The College at Brockport BUS 345 Quiz 5: 1)The international financial market is composed of two interrelated systems called the                 and the

The College at Brockport

BUS 345

Quiz 5:

1)The international financial market is composed of two interrelated systems called the

                and the .

A)           international capital market; foreign exchange market

B)            international capital market; foreign goods market

C)            foreign goods market; international services market

D)           foreign goods market; foreign exchange market

2)            Which of the following is a system that allocates financial resources in the form of debt and equity according to their most efficient uses?

A)           International equity market

B)            Foreign currency market C) Capital market

D) Eurocurrency market

3)            Company debt normally takes the form of           . A) bonds

B)            equity

C)            stocks

D)           bank loans

4)            A loan in which the borrower promises to repay the borrowed amount plus a predetermined rate of interest is called .

A)           equity

B)            exchange rate

C)            stock D) debt

5)            Which of these is a debt instrument specifying the timing of principal and interest payments?

A)           Stock B) Bond

C)            Eurocurrency

D)           Equity

6)            Shares of ownership in a company's assets that give shareholders a claim on the company's future cash flows are called             .

A)           stocks

B)            bonds

C)            debt

D)           eurocurrencies

7)            The ease with which bondholders and shareholders may convert their investments into cash is called    .

A)           barter

B)            hedging

C)            arbitrage D) liquidity

8)            An expanded money supply       . A) reduces the cost of borrowing

B)            makes it difficult for financial institutions to lend money

C)            increases the cost of borrowing

D)           diminishes the entrepreneurial initiatives of a country

9)            Which of the following is not a purpose of the international capital market?

A)           Reduces risk for lenders

B)            Expands the money supply for borrowers

C)            Reduces the cost of money to borrowers

D)           Preserves hard currencies to finance trade deficits

10)          The international capital market                .

A)           limits the available set of lending opportunities

B)            increases overall portfolio risk for investors

C)            is easily accessible to everyone

D)           allows investors to reduce risk by holding international securities whose prices move independently

11)          A small group of low-income entrepreneurs from less-developed countries borrowing money at competitive rates with little or no collateral is called  .

A) microdebit B) microcredit

C)            capital loans

D)           capital credit

12)          The international bond market consists of all bonds sold by issuing companies, governments, or other organizations     .

A)           within their own countries

B)            to London banks

C)            outside their own countries

D)           to developing nations only

13)          Eurobonds are popular because                .

A)           they are less risky than traditional bonds

B)            they are always denominated in euros C) of the absence of government regulation

D) European companies are considered very stable

14)          The absence of government regulation in the Eurobond market                . A) substantially reduces the cost of issuing a bond

B)            lowers the risk level of the bond

C)            makes Eurobonds less popular than foreign bonds

D)           exists because of the difficulty of regulating a multi-country market

15)          Bonds sold outside the borrower's country and denominated in the currency of the country in which they are sold are called            .

A) international bonds B) foreign bonds

C)            Eurobonds

D)           local bonds

16)          The market consisting of all the world's currencies that are banked outside their countries of origin is called the         .

A)           foreign exchange market

B)            interbank trading market C) Eurocurrency market

D) offshore financial center

17)          The most commonly quoted rate in the Eurocurrency market is the         . A) London Interbank Offer Rate (LIBOR)

B)            London Interbank Bid Rate (LIBID)

C)            spot rate

D)           cross rate

18)          Rates that the world's largest banks charge one another for loans are called        . A) interbank interest rates

B)            standardized interest rates

C)            exchange rates

D)           none of the above

19)          The exchange rate between two currencies depends on              .

A)           the size of the transaction

B)            the trader conducting the transaction

C)            general economic conditions D) all of the above

20)          The practice of insuring against potential losses that result from adverse changes in exchange rates is called currency              .

A)           hedging

B)            arbitrage

C)            speculation

D)           conversion

21)          Which of the following is an exchange rate that requires delivery of the traded currency within two business days?

A) Derivative rate B) Spot rate

C)            Discount rate

D)           Forward rate

22)          The exchange rate at which two parties agree to exchange currencies on a specified future date is called a                .

A)           forward rate

B)            bid-ask rate

C)            spot rate

D)           arbitrage rate

23)          Devaluation of a currency results in all of the following EXCEPT   . A) lowers profit margins for domestic companies

B)            lowers the price of a country's exports

C)            increases the price of a country's imports

D)           reduces consumers' buying power

24)          A nation's government intentionally raising its currency's value is called . A) revaluation

B)            fundamental disequilibrium

C)            devaluation

D)           convertible restriction

25)          A government might devalue its currency for any of these reasons EXCEPT to     .

A) give its domestic companies an edge over foreign competition B) increase the price of exports and therefore profits

C)            improve its balance of payments

D)           boost exports and improve a trade deficit

26)          Which of the following lowers the price of a country's exports on world markets and increases the price of imports?

A) Revaluation B) Devaluation

C)            Liquidity

D)           Strong currency

27)          Managers prefer that exchange rates be              . A) stable

B)            freely floating

C)            volatile

D)           unpredictable

28)          Predictable exchange rates reduce the need for               .

A)           currency conversion

B)            globalization

C)            financial planning D) currency hedging

29)          An exchange rate tells us             .

A)           about the buying power of a currency

B)            whether a certain product will be more or less expensive in another country (as measured in the home currency)

C)            how much of one currency we must pay to receive a certain amount of another

D)           all of the above

30)          For the law of one price to apply, products must be all of the following EXCEPT  .

A)           entirely produced within each particular country

B)            identical in quality in all countries

C)            identical in content in all countries D) identical in quantity in all countries

31)          The law of one price       .

A)           works well when using the Triple Whopper Index

B)            is too simplistic a method for estimating exchange rates

C)            is too simplistic a method for estimating fast food prices

D)           works well as long as products are sold using the same marketing strategies

32)          Which of these is the relative ability of two countries' currencies to buy the same "basket" of goods in those two countries?

A)           Fisher effect

B)            Law of one price

C)            Purchasing power parity

D)           Cross rates

33)          The rule that the nominal interest rate is the sum of the real interest rate and the expected rate of inflation over a specific period is called    .

A)           the law of one price

B)            purchasing power parity

C)            the cross rate rule D) the Fisher effect