Central Bank and Non-us Banks Ans Essay

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CHAPTER 13
The Euromarkets

EASY (definitional)

13.1 The dominant currency of the Eurocurrency markets is the
a) U.S. dollar
b) Euro
c) Yen
d) Pound

Ans: a
Section: The Eurocurrency market
Level: Easy

13.2 Eurodollar deposits represent the liabilities of
a) European non-financial corporations
b) the Organization of Petroleum Exporting Countries (OPEC)
c) European banks and U.S. bank branches abroad
d) European banks exclusively

Ans: c
Section: The Eurocurrency market
Level: Easy

13.3 The supply of Eurodollar deposits is the result of
a) Federal Reserve Board policy
b) World Bank policy
c) a resolution of the member governments of the Organization of Economic Cooperation and Development (OECD)
d) depositors holding dollars in non-US banks

Ans: d
Section: Modern origins
Level: Easy

13.4 In recent years, the Eurocurrency market has grown _______ the Eurobond market.
a) more slowly than
b) at about the same rate as
c) much more rapidly than
d) with no clear pattern emerges relative to

Ans: a
Section: Modern origins
Level: Easy

13.5 The period over which the borrower may take down a Eurocurrency loan is known as the _______.
a) maturity of the loan
b) LIBOR rate
c) Drawdown
d) Margin

Ans: c
Section: Eurocurrency loans
Level: Easy

13.6 Another name for the spread in a Eurocurrency loan is the _______.
a) drawdown
b) term
c) LIBOR rate
d) Margin

Ans: d
Section: Eurocurrency loans
Level: Easy

13.7 Eurocurrency spreads are _______ the domestic money market spreads.
a) wider than
b) narrower than
c) very similar to
d) exactly the same as

Ans: b
Section: Interest differentials
Level: Easy

13.8 One reason Eurocurrency deposit rates are higher than domestic rates is due to the fact that
a) they have no relationship to domestic rates
b) they must be higher to attract domestic depositors
c) most borrowers are well-known
d) a smaller percentage of deposits can be lent out

Ans: b
Section: Eurocurrency spreads
Level: Easy

13.9 The rate of interest paid at which high-quality borrowers can borrow at lower rates in the Eurocurrency markets is known as the _______ rate.
a) LIBOR
b) prime
c) LIBIL
d) LIBID

Ans: d
Section: Euromarket trends
Level: Easy

13.10 Historically, most Eurobonds have been _______ denominated.
a) U.S. dollar
b) yen
c) euro
d) pound

Ans: a
Section: Eurobonds/currency denomination
Level: Easy

13.11 The _______, which resembles the U.S. commercial paper market, allows borrowers to issue their own short-term Euronotes.
a) Eurobond market
b) Eurobank
c) note issuance facility
d) revolving underwriter facility

Ans: c
Section: Note issuance facilities and Euronotes
Level: Easy

13.12 Debt denominated in a foreign currency that is launched, priced and traded in Asia is referred to as a _______ bond.
a) shogun
b) samurai
c) Asian-tiger
d) dragon

Ans: d
Section: The Asian currency market
Level: Easy

MEDIUM (applied)

13.13 Which one of the following is the MOST obvious example of the globalization of financial markets?
a) the creation of the European Union
b) the rise of the Euromarkets
c) the end of the Soviet Union
d) the Asian currency crisis of 1997

Ans: b
Section: Globalization
Level: Medium

13.14 Suppose the French government imposes an interest rate ceiling on French bank deposits. What is the likely effect of this regulation?
a) reduce Eurofranc interest rates
b) raise Eurofranc interest rates
c) reduce the U.S. prime rate of interest
d) raise the U.S. prime rate of interest

Ans: a
Section: Relationship between domestic and eurocurrency money markets
Level: Medium

13.15 If the current 180-day inter-bank Eurodollar rate is 15% (all rates are stated on an annualized basis) and next period's LIBOR is 13%, then a Eurocurrency loan priced at LIBOR plus 1% will cost
a) 16% this period and 16% next period
b) 15% this period and 14% next period
c) 16% this
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