Chapter 10: International Financial Markets

What two primary instruments do companies use to obtain external financing?

• Foreign bonds and interbank interest rates

• Equity and debt

• Stock ownership and dividends

• Euroyen and Eurodollars

Which of the following is how the international capital market reduces risk for lenders?

• It allows lenders to hold international securities whose prices move together

• Lenders reduce portfolio risk by investing in a greater number of debt and equity instruments

• Foreign companies are less risky investments

• A loss on an investment in one nation can be offset with an investment loss in another nation

A bond issued outside the country in whose currency it is denominated is called a

• Eurocurrency

• foreign bond

• Eurodollar

• Eurobond

Which of the following is a bond sold outside the borrower’s country and denominated in the currency of the country in which it is sold?

• Euro-denominated bond

• Foreign bond

• Eurobond

• Dollar-denominated bond

The market for all stocks bought and sold outside the issuer’s home country is called the

• foreign exchange market

• international bond market

• international equity market

• international capital market

Euroyen, Europounds, and Eurodollars are examples of

• Eurocurrency

• vehicle currencies

• Eurobonds

• Euro-equities

Which of the following is the definition of the foreign exchange market?

• Market in which currencies are bought and sold and their prices are determined

• Market consisting of all stocks bought and sold outside the issuer’s home country

• Network of individuals, companies, financial institutions, and governments that invest and borrow across national boundaries

• Market consisting of all bonds sold by issuing companies, governments, or other organizations outside their own countries

Insuring against potential losses that result from adverse changes in exchange rates is called

• currency arbitrage

• interest arbitrage

• currency conversion

• currency hedging

Which of the following is the definition of currency arbitrage?

• Insuring against potential losses that result from adverse changes in exchange rates

• Risk that an exchange rate change will affect a company’s financial statements

• Profit-motivated purchase and sale of interest-paying securities denominated in different currencies

• Instantaneous purchase and sale of a currency in different markets for profit

A foreign exchange trader who buys a currency that they expect will rise in price and generate a profit is engaging in

• exchange-rate risk

• currency hedging

• currency speculation

• currency arbitrage