 |
| 1 | |
Problems of limited liquidity are limited to less developed nations, which tend to have smaller domestic capital markets. |
| | A) | True |
| | B) | False |
|
|
|
| 2 | |
Limitations on foreign ownership of stock in domestic companies and limits on how much a country's citizens can invest outside the country create barriers that limit the ability of capital to search for the highest risk-adjusted returns. |
| | A) | True |
| | B) | False |
|
|
|
| 3 | |
Harvard economist Martin Feldstein has argued that owners and managers tend to keep long-term investments at home and speculate with "hot money" in foreign markets. |
| | A) | True |
| | B) | False |
|
|
|
| 4 | |
The lack of government regulation makes the eurocurrency market attractive to borrowers but not the depositors. |
| | A) | True |
| | B) | False |
|
|
|
| 5 | |
Strictly speaking, there is no international equity market, but there are large domestic equity markets, led by the US, Great Britain and Japan. |
| | A) | True |
| | B) | False |
|
|
|
| 6 | |
The common practices in the 20th century that inhibited a global capital market included all of the following EXCEPT: |
| | A) | the desire of investors to seek global markets |
| | B) | substantial national regulatory barriers |
| | C) | difficulties in taking capital out of countries |
| | D) | the lack of ability for firms to list shares on foreign exchanges |
|
|
|
| 7 | |
The function of a capital market is to: |
| | A) | provide an opportunity for firms and individuals to exchange currency. |
| | B) | bring together those who want to invest money with those who want to borrow money. |
| | C) | make speculation an attractive way to diversify a financial portfolio. |
| | D) | provide sellers of capital goods a way to find potential buyers. |
|
|
|
| 8 | |
Capital market loans to corporations are either _____________ or ___________. |
| | A) | eurodollars; petrodollars |
| | B) | tax deductible; taxable at the minimum corporate rate |
| | C) | payable at the spot exchange rate; payable at the forward exchange rate |
| | D) | equity loans; debt loans |
|
|
|
| 9 | |
The advantages of a global capital market include: |
| | A) | an increased supply of funds for borrowers. |
| | B) | increased opportunities for investors. |
| | C) | generally lower costs of capital. |
| | D) | all of the above. |
|
|
|
| 10 | |
As an investor increases the number of companies in her portfolio, the portfolio's risk: |
| | A) | increases because of the number of potential problem areas |
| | B) | decreases as some losses are offset by gains |
| | C) | increases because the loss of control in greater with ownership in few companies |
| | D) | decreases as long as the investments are not in developing countries |
|
|
|
| 11 | |
The relatively low correlation between movements in different countries reflects two basic factors – ___________________ and _______________. |
| | A) | different macroeconomic policies with different economic conditions; restrictions on cross-border capital flows. |
| | B) | foreign exchange markets; the internet. |
| | C) | double taxation; concerns about nationalization. |
| | D) | different accounting systems that make comparison difficult; arbitrage. |
|
|
|
| 12 | |
The risk-reducing effects of international portfolio investment would be greater except for: |
| | A) | effort of the WTO to create an international level playing field. |
| | B) | US government restriction on the amount of capital that can be invested in foreign companies. |
| | C) | volatile foreign exchange rates. |
| | D) | nontariff barriers that impede the flow of capital. |
|
|
|
| 13 | |
Two factors that helped global capital markets take off in the last decades of the 20th century were ________________ and _____________________. |
| | A) | privatization; the fall of communism |
| | B) | the growth of the Asian tigers; the attractiveness of the US assets despite the US trade deficit |
| | C) | personal computers; cellular phones |
| | D) | information technology; deregulation by governments |
|
|
|
| 14 | |
The financial services industry is information intensive with its need for timely information on markets, risks, exchange rates, interest rates, creditworthiness, etc. Which of the following did not help facilitate the emergence of an integrated international capital market? |
| | A) | Rapid advances in communications technology |
| | B) | The emergence of English as a common language across business cultures |
| | C) | The falling costs of computing, storing and communicating data |
| | D) | Nearly instantaneous communication |
|
|
|
| 15 | |
The emergence of an integrated international capital market that depends on advanced communications and information technology can create problems because: |
| | A) | the life cycle of so much technology is short, leading to constant efforts to upgrade technology. |
| | B) | many IT jobs can be outsourced. |
| | C) | problems or market collapses can spread quickly. |
| | D) | the rapid growth of consumer use of the internet is slowing it down. |
|
|
|
| 16 | |
Deregulation has contributed to the growth of an integrated international capital market. One significant example is: |
| | A) | licensing brokers and advisors requiring them to abide by a strict code of ethics. |
| | B) | allowing speculators to operate without government oversight. |
| | C) | allowing a nation's citizen to invest in companies in other countries with fewer restriction and limits. |
| | D) | allowing easier access to foreign exchange markets. |
|
|
|
| 17 | |
Despite the growth in IT and communications, there are significant risks in foreign investments. All of the following contribute to this risk except: |
| | A) | It is difficult to get quality information on dramatic events, creating speculative situations. |
| | B) | Accounting and reporting standards vary from country to country. |
| | C) | "Hot money" may flow out as rapidly as is flowed in. |
| | D) | Diversifying portfolios of institutional investors is strictly limited. |
|
|
|
| 18 | |
A(n) __________________ is any currency banked outside of its country of origin. |
| | A) | euro |
| | B) | petrodollar |
| | C) | international dollar |
| | D) | eurocurrency |
|
|
|
| 19 | |
The eurocurrency market grew because it offered real financial advantages, but there were a number of political events which also contributed to its growth. Which of the following is not one of those political events? |
| | A) | During the 1950s Eastern European holder of US dollars were afraid to deposit holding in the United States because of fears the assets would be seized by the US government. |
| | B) | In the 1950s, the British government prohibited British banks from lending British pounds to finance non-British trade, which had been a profitable trade for those banks. |
| | C) | During the 1950s, the IMF and World Bank were seeking alternative funds to the US dollar to minimize their risk and exposure. |
| | D) | In the 1960s, the US government set forth regulations that discouraged US banks from lending to non-US residents. |
|
|
|
| 20 | |
The eurocurrency market has two significant drawbacks – _________ and ___________. |
| | A) | a higher probability of a bank failure due to a lack of regulation; foreign exchange risk. |
| | B) | translation exposure; transaction exposure |
| | C) | EU strict banking regulations; economic exposure |
| | D) | Nonconvertibilty; reregulation |
|
|
|
| 21 | |
Bonds are an important means of financing for many companies. Which of the following is not true of bonds? |
| | A) | The most common kind of bond is a fixed rate bond. |
| | B) | The investor who purchases a fixed-rate bond receives a fixed set of cash payoffs. |
| | C) | The investor who purchases a bond becomes one of the owners of the enterprise, even though there are many other such owners. |
| | D) | In addition to the interest payments, at maturity, the bondholder gets back the face value of the bond. |
|
|
|
| 22 | |
______ are sold outside of the borrower's country and denominated in the currency in which they are issued, and ________ are normally underwritten by an international syndicate of banks and placed in countries other than the one in which the bond is denominated. |
| | A) | Common bonds; preferred bonds |
| | B) | National bonds; global bonds |
| | C) | Simple bonds; compound bonds |
| | D) | Foreign bonds; eurobonds |
|
|
|
| 23 | |
Which of the following is not one of the attractions of the eurobond market? |
| | A) | There is an absence of regulatory interference. |
| | B) | There is no translation exposure. |
| | C) | There are less stringent disclosure requirements than for domestic bond markets. |
| | D) | The tax status is favorable. |
|
|
|
| 24 | |
A borrower can hedge against unpredictable movements in foreign exchange rates that can make the global capital market riskier by: |
| | A) | entering into a forward contract. |
| | B) | adjusting the timing of the payments and receipts to stay ahead of speculative movements. |
| | C) | restricting transactions to the London market, which has favorable regulations. |
| | D) | borrowing from the IMF or World Bank instead of the more volatile global capital markets. |
|
|
|
| 25 | |
International firms should consider global markets because: |
| | A) | borrowing funds can cost more due to higher interest but are generally more available. |
| | B) | investors may find few high grade investments, but the risks are low. |
| | C) | increasing government regulation of these markets may cause them to disappear eventually. |
| | D) | costs for borrowers can be lower than domestic markets can provide. |
|
|
.