Chap11 (Chay'ss)

International banks are different from domestic banks in what way(s)?

• International banks can arrange trade financing

• International banks can arrange for foreign exchange transactions.

• International banks can assist their clients in hedging exchange rate risk

• all of the options

Banks that both perform traditional commercial banking functions and engage in investment banking activities are often called

• international service banks.

• investment banks

• commercial banks.

• merchant banks.

By far the most important international finance centers are

• Zurich and Moscow.

• Paris, London, and Tokyo.

• New York, London, Tokyo, Paris, and Zurich.

• New York, London, Tokyo, Paris, Zurich, and Frankfurt.

Greater stability of earnings is possible with international diversification describes which reason for international banking?

• low marginal costs

• knowledge advantage

• growth

• risk reduction

A bank may establish a multinational operation for the reason of risk reduction. The underlying rationale being that

• by maintaining foreign branches and foreign currency balances, banks may reduce transaction costs and foreign exchange risk on currency conversion if government controls can be circumvented.

• greater stability of earnings is possible with international diversification. Offsetting business and monetary policy cycles across nations reduces the country-specific risk of any one nation.

• multinational banks are often not subject to the same regulations as domestic banks. There may be reduced need to publish adequate financial information, lack of required deposit insurance and reserve requirements on foreign currency deposits, and the absence of territorial restrictions

• multinational banking operations help a bank prevent the erosion of its traveler's check, tourist, and foreign business markets from foreign bank competition.

Correspondent bank relationships can be beneficial

• because a bank can service its MNC clients at a very low cost.

• because a bank can service its MNC clients without the need to have personnel in many different countries.

• because a bank can service its MNC clients without developing its own foreign facilities to service its clients.

• all of the options

Consider a U.S. importer desiring to purchase merchandise from a Dutch exporter invoiced in euros, at a cost of €160,000. The U.S. importer will contact his U.S. bank (where, of course, he has an account denominated in U.S. dollars) and inquire about the exchange rate, which the bank quotes as €0.6250/$1.00. The importer accepts this price, so his bank will proceed to __________ the importer's account in the amount of __________.

• debit; $256,000

• credit; €512,100

• credit; $500,000

• debit; €100,000

The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's correspondent account(s) with bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at bank B for $90,000 using its correspondent relationship with Bank B.

• Bank A's dollar-denominated account at B will fall by $90,000.

• Bank B's dollar-denominated account at A will rise by $90,000

• Bank A's pound-denominated account at B will rise by £45,000.

• Bank B's pound-denominated account at A will fall by £45,000.

• all of the options

A foreign branch bank

• is a small service facility staffed by parent bank personnel that is designed to assist MNC clients of the parent bank in dealings with the bank's correspondents.

• operates like a local bank, but legally is a part of the parent bank.

• is subject to domestic regulation only.

• all of the options

The most popular way for a U.S. bank to expand overseas is

• branch banks.

• representative offices

• subsidiary banks.

• affiliate banks.