated market.

True      False

19. Hedge funds position themselves to make "long bets" on assets that

.     they think will increase in value.

True      False

20. Global capital market often lack information about the fundamental

.     quality of foreign investments.

True      False

21. A Eurocurrency is the currency used by the countries of the European

.     Union.

True      False

22. Eurocurrency can be created anywhere in the world.

.

True      False

23. A factor that makes the Eurocurrency market attractive to both

.     depositors and borrowers is its lack of government regulation.

True      False

24. Banks charge borrowers a lower interest rate on Eurocurrency

.     borrowings than for borrowings in the home currency.

True      False

25. The spread between the Eurocurrency deposit rate and the

.     Eurocurrency lending rate is more than the spread between the domestic deposit and lending rates.

True      False

26. Eurocurrency market is characterized by lack of government

.     regulation.

True      False

27. Domestic currency deposits are regulated in most industrialized

.     countries.

True      False

28. Governments give banks less freedom when they deal in foreign

.     currencies.

True      False

29. Companies receive a higher interest rate on deposits and pay less for

.     loans when using the Eurocurrency market.

True      False

30. Depositors are not protected against bank failures in the Eurocurrency

.     market.

True      False

31. Investors who purchase a fixed-rate bond receive cash payoffs only at

.     maturity.

True      False

32. Foreign bonds are sold within the borrower's country and are

.     denominated in the currency of the country in which they are issued.

True      False

33. Foreign bonds sold in the United States are called bulldogs.

.

True      False

34. Eurobonds are usually offered to residents of the country in whose

.     currency they are denominated.

True      False

35. Eurobonds are normally underwritten by an international syndicate of

.     banks.

True      False

36. Government limitations are more severe for securities denominated in

.     foreign currencies than for domestic securities.

True      False

37. Eurobonds fall within the regulatory domain of European Economic

.     Community.

True      False

38. Historically substantial regulatory barriers separated national equity

.     markets from each other.

True      False