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| 1 | |
A correspondent bank |
| | A) | Is established when two banks maintain correspondent bank accounts with each other. |
| | B) | likes to write letters |
| | C) | is a small service facility staffed by parent bank personnel that is designed to assist MNC clients. |
| | D) | Is another term for subsidiary |
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| 2 | |
Value-at-risk measures |
| | A) | How much of the bank's money it is possible to lose over a specified time horizon. |
| | B) | The loss that will be exceeded with a specified probability over a specified time. |
| | C) | The standard deviation of the risk of a bank's portfolio. |
| | D) | The variance of the value of the bank's portfolio. |
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| 3 | |
A Eurodollar is: |
| | A) | What the Europeans call the euro. |
| | B) | Deposits of U.S. dollars held in Europe, but not elsewhere. |
| | C) | A time deposit of U.S. dollars in an international bank located outside the United States. |
| | D) | A time deposit of euros. |
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| 4 | |
LIBOR stands for |
| | A) | Luxembourg Interbank Offered Rate |
| | B) | Lisbon International Bank Offered Rate |
| | C) | London International Bank Offered Rate |
| | D) | London Interbank Offered Rate |
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| 5 | |
Eurocredits are |
| | A) | Short- to medium-term loans of Eurocurrency extended by Eurobanks to corporations, sovereign governments, nonprime banks, or international organizations. |
| | B) | Government bonds, denominated in euros, issued by the European central bank. |
| | C) | Credit cards that are denominated in euros. |
| | D) | Equivalent to commercial paper issued in euros. |
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| 6 | |
A "three against nine" forward rate agreement |
| | A) | Could call for a buyer to sell a six-month Eurobond in three months at prices agreed upon today. |
| | B) | Could call for a buyer to pay the seller the increased interest cost on a notational amount if six-month interest rates fall below an agreed rate beginning three months from now and ending nine months from now. |
| | C) | Is a forward contract on a three-month Eurobond with a nine-month maturity. |
| | D) | Is a forward contract on a nine-month Eurobond with a three-month maturity. |
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| 7 | |
The international debt crisis was caused by |
| | A) | Interest rates that became too high, burdening debtor nations. |
| | B) | International banks lending more to Third World sovereign governments than they should have. |
| | C) | Sovereign governments raising taxes too quickly. |
| | D) | Eurodollar defaults |
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| 8 | |
A bank bought a "three against six" $5,000,000 FRA for a three-month period beginning three months from today and ending six months from today. The reason that the bank bought the FRA was to hedge: the bank accepted a 3-month deposit and made a six-month loan. The agreement rate with the seller is 5.0%. Assume that three months from today the settlement rate is 5.25%. Who pays who? How much? The actual number of days in the FRA is 90. |
| | A) | The bank pays $3,0084.52. |
| | B) | The counterparty pays $3,0084.52. |
| | C) | None of the above. |
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| 9 | |
Forward rate agreements can be used for speculative purposes. If one believes rates will be less than the agreement rate, |
| | A) | Take a short position in a forward rate agreement. |
| | B) | The purchase of a FRA is the suitable position |
| | C) | The sale of a FRA is the suitable position. |
| | D) | Take a long position in the spot market |
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| 10 | |
Your firm borrows €1,000,000 at LIBOR + ½ percent on a six-month rollover basis. If six-month LIBOR is 5 percent over the first six-month period and 6% over the second six-month period, how much in interest will your firm pay over the first year of the loan? |
| | A) | 5½ % or €55,000 |
| | B) | 12% or €120,000 |
| | C) | 6% or €60,000 |
| | D) | none of the above |
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